Sakhalin-2

Sakhalin-2

The Sakhalin-2 project has been hailed as one of the most ingenious means of extracting energy from the frozen tundra and icy waters of Northern Russia. It has been control nearly entirely by three global giants Royal Dutch Shell, Mitsui and Mitsubishi. Until recently when Gazprom has taken a 50% plus 1 share stake in this project by fiat by the Kremlin. This action by this group, Gazprom, only shows that Russia has truly de-evolved from it's very western drive when the Soviet Union collapsed, but it also shows that Russia when it comes to managing its enormous natural resources will go to nearly any lengths at keeping them in Russian hands. As well as showing the the Russian people that Russian companies won't be bullied around (when it really needs the Wests help to markets).

I have watched this whole process and have noticed the sheer amount of resources the 3 major players have put in and what they would gain from this project. It was theirs to begin with and reap the profits from. It was when the Kremlin interceded with the threat of withholding vital permits and stating they are out of environmental regulation that things began to get ugly. The Kremlin has bullied its way into the controlling stake in this whole project and has done nothing more then to cause it devalue. The Kremlin said that the 3 major players must give up their hold on it if they are to get their permits. The 3 major players did so and as expected the permits arrived and the threat of environmental halting vanished. To add insult to injury from this, the Kremlin has shoved the 3 original partners with $3.6 billion in additional costs, which by virtue of the new contracts escapes Gazprom from paying a single penny. This strips out the return to just over 11% over the whole project. Hardly worth the original amount of money any of them have dumped into this project.

While on the front, the Kremlin may have won this little battle on who is top dog in Russian energy, they are loosing the war. They have had two years in which Gazprom has caused one disaster with Ukraine and they nearly missed another disaster with the West with Belarus. These two incidents only prove how inept they are at supplying the west with a constant rate of energy with out fear of them throwing a fit and shutting it off.

To make this more amusing the West has managed to use the EBRD (European Bank of Reconstruction and Development) to slap the Kremlin with a NO, to a loan of $300 million. It actually makes perfect sense to why the EBRD would not grant the loan. They normally only grant loans to groups that allow greater movement into freer market (if you noticed it was already free until the Kremlin wanted 50% plus 1 share), and also that none of the 3 major players needed the loan. This somewhat puts a dampener on Russian environmentalists because the EBRD would have put pressure on the Kremlin to keep in line with environmental requirements through the loan, but with no loan the Kremlin may notice that the West is watching.