‘Shooting oneself in the foot’: $4.2bn LNG project suspended in Russia’s Far East

“Why this is being done astounds me,” said Khabarovsk territory governor Mikhail Degtyarev, shown here meeting Russian President Vladimir Putin in February 2021  ( BY 4.0)
The governor of a territory in Russia’s Far East has said he is astounded at the suspension of a $4.2bn project to build a liquified natural gas (LNG) plant in the Khabarovsk territory, led by US, Japanese and Indian oil companies.

Pre-construction tendering for the Sakhalin-1 project at the port of De-Kastri had reportedly begun in February but, on 2 March, US oil giant ExxonMobil, which is the operator and 30% owner of the joint venture, announced it would be pulling out of the scheme in response to Russian President Vladimir Putin’s invasion of Ukraine.

Khabarovsk Territory Governor Mikhail Degtyarev said the project had been “frozen” as a result.

“Why this is being done astounds me, this is shooting oneself in the foot. There is gas, there’s a coast, there are labor resources and investment, but they’re freezing the project for political reasons,” Degtyarev told radio station Komsomolskaya Pravda, reports Russia’s Interfax News Agency.

Degtyarev said he met with ExxonMobil representatives only a month before what Russian media must call the “special military operation”. He said they had “expressed readiness, were doing pre-design work”, according to Interfax.

Due to start operating by 2028, the plant was intended to produce 6.2 million tonnes of LNG a year for export, drawing on vast reserves found in waters off Sakhalin Island. Along with ExxonMobil, the Sakhalin-1 consortium is owned 30% by Japan’s Sakhalin Oil and Gas Development Co (Sodeco), 20% by India’s Oil and Natural Gas Corporation (ONGC), and 20% by Russia’s Rosneft.

In September 2020, TechnipFMC and Japan’s JGC Corporation were awarded a contract for front-end engineering design (FEED) for the plant. A TechnipFMC spokesperson told GCR that the contract now lay with spin-off company Technip Energies.

“ExxonMobil supports the people of Ukraine as they seek to defend their freedom and determine their own future as a nation,” the US company said in its 2 March statement. “We deplore Russia’s military action that violates the territorial integrity of Ukraine and endangers its people.”

As well as pulling out of the Sakhalin-1 venture, ExxonMobil said it would stop investing in new developments in Russia.

According to Yale School of Management, more than 600 companies from a range of countries have exited Russia so far in what it called a “mass corporate exodus”.

  • Edited 7 April 2022 to clarify the FEED contract.

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