THE SHELL LEAKS FILES: 2 OCTOBER 2026
SLF-2007-075
The Sakhalin Papers LXV: The “New Heartland” — Why Shell Deepened Its Gazprom Partnership After Losing Control
In December 2006 Shell agreed to surrender control of Sakhalin II. By April 2007 Gazprom owned 50 per cent plus one share. Yet within two years Shell was not retreating from Russia. It was signing twenty-year gas agreements with Gazprom, discussing Sakhalin III, exploring Yamal LNG opportunities and establishing a working group to pursue additional Sakhalin resources. Shell’s 2009 Annual Report went further still: Russia had become a new corporate “heartland.” The documents establish the expansion of the relationship. They do not contain a single internal memorandum explaining why Shell chose that course. But Shell’s public statements, Gazprom’s records and the commercial structure make the strategic calculation unusually visible.
Archive reference: SLF-2007-075
Collection: The Sakhalin Papers
Principal authenticated records: Royal Dutch Shell plc Annual Report and Form 20-F 2009; Shell SEC filings; Gazprom corporate releases of 8 April and 18 September 2009
Contemporaneous reporting: Reuters, Bloomberg, Dow Jones/Wall Street Journal, UPI, AFP and The Times
Judicial context: Export Credits Guarantee Department v Friends of the Earth [2008] EWHC 638 (Admin)
Evidence standard: The agreements, meetings, ownership interests and Shell’s description of Russia as a new “heartland” are treated as established documentary facts. Contemporary descriptions of Shell having been forced or pressured to surrender control remain attributed to journalists and other observers. No public court judgment identified here determined that Gazprom’s acquisition resulted from an unlawful bargain. Explanations of Shell’s strategic motives are commentary unless explicitly attributed to Shell.
Introduction
The obvious assumption after the Sakhalin confrontation would have been retreat.
Shell had entered the crisis controlling 55 per cent of Sakhalin Energy.
It emerged with 27.5 per cent.
Gazprom held 50 per cent plus one share.
Approximately 402 million barrels of oil equivalent of proved reserves attributable to Shell shareholders had disappeared from Shell’s economic position.
The Russian state-controlled gas company was now in charge.
And yet the documentary record shows something striking.
Shell did not respond by keeping Gazprom at arm’s length.
It did the opposite.
Within months of Russia’s first LNG cargo leaving Sakhalin, Shell and Gazprom were discussing new projects.
Within weeks they signed agreements lasting until 2028.
By September they were considering expansion elsewhere around Sakhalin.
Yamal was on the table.
Sakhalin III was being discussed.
And Shell itself was describing Russia as a new strategic heartland.
The question is therefore not simply:
What did Shell lose at Sakhalin II?
It is also:
Why did Shell decide that Gazprom remained a partner it wanted?
1. 18 February 2009: Shell immediately looks beyond Sakhalin II
The starting point is the inauguration of Russia’s first LNG plant on 18 February 2009.
That same day Reuters interviewed Shell chief executive Jeroen van der Veer.
His comments are important because they came at the symbolic moment when the project Shell had once controlled was entering commercial LNG operation under Gazprom control.
Van der Veer said Shell intended to discuss further energy projects with Gazprom in Russia’s Far East.
Gazprom deputy chief executive Alexander Medvedev said Shell, Mitsui and Mitsubishi were also being considered in connection with potential LNG development on the Yamal Peninsula.
Van der Veer placed the relationship in the wider context of Shell’s long experience of working with state-controlled national oil companies.
Working with state companies, he said, was normal in Shell’s experience. Royal Dutch Shell Plc .com
That was not the language of corporate withdrawal.
It was the language of continued access.
2. Less than two months later came a twenty-year agreement
On 8 April 2009 Alexey Miller and Jeroen van der Veer met at Gazprom headquarters in Moscow.
Gazprom’s official record says they announced a package of LNG and pipeline-gas agreements.
Shell Eastern Trading and Gazprom Global LNG would each purchase LNG from Sakhalin Energy.
Deliveries were to begin in 2009 and continue until:
2028.
At plateau, each company was to purchase approximately:
one million tonnes of LNG a year.
The transaction also included a twenty-year pipeline-gas arrangement under which an equivalent volume of gas would be delivered to Shell in Europe. Gazprom
This was not merely Shell retaining the shares it had been left with.
It was the creation of a new long-term commercial relationship after the ownership confrontation.
3. Sakhalin LNG was being connected to Shell’s global gas portfolio
The April transaction was geographically much broader than Sakhalin Island.
Gazprom affiliates were to take capacity that Shell held at Sempra’s Energia Costa Azul LNG import terminal in Baja California, together with associated pipeline capacity into Southern California.
Gazprom’s own explanation was that the arrangement would help it sell Sakhalin LNG into the United States and other Pacific markets.
For Shell, the linked pipeline-gas agreement strengthened the flexibility of its European supply portfolio.
A cargo produced in Russia’s Far East had therefore become part of a commercial arrangement spanning:
Russia;
Japan and the Pacific LNG market;
Mexico;
California;
and European pipeline gas.
The relationship was becoming international rather than merely Russian. Gazprom
4. Van der Veer explicitly called for further expansion
Gazprom’s authenticated release records Van der Veer describing the April contracts as an important milestone.
More significantly, he said Shell looked forward to expanding its relationship with Gazprom in gas and LNG activities:
“both in Russia and internationally.”
Miller and Van der Veer also discussed further LNG cooperation inside Russia. Gazprom
The wording matters.
The Shell-Gazprom relationship was no longer being confined to managing the consequences of Sakhalin II.
Both companies were publicly discussing what came next.
5. Sakhalin III appeared almost immediately
Two days later, AFP reported another development.
Gazprom official Stanislav Tsigankov described Shell as a strong potential partner for Sakhalin III.
According to the contemporary report, Shell had “very good chances” of participating once the relevant licence arrangements were in place.
The same report noted the obvious historical tension: cooperation between Shell and Gazprom had deteriorated severely during the Sakhalin II ownership confrontation.
Yet Gazprom was now publicly contemplating Shell’s involvement in another major Far Eastern resource project. Dawn
That is an extraordinary turnaround if the story is reduced to the proposition that Shell had simply been driven out of Russia.
It had not.
Shell had lost control of one project.
It was seeking access to others.
6. Peter Voser confirmed that Shell was looking beyond Sakhalin II
On 29 April 2009, then chief financial officer Peter Voser told analysts that Shell and Gazprom were examining further opportunities around Sakhalin.
Contemporaneous Bloomberg reporting quoted Voser saying the partners intended to look for additional opportunities in the Sakhalin area.
The report again mentioned Gazprom’s consideration of Shell as a potential Sakhalin III participant. Royal Dutch Shell Plc .com
Voser would become Shell chief executive in July.
The strategic direction therefore did not disappear with Jeroen van der Veer’s retirement.
It continued under his successor.
7. June: Gazprom called Sakhalin a model for Yamal
The relationship broadened again in June.
At the St Petersburg International Economic Forum, Alexey Miller met Van der Veer.
A contemporaneous account of the Gazprom statement records Miller describing the Sakhalin II partnership as an example of mutually beneficial cooperation.
He then went further.
The experience gained at Sakhalin II, Miller said, could provide a basis for further LNG cooperation on the:
Yamal Peninsula.
That was strategically significant.
Yamal was not an incremental addition to Sakhalin II.
It represented one of Russia’s enormous future gas provinces in the Arctic.
Gazprom was therefore pointing to Sakhalin II — including Shell’s technology and LNG experience — as a possible template for a much larger future relationship. Oreanda News
8. September: the new Shell chief executive meets Miller
Peter Voser became chief executive of Royal Dutch Shell on 1 July 2009.
On 18 September, little more than two months into the job, he met Alexey Miller at the Sochi investment forum.
This time the record is particularly clear because Gazprom’s original corporate release remains available.
The companies reviewed Sakhalin II.
They noted that oil and LNG production was running ahead of the original 2009 projection.
Then the discussion moved beyond the existing project. Gazprom
9. The 2007 agreement contained a route to more Sakhalin development
Gazprom’s September statement referred to an Area of Mutual Interest Agreement dating from 2007.
That agreement had been signed alongside the restructuring through which Gazprom obtained control of Sakhalin Energy.
By September 2009, Miller and Voser were discussing the possibility of expanding activity elsewhere on the Sakhalin shelf under that framework.
They agreed to establish a working group to examine issues associated with development of Sakhalin fields. Gazprom
Contemporaneous Dow Jones reporting said the cooperation could extend to the Kirinsky block, which Gazprom held within the Sakhalin III area. Royal Dutch Shell Plc .com
Two years after losing control of Sakhalin II, Shell was therefore discussing how to participate in resources beyond it.
10. Gazprom was building its own Sakhalin III position at the same time
The context is important.
On 2 July 2009 Gazprom announced the start of exploration drilling at the Kirinskoye field within Sakhalin III.
Gazprom described the development as part of Russia’s Eastern Gas Program and said the field would help supply the Sakhalin–Khabarovsk–Vladivostok gas system.
At that stage Gazprom said Kirinskoye contained tens of billions of cubic metres of gas and millions of tonnes of condensate.
It was not simply an extension of Sakhalin II.
It belonged to the next phase of Russia’s Far Eastern gas development. Gazprom
For Shell, access to such acreage would mean that the Gazprom relationship could become a route back into major Russian resource growth.
11. UPI described the September talks as expansion, not damage control
Three days after the Miller-Voser meeting, UPI reported that the companies were discussing LNG development and additional Sakhalin resources.
The report recalled the twenty-year April agreement and noted that Sakhalin II production was exceeding initial expectations.
Most importantly, it recorded the decision to move forward with a working group concerned with further Sakhalin development. UPI
The historical sequence is therefore consistent across Gazprom’s own record and independent contemporary reporting.
February:
talk of more projects.
April:
twenty-year commercial agreements.
April:
Sakhalin III discussed.
June:
Yamal cooperation raised.
September:
formal working group for additional Sakhalin opportunities.
That is not accidental continuity.
It is an expanding relationship.
12. Then came Yamal
Less than a week after the September Sakhalin meeting, Vladimir Putin gathered executives from major international energy companies to discuss development of the Yamal Peninsula.
Contemporaneous reporting said Peter Voser indicated Shell was prepared to undertake a feasibility study concerning an LNG plant at Yamal.
The wider significance was obvious to journalists at the time.
Russia possessed vast Arctic resources.
Gazprom possessed privileged access to them.
But international companies possessed capital, project-management capacity and specialist technologies that Russia could use. Royal Dutch Shell Group .com
Shell possessed one capability of particular value:
decades of LNG experience.
Sakhalin II had just demonstrated it on Russian territory.
13. Shell’s annual report gave the strategy a name
The most revealing Shell document came later.
Royal Dutch Shell’s Annual Report and Form 20-F for 2009 was filed with the US Securities and Exchange Commission on 16 March 2010. SEC
In its Upstream strategy section, Shell listed its established production “heartlands” — countries such as Australia, Canada, Nigeria, Norway, Oman, the UK and the United States.
Then it added:
“Russia represents a new heartland”
because Sakhalin II had come on stream in 2009. Shell Plc
The phrase is difficult to reconcile with any notion that Shell regarded the 2006–07 confrontation as grounds for abandoning Russia.
Quite the reverse.
Russia had moved into Shell’s strategic core.
14. The same annual report contained an extraordinary warning
The same document also provides an important counterweight.
Shell’s risk section warned investors that operating internationally exposed it to political and legal instability.
Among the possibilities Shell specifically identified were:
forced divestment of assets;
expropriation;
cancellation of contractual rights;
rewriting of leases;
changing environmental regulation;
and governmental action affecting hydrocarbon entitlements.
Shell also warned generally about the risk of renegotiation of agreements involving governmental entities. Shell Plc
This was not written specifically about Russia.
It was Shell’s global risk disclosure.
That distinction must be maintained.
But historically the juxtaposition is striking.
The same annual report that called Russia a new heartland warned shareholders that political developments could produce precisely the kinds of ownership and contractual disruptions that international oil companies fear.
15. Sakhalin II also taught Shell the value of having the state company inside the project
Here we move from documented fact to interpretation.
No internal Shell memorandum located for this instalment says:
We lost control because Gazprom was outside the project, therefore our future Russian strategy must depend upon partnering Gazprom.
That conclusion should not be presented as a discovered corporate instruction.
But contemporary observers made a closely related point.
When Shell and Gazprom eventually formalised broader cooperation in 2010, analysts noted that foreign energy companies operating with Gazprom appeared to have better prospects in Russia than those attempting to develop strategic resources independently.
That assessment cannot be converted into Shell’s private reasoning.
But it fits the public behaviour visible throughout 2009. The Guardian
Shell did not attempt to restore its old dominant position.
It attempted to make the new relationship work.
16. The economics made withdrawal unattractive
Another part of the explanation requires no speculation.
Sakhalin II was producing.
Its LNG trains had ramped up rapidly.
Its oil and gas production was substantial.
Its LNG was sold into premium Asian markets.
Shell still owned 27.5 per cent.
It retained technical involvement.
And through the April agreements Shell was acquiring long-term LNG volumes for its global trading portfolio.
Walking away would therefore have meant abandoning a valuable producing position as well as possible access to future Russian resources.
The commercial incentive to remain engaged was substantial.
17. Gazprom also needed things Shell possessed
The relationship was not one-sided.
Gazprom possessed reserves and political access.
Shell possessed technologies, LNG operating experience, international trading capability and participation in infrastructure outside Russia.
The April 2009 transaction illustrates this exchange particularly well.
Gazprom gained access to Shell-linked terminal and pipeline capacity connected with the North American market.
Shell gained long-term LNG and pipeline-gas portfolio flexibility.
Gazprom could learn from an experienced international LNG operator.
Shell could retain a route into Russia’s resource base. Gazprom
Their interests were not identical.
They were complementary.
18. The High Court record remains a useful restraint on hindsight
The English High Court judgment delivered the previous year remains relevant because it fixes an independent point in the chronology.
Mr Justice Mitting recorded that Sakhalin II had originally been developed by a consortium in which Shell held the majority stake and that Gazprom had subsequently assumed a controlling interest.
He also recorded the proposed approximately $650 million of British export-credit support and the potentially serious environmental consequences associated with the project.
The case concerned disclosure of government environmental information.
It did not adjudicate why Gazprom obtained control.
It did not find that Russia had coerced Shell.
It did not rule that the ownership transfer was unlawful.
And it did not examine Shell’s later decision to deepen cooperation with Gazprom. vLex
That legal boundary remains important.
The chronology is powerful enough without converting interpretation into judgment.
19. What can safely be said about Shell’s strategy?
The public evidence permits several conclusions.
Shell considered Russia strategically important after losing control of Sakhalin II.
Shell actively pursued further cooperation with Gazprom.
Shell entered long-duration commercial arrangements with Gazprom and Sakhalin Energy.
Shell examined additional Sakhalin opportunities.
Gazprom publicly considered Shell for Sakhalin III.
The companies discussed Yamal LNG.
Shell’s own annual report called Russia a new heartland.
Those propositions are established.
What cannot be stated as documented internal fact is the precise reasoning process inside Shell’s executive committee or board.
No document examined for this instalment records a formal calculation such as:
Accept Gazprom dominance in exchange for future Russian access.
That may be an attractive interpretation.
It remains an interpretation.
Documentary Findings
Established
On 18 February 2009 Jeroen van der Veer told Reuters that Shell intended to discuss further Russian projects with Gazprom after the start-up of Sakhalin II LNG. Royal Dutch Shell Plc .com
On 8 April 2009 Gazprom and Shell announced agreements under which Shell Eastern Trading and Gazprom Global LNG would each purchase approximately one million tonnes of Sakhalin LNG annually at plateau.
The supply arrangements were scheduled to continue until 2028.
The package also contained a twenty-year pipeline-gas arrangement benefiting Shell’s European supply portfolio and arrangements involving North American LNG import capacity. Gazprom
Gazprom subsequently identified Shell as a potential participant in Sakhalin III. Dawn
Peter Voser publicly confirmed in April that Shell and Gazprom were examining additional opportunities around Sakhalin. Royal Dutch Shell Plc .com
In June 2009 Alexey Miller publicly suggested Sakhalin II experience could support future Shell-Gazprom cooperation in LNG development on Yamal. Oreanda News
On 18 September 2009 Miller and Voser agreed to establish a working group to study further Sakhalin field development under the existing Area of Mutual Interest framework. Gazprom
Contemporary reporting identified the Gazprom-controlled Kirinsky block as one possible area of cooperation. Royal Dutch Shell Plc .com
Shell’s 2009 Annual Report described Russia as a new upstream “heartland” following Sakhalin II start-up. Shell Plc
Established risk disclosure
Shell’s same annual report warned generally that political and regulatory developments in countries where it operated could lead to forced divestment, expropriation, cancellation of contractual rights and other adverse changes.
That disclosure was global and was not specifically labelled as a description of Russia. Shell Plc
Established judicial context
The High Court recorded the transition from Shell majority control to Gazprom control and the substantial environmental issues associated with Sakhalin II.
The judgment concerned environmental-information disclosure.
It did not determine the political motive for Gazprom’s acquisition. vLex
Not established
It is not established that Shell’s board formally adopted a policy of accepting Gazprom control in return for access to new Russian projects.
It is not established that Shell was promised Sakhalin III or Yamal participation as consideration for surrendering control of Sakhalin II.
It is not established that the Area of Mutual Interest Agreement guaranteed Shell participation in any specific future field.
It is not established that the environmental enforcement campaign of 2006 was legally improper.
It is not established that the later Shell-Gazprom cooperation erased, resolved or vindicated the environmental controversies that preceded the ownership restructuring.
Commentary
There is a temptation to tell the Sakhalin story as though December 2006 were the ending.
Shell lost control.
Gazprom won.
The Kremlin prevailed.
Curtain.
The documents show something considerably more complicated.
For Shell, Sakhalin II did not become a reason to abandon Russia.
It became the foundation of a different Russian strategy.
The old model had been:
Shell controls the project.
The emerging model was:
Gazprom controls access to strategic Russian resources; Shell brings technology, LNG expertise, international markets and capital; both sides look for projects where those interests overlap.
Whether Shell liked the circumstances that produced that new model is a different question.
Its behaviour is less ambiguous.
Shell stayed.
Shell signed twenty-year contracts.
Shell discussed Sakhalin III.
Shell discussed Yamal.
Shell created working groups with Gazprom.
And Shell called Russia a new heartland.
There is also a deeper irony.
Shell’s own annual report warned investors about political risks including forced divestment and contractual renegotiation.
Those risks belonged to the generic vocabulary of international petroleum investment.
But Shell had just lived through a transaction in Russia in which its controlling position had been cut in half during an extraordinary period of regulatory, environmental and political pressure.
Yet rather than mark Russia as commercially untouchable, Shell elevated it into the strategic heartlands of the company.
That suggests the scale of the prize.
Russia possessed resources international oil companies could not reproduce elsewhere.
Gazprom possessed access Shell could not independently obtain.
Shell possessed technology and global LNG capabilities Gazprom wanted.
Sakhalin II had exposed the imbalance of political power between them.
It had not eliminated their commercial interdependence.
And by late 2009 both companies were already building upon it.
The confrontation had produced not divorce, but a new marriage contract.
Source Record
Royal Dutch Shell plc’s Annual Report and Form 20-F 2009 is the principal authenticated Shell source. It describes Russia as a new upstream “heartland” following the start-up of Sakhalin II and contains Shell’s contemporaneous global disclosures concerning political, contractual and forced-divestment risks. Shell Plc
Shell-hosted Annual Report and Form 20-F 2009
The SEC filing index confirms Royal Dutch Shell’s 2009 Form 20-F was filed on 16 March 2010. SEC
US SEC — Royal Dutch Shell plc Form 20-F for 2009
Gazprom’s authenticated 8 April 2009 corporate release records the Shell and Gazprom LNG purchases, the 2028 contractual horizon, the European pipeline-gas agreement, the North American terminal arrangements and the stated intention to expand cooperation. Gazprom
Gazprom — Gazprom and Royal Dutch Shell sign LNG and natural gas contracts, 8 April 2009
Gazprom’s authenticated 18 September 2009 release records the Miller-Voser meeting, successful Sakhalin II ramp-up, the 2007 Area of Mutual Interest Agreement and creation of a working group for further Sakhalin development. Gazprom
Gazprom — Working meeting between Alexey Miller and Peter Voser, 18 September 2009
Reuters’ contemporaneous 18 February 2009 interview recorded Van der Veer’s intention to pursue further cooperation with Gazprom following Sakhalin II start-up. Royal Dutch Shell Plc .com
Bloomberg reporting of 29 April 2009 recorded Peter Voser saying Shell and Gazprom were examining further opportunities around Sakhalin. Royal Dutch Shell Plc .com
UPI’s 21 September 2009 report independently recorded the decision to pursue a working group for further Sakhalin development. UPI
The principal judicial source remains Export Credits Guarantee Department v Friends of the Earth [2008] EWHC 638 (Admin), judgment of Mr Justice Mitting dated 17 March 2008. vLex
High Court — ECGD v Friends of the Earth [2008] EWHC 638 (Admin)
Archive disclaimer: Corporate statements about cooperation and future projects establish what Shell and Gazprom publicly said and did. They do not establish undisclosed motives, private assurances or any political quid pro quo. Contemporary descriptions of the 2006–07 ownership restructuring as forced or coercive remain attributed descriptions rather than judicial findings.
Site-wide disclaimer applies.
Next instalment
SLF-2007-076 — The Sakhalin Papers LXVI: “Strategic Global Cooperation” — Four Years After the Kremlin Crisis, Shell Signs a Worldwide Pact with Gazprom
The relationship developing through 2009 did not stop at Sakhalin.
On 30 November 2010, Peter Voser and Alexey Miller signed something much more ambitious:
a Protocol on Strategic Global Cooperation.
Shell’s own announcement said the companies would examine joint oil and gas opportunities in western Siberia and Russia’s Far East.
Gazprom could participate in Shell upstream projects outside Russia.
The cooperation would extend into downstream markets in Russia and Europe.
Peter Voser said the agreement demonstrated the “strong partnership” the companies had built. PR Newswire
Contemporary reporting immediately noticed the irony: less than four years after Shell had lost control of Sakhalin II, it was signing a global partnership with the company that had taken control. The Guardian
The next file will examine how a bruising Russian ownership confrontation became, in Shell’s own language, a strategic global partnership — and what each side expected to obtain from the other.
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