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Shell Leaves Partnership with Gazprom in Russian-based Baltic LNG Project


Developments on Wednesday, Apr. 10, 2019 revealed that British-Dutch oil and gas company Shell will no longer be moving forward with the Baltic Liquified-Natural Gas (LNG) Project with Russian state-owned gas company Gazprom. The Baltic LNG Project was initiated between the two companies in mid-2016 as a joint effort to produce over 10 million tons of LNG in the Leningrad region. Following an official announcement made on behalf of the Baltic LNG Project on Mar. 29, 2019 concerning the project’s final development phases, no mention was made of Shell within the context of the plans for continuation.

Ben van Beurden, Shell CEO, and Alexey Miller, Gazprom Deputy Chairman, sign the Memorandum of Understanding on Baltic LNG project. St. Petersburg, Jun. 16, 2016. Photo.    Source: Gazprom by RIA Novosti

Ben van Beurden, Shell CEO, and Alexey Miller, Gazprom Deputy Chairman, sign the Memorandum of Understanding on Baltic LNG project. St. Petersburg, Jun. 16, 2016. Photo. Source: Gazprom by RIA Novosti

The Mar. 29 report was made by Gazprom and its partner association RusGazDobycha projecting the Baltic LNG Project’s future prospects, predicting nearly 13 million tons worth of LNG production per year in a Leningrad region facility equipped to process both ethane gas and liquified petroleum gas. This plan differs from the initial project idea between Gazprom and Shell as it involves the integration of Gazprom’s LNG systems with that of its other gas processing plants. RusGazDobycha was the sole reported partner in this latest Baltic LNG release update with Gazprom.

Following these developments at the end of March, Shell devolved into talks on whether or not to continue its Baltic LNG Project partnership with Gazprom. While the Mar. 29 conceptual updates to the project’s plan may seem ordinary, the changes reverberated with Shell in light of the increasing Western and U.S.-based sanctions targeted towards Moscow based ventures and corporate entanglement in Russia. Previously, Shell postponed some of its regional gas projects affiliated with Russia due to the heavy weight of sanctions from the West.

Projected plan for Baltic LNG’s plant in the Usa-Luga Port in the Leningrad Region. Photo.    Source: Gazprom

Projected plan for Baltic LNG’s plant in the Usa-Luga Port in the Leningrad Region. Photo. Source: Gazprom

Shell’s notable omission in the Mar. 29 report was later confirmed with a statement by Shell Russia’s chairman Cederic Cremers to Reuters affirming that, “‘Following Gazprom’s announcement on Mar. 29 regarding the final development concept of Baltic LNG, [Shell has] decided to stop [its] involvement in this project.’” Aside from Baltic LNG, however, Shell will remain partnered with Gazprom on various other ongoing projects.

The significance of these developments resounds primarily in the effect that Western sanctions are posing on corporate undertakings in the Russian region and on the limitations these will begin to impose on Moscow’s future economic stability. For Gazprom, the loss of Shell’s cooperation on Baltic LNG suggests a loss of knowledge and key resource technology involved in LNG production that is held only by a few major gas conglomerates. As the Baltic LNG plant is slated to be complete by 2023, the true effects of this major change in the partnership will only be fully understood at a later date and amongst the wide Asian target market Gazprom hopes to capitalize on in the future.