Moscow is seeking $1.6 billion in damages from Shell over the Sakhalin-2 LNG joint venture that the latter quit in 2022
Russia is seeking over $1.6 billion in damages from British energy giant Shell over a failed joint venture, the company revealed in its annual report published on Tuesday. Shell quit the Russian market three years ago after the escalation of the Ukraine conflict and ensuing Western sanctions on Moscow.
The Russian Prosecutor General’s Office launched the legal action against eight Shell group units last October, although no details of the claim were made public at the time. Gazprom Export, the Russian Energy Ministry, the government of Sakhalin Region, as well as the companies Sakhalin Energy Investment and Sakhalin Energy were named as also being party to the claim.
Shell walked away from the Sakhalin-2 liquefied natural gas (LNG) project, a major oil and gas development on Sakhalin Island in Russia’s Far East, in 2022.
According to the London-based company’s report, Russia is seeking a declaration that Shell illegally abandoned its support of the project. It is also seeking “monetary relief” of approximately €1.5 billion from Shell Energy Europe Limited to Gazprom Export for “alleged unpaid gas deliveries in 2022,” and a declaration that Gazprom Export can take the 94 billion rubles ($1.1 billion) reserved in escrow for Shell as compensation for relinquishing its share in Sakhalin-2.
In January, the company filed a postponement notice. A new hearing in the Moscow Arbitration Court is scheduled for April 14, the report added.
The energy giant noted that it was currently impossible to estimate “the magnitude and timing” of any possible obligations arising from the lawsuit.
“There remains a high degree of uncertainty regarding the ultimate outcomes, as well as the potential effect on future operations, earnings, cash flows and Shell’s financial condition,” it added.
In 2022, Russian President Vladimir Putin signed a decree transferring the assets of Sakhalin Energy, the former operator of Sakhalin-2, to a new Russia-based operator, Sakhalin Energy LLC. The government allowed foreign owners, which included Japanese companies Mitsui and Mitsubishi, to take a stake in the new operator proportionate to their previous holding.
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The Japanese firms decided to retain their stakes, but Shell, which owned 27.5% minus one share in Sakhalin Energy, refused to join the new entity, prompting Moscow to sell off its stake to a Gazprom subsidiary for roughly $1 billion.
The funds remain frozen in Russia in a type of escrow account called Type C that was introduced in response to Western sanctions. The main purpose of such accounts was to prevent the movement of funds out of the country by entities from “unfriendly nations.”
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