Russia-backed Gazprom Enters Sakhalin II Project
Topic Business-to-Business (B2B) Marketing
Key Words Direct foreign investment, planned economies, political and legal environment, nationalism
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News Story 

After months of pressure from Moscow, Anglo-Dutch oil company Shell has cut its ownership stake in Russia's Sakhalin II liquefied gas scheme, ceding control of the Siberian project to Russian state-owned energy group Gazprom. The pressured handover of energy assets to the Kremlin signals an end to overseas ownership of Russian energy and raises concerns about President Vladimir Putin's willingness to use his country's natural resources as a political weapon.

The Kremlin's decision ends a year of uncertainty about Russia's energy policy, which now advocates the consolidation of energy assets under government control. Russian authorities were able to seize the Sakhalin II project after making questionable claims that Shell violated environmental regulations at the site. Environmental worries appear to have subsided now that the project has transferred into Russian hands.

Prior to 2007, Royal Dutch Shell owned 55 percent of the Sakhalin II project. The oil company's sale has reduced Shell's involvement to just 27.5 percent, leaving energy firm Gazprom with control of the reserves. Analysts say the move will have a dramatic impact on the Anglo-Dutch group's production in years to come, as Shell may be forced to write down as much as 10 percent of its oil-and-gas reserves.

Questions
1.

What does Russia's forced takeover of the Sakhalin II liquefied gas reserve illustrate about direct foreign investment?

2.

How will Russia benefit by seizing ownership of the world's largest liquefied gas project?

Source "Gazprom Enters Sakhalin II Project," PR Newswire, April 18, 2007 pNA
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