Moscow gives Sakhalin-2 shareholders one-month ultimatum

Russia's government has issued an order to set up a new operating company for the Sakhalin-2 LNG and oil project in the country's Far East, giving its foreign investors one month to decide whether to take stakes in the entity.

Under a government order issued on August 2, Sakhalinskaya Energija will be established in Yuzhno-Sakhalinsk as the project's new operator. Gazprom will have slightly over a 50% stake in the company, as it did in the previous operator. Shell currently has a 27.5% interest in the project, but has vowed to withdraw from it in light of Moscow's invasion of Ukraine, whereas Japan's Mitsubishi Corp and Mitsui & Co share a combined 22.5%. As Japan is the bigger buyer of the plant's gas, Tokyo has expressed more reluctance to leave, through fear its share might be swallowed up by rival Asian buyers like China.

Russia announced it would be taking control of the Sakhalin-2 project on June 30, saying the foreign entities involved had violated their obligations at the project. Russian officials have raised the prospect of taking similar action at the other major internationally-run project in the Far East, the Sakhalin-1 oil development managed by Rosneft and ExxonMobil.

Marking a further escalation, Rosneft complained earlier on August 4 that production at Sakhalin-1 had practically ceased, and no oil was being shipped out. ExxonMobil has said it plans to withdraw, but has not indicated a plan for doing so.

Sakhalin-1 and Sakhalin-2 were launched in the 1990s at a time when Moscow was courting foreign investors to help drive development of its oil and gas resources. They have been hailed as two of the most successful international ventures in Russia's oil industry.