UPDATEOil and gas group Shell withdraws from Russia because of the war in Ukraine. In doing so, Shell is following the example of the British BP and the Norwegian Equinor, who have also announced that they are saying goodbye to collaborations with Russian state-owned companies. Only the approximately 400 gas stations that Shell has in Russia are not divested by the company.
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Shell said in a statement that it plans to end all of its partnerships with state gas company Gazprom. “We are shocked by the loss of life in Ukraine due to a senseless act of military aggression that threatens European security,” said CEO Ben van Beurden. “Our decision to leave is one we take with conviction. We cannot – and will not – stand by.”
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All those joint venture shares were on Shell’s books for about $3 billion at the end of last year. Converted that is about 2.7 billion euros. The oil and gas group believes that the sale will yield less than its book value and that it will therefore suffer a loss.
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gas pipeline
Shell has more than 500 employees in Russia and is involved in various projects. For example, the group has a 27.5 percent interest in a large project for liquefied natural gas (LNG) in eastern Russia, called Sakhalin-II. That project is owned by Gazprom. Other shareholders are the Japanese trading houses Mitsui and Mitsubishi. Last year Shell earned 700 million dollars, or approximately 625 million euros, from this project alone.
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In addition, Shell is working on projects in western and northwestern Siberia, also through interests. Shell is also the lender of the controversial Nord Stream 2 gas pipeline, which runs from Russia to Germany via the Baltic Sea.
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Loss of knowledge for Russians
Due to the departure of Western companies such as Shell and BP, Russia mainly loses access to the technological knowledge of those companies, says energy analyst and former Shell employee Jilles van den Beukel. “For example, the Russians are not as strong in LNG technology, as in the Sakhalin II project. So she really likes that.”
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On the other hand, the West is now also increasingly relinquishing its position in Russia. “Russia has been shifting its oil and energy policy towards China and Asia for some time, and that will now accelerate. These participations, which Shell and others are going to sell, will be bought over by Chinese and Asian companies for a relatively small amount,” says Van den Beukel.
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Shell was already active in Russia before the Russian Revolution of 1917. During the communist regime, Shell’s assets were nationalized by the state. It was not until 1983 that the company returned with an office to represent the company’s interests. In 1992, after the fall of the Soviet Union, Shell started real physical work again by setting up a lubricants branch in the country.
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Strategic Failure
British Economy Minister Kwasi Kwarteng said he welcomed Shell’s decision. “Shell has made the right decision to sell its interests in Russia. There is now a strong moral obligation for British companies to isolate Russia,” said Kwarteng. “This invasion must be a strategic failure for Putin.”
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