The new operator of Sakhalin-2 started work

The new operator of the project for the production of liquefied natural gas “Sakhalin-2– Sakhalin Energy LLC – started work, the company announced on August 19. The rights and obligations, as well as the personnel of the former operator, Sakhalin Energy, were transferred to the new legal entity. At the same time, the current conditions of social security and remuneration of employees, as noted in the release, have not changed.

“Within the framework of the project infrastructure”Sakhalin-2» sustainable oil and gas production is maintained. The production and shipment of hydrocarbons to buyers are being carried out without interruption and in accordance with the schedule approved for 2022,” the message says.

At the end of June 2022, Russian President Vladimir Putin signed a decree “On the application of special economic measures in the fuel and energy complex in connection with the unfriendly actions of certain foreign states and international organizations.” According to it, the Bermuda-registered operator Sakhalin Energy Investment Company Ltd. should be replaced by a Russian company.

According to the decree, owning a controlling stake in the project “Gazprom» will retain its share in the new operator, the shares of the remaining shareholders will become the property of the new LLC. After that, within a month, the rest of the project participants must agree to receive their shares in the new operator. If the relevant documents are not received from them, then the shares must be sold within four months.

According to the Unified State Register of Legal Entities (EGRLE), the new operator LLC Sakhalin Energy was registered on August 5 in Yuzhno-Sakhalinsk.

At the same time, on August 18, Bloomberg reported that the new operator of the project sent instructions to its customers to pay for gas supplies in dollars, as before, but not through foreign banks, but through the Russian one.Gazprombank“. All payments for pipeline gas supplied abroad now go through it, the payment is converted from foreign currency into rubles and only then goes to Gazprom’s accounts. As a payment option, according to Bloomberg, the Russian division of Raiffeisenbank was also indicated, but the first option was named preferable.

LNG project «Sakhalin-2» is sold on the shelf of the Sakhalin Peninsula under a Production Sharing Agreement (PSA). It provides for the development of the predominantly oil Piltun-Astokhskoye and the predominant gas Lunskoye fields. Gazprom owned a controlling stake in Sakhalin Energy (50% plus 1 share), Japanese Mitsui and Mitsubishi – 12.5% ​​and 10% of the shares, respectively, and Anglo-Dutch Shell owned 27.5% minus 1 share. The latter announced the curtailment of projects in the Russian Federation after the start of a special military operation in Ukraine. Most of the LNG from the Sakhalin-2 project is supplied to Japan. At the end of May, the Minister of Economy, Trade and Industry of Japan, Koichi Hagiuda, announced that the Japanese participants would not leave the project.

At the end of 2020, Sakhalin Energy’s IFRS revenue was $4.3 billion, net profit was $1.08 billion.

According to a report by the International LNG Exporters Group (GIIGNL), at the end of 2021, 9.2 million tons (12.7 billion cubic meters) of LNG were contracted at Sakhalin-2. Of these, about 5 million tons (6.9 billion cubic meters, or about 60%) were contracted by Japanese companies. The largest buyers at the end of last year were the Korean Kogas and the Japanese Jera, acquiring 1.5 million tons (2.1 billion cubic meters) from the PSA project.

In 2021, according to GIIGNL, Russia exported a total of 29.6 million tons of LNG, ranking 4th after Australia (78.5 million tons), Qatar (77 million tons) and the United States (67 million tons). In 2021, global LNG exports amounted to 372.3 million tons (+4.5% against the results of 2020), of which about 73% came from Asia. In addition, only 36.6% of total LNG exports were sold on the spot and under short-term contracts.

Japanese companies have 8 long-term contracts for the purchase of LNG from Sakhalin-2 and they are not interested in breaking them now, said Maria Belova, research director at Vygon Consulting. The transfer of payment for gas supplies to another bank, in her opinion, is also “not a significant change in the agreement.” “Another question is that buyers from Japan will find the potential risks of secondary sanctions unacceptable, but even in this case (as was the case in Europe when switching to rubles), gas purchases can be suspended without terminating a long-term contract,” Belova continued.

She also recalled that at the end of 2021, Russian gas accounted for about 9% of the volume of the Japanese LNG market, and for 7 months of 2022, the share of Russian gas in the Japanese market was 9.2%.

Aleksey Grivach, deputy general director of the National Energy Security Fund, agrees with Belova, according to whom Japanese and Korean buyers of LNG from the project “will do everything possible to maintain supplies.” “It is possible that Shell, which buys 1.1 million tons of LNG from Sakhalin-2 annually, will abandon the new scheme, but in the face of a shortage, even these small volumes will be intercepted by other buyers,” the analyst believes. He also added that in the event of an official termination of existing long-term contracts, legal disputes are possible, but no one is interested in this now.