FT announced the beginning of Shell's "nightmare" withdrawal from the Sakhalin-2 project

The company intends to sell its stake in a joint project with Gazprom, but the newspaper's sources believethat it would be a "nightmare" deal with unfavorable terms for Shell

Shell has begun the process of withdrawing from the Sakhalin-2 LNG project, which could turn into a "nightmare" for it, the Financial Times reports, citing sources.

The company is in the early stages of negotiations with China's Cnooc, CNPC and Sinopec to sell its 27.5% stake in the project, the paper said. Bloomberg previously reported that these companies are showing interest in Shell's stake.

One Financial Times source called the ongoing negotiations "nightmarish." He explained that Shell hopes to recoup at least some of the up to $5 billion it could lose if it leaves Russia. However, the source of the newspaper added, any deal with Chinese companies is likely to be concluded at a big discount, in addition, the signing of a special agreement between Russia and China will be required. At the same time, the newspaper, citing experts, writes that there are no other buyers for these assets, except for Chinese companies.

In addition to Shell, the Sakhalin-2 project also involves Gazprom, which owns a little more than 50%, as well as the Japanese Mitsui (12.5%) and Mitsubishi (10%). As part of the project, 11.6 million tons of LNG were produced in 2020, writes FT. Shell accounted for about 3.2 million tons, mainly for further resale to buyers in East Asia.

Shell apologizes for 'difficult decision' to buy Russian oil Business

At the end of February, Shell announced plans to sell shares in joint projects with Gazprom, including a stake in Sakhalin-2, as well as a 50% stake in two joint ventures with Gazprom Neft, Salym Petroleum Development and Gydan Energy.

On April 20, Bloomberg learned that Shell had begun withdrawing employees from its joint ventures with Gazprom. In particular, dozens of workers were redirected from the Sakhalin-2 project to other projects. The press service of the RBC company clarified that they are coordinating actions with partners so that the process "does not have a negative impact on the safety and operational activities of these enterprises."

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The company also decided to stop buying Russian oil on the spot market and stop renewing futures contracts. “At the same time, in close consultation with governments, we will change our crude oil supply chain to exclude Russian volumes,” it said.