Royal Dutch Shell Group .com Rotating Header Image

The Independent: Russia seeks to seize control of Sakhalin

By Andrew Osborn in Moscow

Published: 26 May 2006
Royal Dutch Shell’s flagship investment in Russia was facing uncertainty last night after the Natural Resources Ministry threatened to scale back the company’s stake in a huge liquefied natural gas project to allow the Kremlin greater control.
The threat concerns the Sakhalin-2 project, the largest direct foreign investment in Russia, and a venture that will result in the world’s biggest liquefied natural gas plant in the far east of Russia. Shell has a 55 per cent stake in the $10bn (£5.3bn) project while two Japanese firms own the other two stakes. The Russian government has a revenue-sharing arrangement with the consortium but is known to be keen to get a direct stake in the project as Moscow seeks to bring more strategic energy reserves under the Kremlin’s control.
President Vladimir Putin has already urged Shell to honour a promise it apparently made to surrender a 25 per cent stake in the project in exchange for a share of a Siberian gas field.
Yesterday the pressure intensified when the Natural Resources Minister said it supported radical advice it had received from the country’s Academy of Natural Science urging it to take a 51 per cent stake in three different revenue-sharing projects including Sakhalin-2.
“The Academy suggests boosting the presence of Russian companies in these consortiums to 51 per cent as one of the measures to boost efficiency,” it said.
The other two projects were the Sakhalin-1 oil and gas venture, in which Exxon has a 30 per cent stake, and a large oil extraction operation in Russia’s far north in which Total is involved.
The ministry said it intended to act on the academics’ recommendation and to write to other government ministries to “correct the situation”.
Shell declined to comment but is known to have incurred the Kremlin’s wrath due to massive cost overruns on Sakhalin-2, which have prompted the Anglo-Dutch firm to ask the government to allow it to double its investment to $20bn.
There were also reports that the Natural Resources Ministry intended to take legal action against Total, a company the authorities believe is mismanaging its Russian investments, and to initiate detailed investigations into the efficiency of Shell and Exxon.
When revenue-sharing projects such as Sakhalin-2 were launched in the 1990s, Russia was relaxed about giving foreign firms large stakes in big oil and gas projects, but under Vladimir Putin that policy has changed and Russian, often state-controlled, firms usually take a 51 per cent stake.
The Natural Resource Ministry’s threat came on a day when Mr Putin told a summit of EU leaders the West could count on Russia as a reliable energy partner.

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Comments are closed.