Russian authorities are expected to keep in place key contracts to deliver liquefied natural gas to Japan, despite it being considered an “unfriendly state” due to support for sanctions against Russia following its invasion of Ukraine.

Russian gas giant Gazprom has made no gestures or statements indicating willingness to terminate the long-term gas contracts that Sakhalin 2 operator Sakhalin Energy signed with Japanese buyers and — according to Mikhail Krutikhin, managing partner at Moscow-based consultancy RusEnergy — is unlikely to do so.

The contracts signed with seven major customers in Japan are understood to account for more than half of Sakhalin 2’s LNG nameplate capacity of 9.6 million tonnes per annum — though after years of debottlenecking and optimisation, the plant is now capable of exporting close to 11 million tpa of LNG.

Sakhalin Energy also holds long-term contracts with customers in mainland China, Taiwan, South Korea and Singapore.

Gazprom had not responded to Upstream’s request for comment at the time of publishing. However, Moscow-based news agency Interfax quoted a Gazprom executive saying that buyers of LNG may be asked to send their payments to an appointed bank in Moscow.

The company’s remaining European customers earlier agreed to establish special accounts with Gazprombank in Moscow to pay for pipeline gas supplies.

New decree

Uncertainty over the contracts was sparked early this month by the government ordering authorities to liquidate Sakhalin Energy and replace it with a new Russian registered entity.

According to the decree, signed by President Vladimir Putin, the new operator of Sakhalin 2 will take over all assets on Sakhalin Island operated by Sakhalin Energy, including its offshore oil and gas production platforms, an onshore processing centre, oil and gas trunklines and the LNG plant at the port of Prigorodnoye on the south of the island in Russia’s far east.

Gazprom will maintain its controlling stake of just over 50% in the new operator, according to the decree, but Japan’s Mitsui and Mitsubishi of Japan — and European supermajor Shell — also hold stakes in Sakhalin 2 and, under the new law, will have to reapply to the Russian government to regain their current interests in the project.

The foreign shareholders have just one month after the new operator is created to file such applications, but without any guarantee the government would agree to award stakes of a similar size.

If any foreign shareholder fails to renew its stake in the project, the shareholding will be sold to a Russian investor in the following four months.

However, proceeds from such a sale will not be made available to the exiting foreign shareholder.

Instead, the funds will be deposited in a Russian bank and used to repay “the damage”, according to the decree, referring to plans by Russian authorities to “estimate the amount of the damage” caused to the project by foreign shareholders.

Authorities have repeatedly accused Sakhalin Energy of overspending since Sakhalin production sharing agreement was signed in 1994.

Shell announced its decision to exit its Russian ventures, including Sakhalin 2, in which it holds a 27.5% stake, within days of Russa invading Ukraine in February and ther have been suggestions recently that the supermajor may be looking to sell its shareholding to India’s ONGC Videsh, which already holds a minority interest in another Sakhalin scheme, the ExxonMobil-led Sakhalin 1 project.

However, with Sakhalin 2 estimated to cover 10% of LNG imports to Japan, Mitsui and Mitsubishi have refrained from announcing an exit from the project.

“We need to closely monitor what the presidential order requires on the terms of the contracts,” Japanese Prime Minister Fumio Kishida was quoted by NikkeiAsia as saying on Friday.

“We will communicate closely with operators and plan our response,” he added.

Krutikhin described the Sakhalin 2 decree as a “retaliation measure” against Japan for its support of sanctions against Russia and an “undisguised seizure of property”, rather than a government plan to disrupt LNG supplies to Asia, similar to its efforts to destabilise European energy markets by curtailing gas supplies to the continent via Nord Stream pipeline and across Ukraine.

The decree was announced shortly after Russian authorities approved amendments to the country’s Subsurface law, blocking foreign investors from directly holding exploration and development licences for oil and gas blocks in the country.