LONDON (AP) — Global oil and gas giant Shell said Monday that it is pulling out of Russia as President Vladimir Putin’s invasion of Ukraine continues to cost the country’s all-important energy industry foreign investment and expertise.
Shell announced its intention to exit its joint ventures with Russia’s state-owned energy giant Gazprom and related entities, including a 27.5% stake in a key liquefied natural gas project as well as 50% stakes in two projects that are developing oil fields in Siberia.
Shell stated it also plans to terminate its involvement in Nord Stream 2 – a controversial pipeline that carries Russian natural gas into western Europe. The project was stopped by Olaf Sholz, the German Chancellor.
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“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security,” Shell Chief Executive Ben van Beurden said in a statement.
Shell’s decision comes as Western energy companies come under pressure to ditch their Russian investments amid concern that proceeds from oil and gas sales will help fund the war in Ukraine. To persuade Putin from changing his mind, the United States of America, United Kingdom and European Union have placed a number of sanctions on Russian banks and companies as well as wealthy individuals.
On Sunday, Shell’s U.K. rival BP announced plans to shed its almost 20% stake in Rosneft, which is controlled by the Russian state. Norway’s Equinor said Monday that it would halt new investment in Russia and begin selling its holdings in the country.
Russia’s economy is heavily dependent on fossil fuels, which account for about 60% of the country’s exports. Russia was the world’s third-largest oil producer in 2020, producing 10.5 million barrels of oil a day, or 11% of the world’s total, according to the U.S. Energy Information Agency.
Shell’s most important investment in Russia is its stake in the Sakhalin-II project in the waters near Sakhalin Island off Russia’s east coast. Mitsui Japan owns 12.5%, while Mitsubishi has 10%.
Shell is also holding 50% in Gazprom’s joint ventures for oil field development on the Gydan Peninsula, northwestern Siberia.
In addition to investment, Shell provided expertise that helped develop Sakhalin-II, Russia’s first offshore gas project. This project, which began production year round in 2008, includes three platforms offshore that can withstand earthquakes or crashing of ice sheets in freezing seas.
The project supplies about 6% of the liquefied natural gas used in the Asia-Pacific region and is “one of the world’s largest integrated, export-oriented oil and gas projects,” Shell said.
Still, Shell’s investments in Russia account for a relatively small portion of the company’s total reserves and production. Russian assets accounted for less 5% of the company’s worldwide oil and gas production in 2020, according to Shell’s latest annual report.
In contrast, BP’s 19.75% stake in Rosneft accounted for about a third of the company’s oil and gas production last year and almost 17% of earnings.
For Norwegian government-controlled Equinor, the Eurasia region that includes Russia accounts for less than 5% of the company’s proven oil and gas reserves. Russia accounted for about 4% of total production in 2020, according to Equinor’s most recent annual report.
Van Beurden stated that Shell had been in talks with countries around the globe as it considered the implications for business of the decision. This included the need to secure energy supplies to Europe.
“Our decision to exit is one we take with conviction,” van Beurden said. “We cannot — and we will not — stand by. Our immediate focus is the safety of our people in Ukraine and supporting our people in Russia.”
