Russia's Energy Sector: Implications of Gazprom's Potential Control of Sakhalin 2

Reports have surfaced that Shell has agreed to give control of the $22 billion Sakhalin 2 project to the Russian gas monopoly Gazprom, sparking concerns about the implications for companies considering investment in Russia. Matthias Westman, director of Prosperity Capital Management, discussed the potential impact on investors and the Russian economy.

Key Takeaways:

• The Russian government's state-controlled energy companies are gaining control of assets, with Gazprom set to take over Sakhalin 2, a $22 billion project.
• The economy is doing well, with many companies showing good returns, making it an attractive destination for investors.
• International businesses are doing well on foreign direct investment in Russia, with Russian weighting becoming large.
• The WTO accession is almost certain, with the U.S. being very supportive.
• Shell's handling of Sakhalin 2 was seen as mistaken, with cost overruns from $10 billion to $22 billion, upsetting the Russians.
• Investors are likely to put money in the energy sector, but there is a possibility of spillover into other areas such as consumer-oriented investments.
• The Russian economy is growing at 7%, while oil and gas extraction is only growing at 2%, indicating faster growth in domestic sectors.
• Foreign direct investors have made more money in consumer-oriented investments than in the extractive industries.

Statistics:

• The Sakhalin 2 project is valued at $22 billion.
• The Russian economy is growing at 7%.
• Oil and gas extraction is growing at 2%.
• The Russian weighting in re-weightings is becoming large.
• Cost overruns for Sakhalin 2 increased from $10 billion to $22 billion.

Sources:

• CNBC/DOW JONES BUSINESS VIDEO ANALYST INTERVIEW ROSS WESTGATE
• Matthias Westman's comments during the interview on CNBC