Russia’s prestige oil project Sakhalin-1 is paralyzed

DThe Kremlin likes to present western companies turning away from the Russian market as an opportunity for the domestic economy. The fact that reality is different is shown by the example of the Sakhalin-1 oil well off the coast of the Far Eastern island of Sakhalin, a prestige project with which Russia celebrated the development of new, difficult-to-access wells in the mid-2000s: since the announced withdrawal of the American group Exxon Mobile Sakhalin-1 oil production has continued to decline and has now come to a complete standstill.

Catherine Wagner

Business correspondent for Russia and the CIS based in Moscow.

At the beginning of March, the company announced that it would sell its 30 percent stake in the consortium and gradually hand over operational management to new hands. In an official statement at the end of April, the group blamed force majeure for the fact that it had significantly reduced production volumes: Because of the western sanctions, there were no tankers to transport the crude oil produced; Ship owners find no insurers or they shy away from reputational risk.

In July, Russian authorities announced that production had fallen from 220,000 barrels to 10,000 barrels a day after the departure of Exxon Mobil specialists. According to the Sakhalin governor, it is now completely suspended.

It doesn’t work without American specialists

It is unclear whether this is still due to a lack of transport options. However, the other partners in the project are obviously not in a position to take over operational management. The Russian state oil company Rosneft like the Indian ONGC holds 20 percent, the Japanese group Sodeco like Exxon Mobil 30 percent. This is unpleasant for Rosneft and the Russian government, as it shows that they cannot get by without American specialists, at least so far. In early September, Energy Minister Nikolai Shulginov complained that Exxon Mobil had halted production under a “made-up pretext”; but experts were already working on the resumption. By the end of the year, the ministry wants to have started funding again.

However, Exxon has no reason to worry about the restart, on the contrary: The company is still trying to get rid of its involvement in the project. However, this is done by a President Wladimir Putin The decree signed in early August prohibiting foreign investors from selling their shares and holdings in “strategic” Russian companies, including those in the energy sector, until the end of the year. Exxon has announced that it will appeal the decree if the restriction is not lifted. It is possible that the production stop in Sakhalin-1 should build up pressure to enable the group to sell it.

Lone resistance

With its resistance, Exxon is an exception; most Western companies left the Russian market without a fight. For example the British energy company shellwhich held a 27.5 percent stake in the neighboring Sakhalin-2 project, one of the world’s largest liquid gas plants, and has long since written off its $1.6 billion value.

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