Shell pulls out of energy investments in Russia over Ukraine invasion

Global oil and gas giant Shell is pulling out of its joint ventures with Russia's state-owned energy giant Gazprom and related entities.

The joint ventures include a 27.5 percent stake in a key liquefied natural gas project as well as a 50 percent stake in two projects that are developing oil fields in Siberia.

Shell also intends to end its involvement in Nord Stream 2, a pipeline built to carry Russian natural gas to western Europe.

German Chancellor Olaf Sholz halted certification of the project after Russia invaded Ukraine.

Shell Chief Executive Ben van Beurden said the company is shocked by the loss of life in Ukraine, which they deplore.

Beurden described Russia’s invasion of Ukraine as a senseless act of military aggression that threatens European security.

Shell's move comes as Western energy firms are under pressure to withdraw from their Russian investments amid concerns that oil and gas sales revenue will be used to support the conflict in Ukraine. To persuade Putin to change his behavior, governments including the US, UK, and EU have imposed broad financial sanctions on Russian financial institutions, businesses, and wealthy individuals.

Shell's UK rival BP plans to shed its almost 20 percent stake in Rosneft, which is controlled by the Russian state, while Norway's Equinor would halt new investment in Russia and begin selling its holdings in the country.

Russia's economy is heavily reliant on fossil fuels, which account for roughly 60% of the country's exports. Russia was the world's third-largest oil producer in 2020, generating 10.5 million barrels of oil every day, or 11% of the globe's total, according to the US Energy Information Agency.

Shell's main investment in Russia is its 10% stake in the Sakhalin-II project located near Sakhalin Island on Russia's eastern coast. Mitsui owns 12.5% of the venture, while Mitsubishi has a 10% share.

Shell holds a 50 percent stake in two joint ventures with Gazprom that are developing oil fields on the Gydan Peninsula in northwestern Siberia and for the Salym Development project in the Khanty-Mansiysk Autonomous District of western Siberia.

In addition to the investment, Shell provided expertise that assisted in the creation of Sakhalin-II, Russia's first offshore gas play. It began year-round production in 2008 with three offshore platforms built to withstand earthquakes and collapsing ice shelves in the polar seas.

The plant produces about 6 percent of the liquefied natural gas consumed in Asia and is "one of the world's largest integrated, export-oriented oil and gas projects," according to Shell.

Shell's investments in Russia, on the other hand, account for a relatively modest proportion of the firm's overall reserves and production.

According to Shell's annual report, the Russian assets made up less than 5 percent of the company's worldwide oil and gas production in 2020.

Meanwhile, BP's 19.75 percent stake in Rosneft accounted for around a third of the firm's oil and gas output last year and almost 17% of earnings.

For Norway-controlled Equinor, the Eurasia region that includes Russia accounts for less than 5 percent of its proven oil and gas reserves. Russia accounted for about 4 percent of total production in 2020, according to Equinor's annual report.

Van Beurden said Shell was in discussions with governments as it worked through the business implications of its decision, including the importance of secure energy supplies to Europe and other markets.

Beurden said that they take Shell’s decision to exit with conviction.

Shell’s immediate focus is the safety of its people in Ukraine and supporting its people in Russia.