Vladimir Putin issues decree to seize full control of the Sakhalin-2 gas and oil project

In a move that could force out Shell and Japanese investors, Russian President Vladimir Putin has issued a decree that seizes full control of the Sakhalin-2 gas and oil project.

According to Kremlin, Russia will now decide whether the foreign partners can stay or not as state-run Gazprom has a 50 per cent plus one share stake in Sakhalin-2.

Although Moscow said it saw no reason for Sakhalin-2 deliveries to stop, the move threatens to unsettle an already tight LNG market.

Under a long-term contract from Sakhalin-2, Japan imports 10 per cent of its LNG each year from Russia as the country's trading companies Mitsui and Mitsubishi hold just under 50 per cent in the project.

Lucy Cullen, a principal analyst from consultancy Wood Mackenzie, told news agency Reuters that "Russia's decree effectively expropriates foreign stakes in the Sakhalin Energy Investment Company, marking a further escalation in ongoing tensions."

Putin's move adds complications to an already complex process for those looking for an exit although many Western firms have already packed up.

To allow the state to seize assets of Western firms which decide to go, Moscow has been preparing a law.

Shell, which has a 27.5 per cent minus one share stake in Sakhalin-2, has already written off the value of its Russian assets and is in talks to sell it.

With an output of 12 million tonnes, Sakhalin-2 is one of the world's largest LNG projects and its cargoes mainly head to Japan, South Korea, China, India and other Asian countries.

(With inputs from agencies)

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