UK supermajor Shell confirmed that it has reached agreement with Russian state-controlled oil producer Gazprom Neft to hand over its 50% shareholding in the Salym Petroleum Development venture in West Siberia.
The equity transfer documents were signed on 22 December last year and in line with an arbitration court ruling in Moscow however the transaction is still “subject to a number of approvals in Russia”, Shell said in its latest results.
The deal with Gazprom Neft marks another orderly exit by Shell from its Russian ventures following Moscow's invasion in Ukraine in February 2022.
In the second quarter of 2022, the Shell signed similar documents to quit from the exploration venture Gydan Energy and pass its shareholding to the Russian partner in Gydan Energy, a joint operation to explore and develop hydrocarbon blocks in West Siberia.
Also in that quarter, Shell transferred its retail fuel network and a lubricants business in Russia to privately held oil producer Lukoil, Shell added in its latest results briefing.
Sakhalin 2 objections
However, Shell still considers itself to be holding a 27.5% interest in Sakhalin Energy Investment Company (SEIC), operator of the Sakhalin 2 oil and gas development project in the Russian far east.
Though the host government expropriated the Sakhalin 2 assets and passed them to a newly formed operator in August 2022, Shell told the Russian government that it objected to the purported transfers of assets from SEIC to the newly established operator and that it “reserved all rights and remedies”, according to its financial presentation.
Meanwhile, the new operator is understood to have halted deliveries of liquefied natural gas from Sakhalin 2 to Shell in the third quarter of last year after the UK major reportedly refused to enter into talks with it to abandon the old long-term contract with SEIC and sign a new one with the new operator.
The contract with SEIC had provided Shell with a long-term annual supply of about 1 million tonnes of LNG from the Sakhalin 2 plant in the south of the Sakhalin Island.
The stake of 27.5% in Sakhalin 2 that the Kremlin offered Shell to retake under the new operator after the expropriation, remains unclaimed despite efforts in Moscow to get the country’s largest independent gas producer Novatek to buy it from the government.
Novatek's LNG fortune in Europe
With Shell standing by on the next legal steps outside Russia following the Sakhalin 2 expropriation, Novatek executives said that the company needs time to complete its own audit of Sakhalin 2 before deciding whether it agrees to the Russian government's offer to sell the equity to the company, without giving any deadline to complete the process.
Last year, the European market where Shell has a strong presence, became a top destination for LNG cargoes that were produced at the Novatek-led Yamal LNG project on the Yamal Peninsula in West Siberia.
A source close to Novatek confirmed that Yamal LNG delivered 14.65 million tonnes of LNG to Europe, while another Novatek-led project — Vysotsk LNG on the Baltic Sea — supplied well over 700,000 tonnes to the continent, as gas prices in Europe rose to unprecedented highs reacting to the halt of Russian gas pipeline supplies to the region by Russian gas giant Gazprom.
This high rate of European shipments came despite earlier statements from Novatek that Yamal LNG has significant long-term LNG supply obligations to China and other customers in Asia, and that Europe becomes a major destination for the project only during the northern hemisphere winter when shipping cargoes eastwards becomes problematic besides of strong ice conditions in the Russian Arctic.
Though Novatek last year stopped releasing operating results for Yamal LNG after Russia's invasion of Ukraine, the liquefaction project reportedly produced more than 1.6 million tonnes in 2021, with 75% of volumes sold under long-term contracts, including 900,000 tonnes per annum supplied to Shell, that reportedly remain valid today.
Shell chief executive officer Wael Sawan said during the supermajor’s fourth quarter 2022 conference call that customers in China last year diverted about half of the long-term LNG cargoes originally destined to them to the European market, apparently to benefit from the record high gas spot prices on the continent.
China National Petroleum Corporation and the country’s Silk Road Fund together hold a stake of almost 30% in Yamal LNG, with France’s TotalEnergies keeping its 20% interest in the project despite its exit from other Russian business.
Ambitions in place
Despite growing international sanctions against Russia and its corporations, Novatek has not stopped its long-term ambitions to become a major global LNG supplier.
The company on Monday is expected to report the signing of a long-term contract with India’s gas distributor Gail, according to a Reuters report.
The annual supply commitment from Novatek has yet to be revealed however Gail has to replace the supply of 2.5 million tpa of LNG.
The Indian company had contracted to receive such volumes of LNG from former Gazprom subsidiary Gazprom Germania that was nationalised last year by the German government, with deliveries of LNG to Gail being halted after that.
Despite international sanctions to prevent the supply of equipment to Russian LNG projects, Novatek has repeatedly said that the first train of its next large LNG project, Arctic LNG 2, should come on stream before the end of 2023.
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