On Tuesday, two major Japanese energy investors claimed that the value of their holdings in a natural gas project in Russia had dropped by more than half due to an order issued by Russian President Vladimir Putin.
In the Sakhalin-2 project in Russia’s Far East, Mitsui MITSY & Co. holds 12.5% and Mitsubishi Corp. owns 10%. Mitsui said that as of June 30th, the value of their investment had been reduced by 136.6 billion, or little over $1 billion, to the equivalent of $689 million.
On June 30th, Mitsubishi said that it judged the value of its investment to be $476 million, which was less than half the value three months earlier.
Shell PLC is the second major shareholder (with a 27.5% interest) that is not Russian. Shell said on February 28 that it would be pulling out of the venture, and the company has since written down billions of dollars, including $1.6 billion related to the Sakhalin-2 facility. This was only days after Russia invaded Ukraine on February 24.
In contrast to Western countries, Japan has declared it would continue to see Russian gas as vital to its energy security. Therefore, according to the Japanese government, it is important to continue sending billions of dollars to Moscow every year in return for liquefied natural gas.
On June 30th, a decree signed by Mr. Putin transferred ownership of Sakhalin-2 to a new Russian organization, casting doubt on such ambitions. Moreover, due to the decision, the Kremlin was essentially given control over which foreign investors were permitted to maintain their holdings.
Even though they were unsure of where the review stood, Mitsui and Mitsubishi expressed optimism that they might get Moscow’s approval to continue working on the project.
“Although the terms of the president’s proclamation are still unknown, worry among investors about the future has further heightened,” said Tetsuya Shigeta, the chief financial officer of Mitsui.
Yuzo Nouchi, the chief financial officer of Mitsubishi, has said that the business evaluates the worth of its Sakhalin-2 share quarterly by applying different probability weights to various outcomes.
Koichi Hagiuda, Japan’s minister of economy, trade, and industry, said on a visit to Washington in late July that he told U.S. officials Japanese companies needed to keep their stakes in Russian gas. He implied that China would gladly accept any gas that Japan decanted.
“There are some people who want us to pull out, but a pullout would mean yielding our rights to a third country, and Russia would gain huge profits,” Mr. Hagiuda said.
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