Russia’s Gazprom PJSC will reportedly increase its ownership of Sakhalin 2 LNG project, placing more of the country’s export capacity under state-owned company’s control as sanctions continue to pressure its oil and pipeline gas revenues.
According to the Russian government, a 27.5% stake valued at $1.6 billion is to be sold to Gazprom, increasing its interest in the liquefied natural gas project to 78%. The share, previously owned by Shell plc, was expected to go to Russia’s largest LNG producer, privately held Novatek PJSC.
A Shell spokesperson told Reuters that the producer “reserves all its legal rights” from the stake. However, Shell had no comment about Russia’s actions. Shell last year wrote down its investment in the 11.5 million metric tons/year facility on Sakhalin Island north of Japan. It also has exited other projects in Russia since 2022’s invasion of Ukraine.
U.S. sanctions against Russian energy assets like Novatek’s Arctic LNG 2 project have made the country’s pathway to meeting its target of boosting LNG exports by 2030 unclear. Allies of Ukraine eschewing Russian oil and recent attacks at refining facilities have also threatened the outlook of Gazprom’s long-term energy earnings.
Meanwhile, Japan’s trade ministry has also been working to preserve the ownership stakes of Mitsui & Co. and Mitsubishi Corp. Sakhalin 2. Japan imported around 9% of its LNG supply from Russia last year. Japanese buyers have been reluctant to leave Russian projects as prospects for soaring power demand and increased volatility in the global spot market compound.
Kpler’s Viktor Katona, head of oil analysis, said projects like Sakhalin could also be the key for Russia to sustain its gas production as Gazprom attempts an “Asia pivot” to send more of its gas east.
“The counterbalancing of shrinking Europe-bound flows and higher Asia-bound volumes will determine the medium-term future of Russia’s gas sector,” Katona wrote in a recent note.
Despite throttling gas exports to Europe before the war, and later losing a route through the destruction of Nord Stream 1, a limited amount of Russian gas has made its way to Europe through Ukraine. Those transport agreements are expected to end in December without an extension agreement.
At the same time, Europe's search for LNG volumes has meant a surge of Russian cargoes to the continent. In 2023, the No. 1 destination for Russian LNG flipped from Asia to Europe. European buyers imported 16.5 million metric tons (mmt) last year, compared with 15.7 mmt that landed in Asia, according to data from Kpler.
However, Katona said there is “very limited upside for Russian gas exports to the European continent. That also applies for LNG supplies.”
For the past two years, almost 75% of all Russian LNG that has landed in Europe has come from Yamal LNG. Earlier in the year, TotalEnergies disclosed it didn’t expect to receive any cargoes from Arctic LNG 2 this year, further limiting a potential increase in Russian volumes to Europe.
The European Union has also been progressing plans to allow individual members to ban imports of Russian LNG, which could cut off major routes through Belgium and France. Novatek, which operates Yamal LNG, uses Belgium as a regasification and storage hub for a large portion of its LNG to Europe.
While the EU has resisted instituting a bloc-wide ban on Russian natural gas, some members and associated countries like Germany, Lithuania and the UK have already ended imports after the invasion of Ukraine last year.
The loss of dedicated customers for Russian gas in Europe has already impacted production, Katona said. The cuts to production could deepen without more outlets for gas exports.
“Comparing Russia’s natural gas export infrastructure to its oil pipelines and export terminals, it stands out that Gazprom’s long-term strategy of focusing on giant midstream projects all running into Europe has backfired,” Katona said. This has led to a 110 billion cubic meter drop in production since 2022.
