THE SHELL LEAKS FILES: 7 OCTOBER 2026

SLF-2007-080

The Sakhalin Papers LXX: The Third Train — Shell Pushes to Expand the Project It No Longer Controlled

Seven years after Shell surrendered control of Sakhalin II to Gazprom, it was pressing its new majority partner to make the project larger. In September 2013 Shell warned that delay could squander favourable Asian LNG prices. The difficulty was not the existing plant: Sakhalin II was already producing above its original design capacity. The problem was finding enough additional gas. Shell pointed toward Gazprom’s neighbouring Sakhalin III resources. In December, Peter Voser and incoming chief executive Ben van Beurden agreed with Gazprom to advance engineering work. On 23 February 2014, van Beurden and Alexey Miller signed the roadmap in Sochi. Shell no longer controlled Sakhalin II. But it plainly still regarded the project as something worth expanding.

Archive reference: SLF-2007-080; Collection: The Sakhalin Papers; Principal authenticated records: Royal Dutch Shell plc Annual Report and Form 20-F 2014; Gazprom corporate records dated 23 October and 23 December 2013 and 23 February 2014; Contemporaneous reporting: Reuters, 30 September 2013; Later corroborating record: Gazprom’s subsequent account of the proposed third train and its intended Sakhalin III feed gas; Evidence standard: preparation of FEED documentation is distinguished throughout from a final investment decision or authorisation to construct the third train. No court or arbitral ruling identified for this instalment adjudicated the commercial merits of the expansion proposal.

Introduction

The previous file ended with one of the stranger features of Shell’s post-2006 relationship with Gazprom.

Greenpeace had demanded that Shell sever its relationship with the Russian state-controlled company during the Arctic 30 controversy. Shell declined to do so and publicly described Gazprom as a good and reliable partner.

At almost exactly the same time, something commercially much more important was happening behind the headlines.

Shell wanted Gazprom to expand Sakhalin II.

That alone is worth considering carefully.

In December 2006, Shell had agreed to surrender its controlling position in Sakhalin Energy. Gazprom subsequently acquired 50 per cent plus one share, leaving Shell with 27.5 per cent minus one share. By 2013, the ownership structure recorded by Gazprom still placed effective corporate control firmly with the Russian company. Gazprom

Yet Shell was not behaving like a company preparing to retreat.

It was arguing that Sakhalin II should become larger.

A highly successful LNG plant was already operating

The commercial logic began with what Sakhalin II had become.

Russia’s first LNG plant began exports in 2009. Gazprom said it reached its design capacity of 9.6 million tonnes per annum in 2010. By the end of 2013, the project had produced approximately 10.8 million tonnes of LNG during the year — already above the plant’s nominal design capacity. Gazprom

Shell’s own authenticated 2014 Annual Report confirms the scale of the asset. It recorded Shell’s 27.5 per cent interest in Sakhalin II, stated that the project produced approximately 320,000 barrels of oil equivalent per day during 2014, and said LNG output again exceeded 10 million tonnes. Shell separately recorded the Prigorodnoye plant at 9.6 million tonnes per annum of nameplate capacity and reported 2.9 million tonnes of Sakhalin equity LNG sales attributable to Shell in 2014. Shell

This was therefore not a proposal to rescue a failing project.

It was a proposal to enlarge a producing LNG operation that was already running strongly.

Shell warned Gazprom not to wait

The tension became public on 30 September 2013.

Reuters interviewed Olivier Lazare, then head of Shell’s Russian operations. His message to Gazprom was unusually direct: Shell believed that delaying expansion of the Sakhalin II LNG plant risked missing an attractive market opportunity.

Reuters reported that Shell and Gazprom had already been discussing expansion for years. One difficulty was the resource base. An additional LNG train required additional gas, and Gazprom had not yet secured a satisfactory supply arrangement capable of underpinning the expansion. Royal Dutch Shell Group .com

Lazare’s argument was essentially one of timing. LNG demand and prices in Asia were attractive, and Shell believed that moving earlier would strengthen the project’s ability to market additional volumes.

That is important documentary evidence because it supplies a commercial explanation for Shell’s enthusiasm.

There is no need to invent a hidden motive.

Shell publicly said what it wanted: more LNG capacity while market conditions were favourable.

The difficulty was the gas

An LNG train is useful only if there is enough gas to keep it operating.

Sakhalin II already depended principally upon its own Lunskoye and Piltun-Astokhskoye resources. Expansion on the scale then being discussed required an additional long-term feed-gas solution.

One possibility had been gas from neighbouring Sakhalin I, operated by Exxon Neftegas. Reuters reported that Gazprom had failed to reach an agreement to purchase that gas, with pricing among the obstacles. Royal Dutch Shell Group .com

That left another obvious possibility sitting nearby:

Sakhalin III.

Lazare specifically told Reuters that additional gas might be obtained from Gazprom’s Sakhalin III project.

The complication was obvious. Gazprom had its own plans for that gas and was not obliged to dedicate it to a Shell-backed expansion of Sakhalin II. Reuters reported at the time that Gazprom intended to use Sakhalin III resources for other projects, making Shell’s proposal more difficult to implement. Royal Dutch Shell Group .com

The resource issue therefore exposed the new balance of power created by the 2007 ownership change.

Shell could advocate expansion.

It could contribute LNG technology and commercial expertise.

It could participate as a 27.5 per cent shareholder.

But it could not simply command Gazprom to supply the gas.

Then Sakhalin III began producing

Less than a month after the Reuters interview, the resource discussion acquired a new physical reality.

On 23 October 2013, Gazprom formally launched first gas from the Kirinskoye gas and condensate field, part of Sakhalin III. Vladimir Putin gave the command to begin production during the launch ceremony. Gazprom

Gazprom described Kirinskoye as Russia’s first offshore field developed using a subsea production system. The field lay about 28 kilometres offshore in the Sea of Okhotsk. Gazprom said that once nominal capacity was reached, production was expected to reach 5.5 billion cubic metres of gas per year. It placed Kirinskoye’s C1 reserves at 162.5 billion cubic metres of gas and 19.1 million tonnes of condensate. Gazprom

Gazprom also said that the associated onshore processing facility was designed eventually to receive gas from other Sakhalin III fields.

This did not mean that Kirinskoye gas had suddenly been allocated to Sakhalin II.

Indeed, contemporaneous reporting shows that competing uses for the gas were precisely part of the problem.

But Sakhalin III was no longer merely a geological possibility on a map. Gas production had begun.

December 2013: pressure became a corporate proposal

On 23 December 2013, the story moved from public advocacy toward formal project development.

Gazprom headquarters hosted a meeting between Alexey Miller and outgoing Shell chief executive Peter Voser. Also present was Ben van Beurden, who was due to become Shell chief executive on 1 January 2014.

Gazprom’s authenticated record says the parties discussed exploration, production, processing, sales and LNG cooperation. Most significantly, they addressed expansion of Sakhalin II and agreed to advise Sakhalin Energy to place before its governing bodies the question of moving to preparation of front-end engineering and design documentation for a third LNG process train at Prigorodnoye. Gazprom

They also agreed to prepare a more detailed roadmap for that FEED work in February 2014.

This distinction is important.

They had not taken a final investment decision.

They had not authorised construction.

They had agreed to move the proposal further into engineering and project definition.

That is precisely what the contemporary corporate record says, and no more should be claimed.

The Shell leadership changed, but the Sakhalin policy did not

Peter Voser stepped down as Shell chief executive at the end of 2013.

Ben van Beurden became chief executive on 1 January 2014. Shell had announced his appointment the previous July after a career of roughly three decades inside the company. PR Newswire

There was therefore a potentially significant question.

Would a new chief executive continue the increasingly close commercial relationship with Gazprom that had developed after Shell lost control of Sakhalin II?

The answer came almost immediately.

He did.

23 February 2014: van Beurden and Miller sign in Sochi

On 23 February 2014, Alexey Miller and Ben van Beurden met in Sochi and signed the promised memorandum-roadmap.

Gazprom’s surviving corporate announcement is explicit: the document envisaged preparation of FEED documentation for a third LNG production train within Sakhalin II. Gazprom

Miller publicly justified expansion by pointing to the booming LNG market, particularly in Asia.

Van Beurden likewise welcomed Gazprom’s approach to expansion and said an additional train would reinforce Sakhalin II’s position as a reliable supplier to the Asia-Pacific region. Gazprom

The language is significant.

Gazprom was not being spoken of as the company that had displaced Shell as controlling shareholder in a bruising 2006 confrontation.

It was being described as Shell’s strategic partner.

And Shell’s newly installed chief executive was personally signing the document that would take expansion to the next engineering stage.

What FEED actually meant

“FEED” — front-end engineering and design — can sound more decisive than it is.

It is an important project-development stage. Engineering concepts are defined in greater detail, technical requirements are developed, costs and execution options can be refined, and the information required for later investment decisions becomes more robust.

But FEED is not the same thing as a final investment decision.

The February 2014 roadmap therefore demonstrated serious intent without proving that a third train would ultimately be constructed.

This distinction matters especially in retrospect, because later events would repeatedly delay, reshape and complicate the proposal.

The documentary record should not convert an engineering roadmap into a completed investment decision simply because subsequent discussions continued.

The strategic paradox

There is nevertheless an unmistakable irony in the position Shell had reached.

In 2006 Shell had been fighting to retain control of Sakhalin II.

By 2014 it was lobbying the company that had acquired control to expand it.

That is not necessarily contradictory.

A company can lose corporate control of an asset while retaining a strong economic interest in making that asset larger and more profitable.

Shell still owned more than a quarter of Sakhalin Energy. Sakhalin LNG was contributing millions of tonnes to Shell’s global LNG portfolio. The plant possessed operating infrastructure, export facilities, established customers and a production record that had already exceeded nominal design capacity. Shell

From a purely commercial perspective, expanding an established LNG complex could be attractive even if Shell no longer controlled the company that owned it.

What had changed was the dependency.

Shell needed Gazprom not merely as majority shareholder.

It potentially needed Gazprom as supplier of the additional gas.

Sakhalin II and Sakhalin III begin to converge

The significance of the 2013 Reuters interview becomes clearer when later Gazprom records are examined.

By 2017 Gazprom was publicly describing the proposed third Sakhalin II train as a 5.4-million-tonne-per-year project and stated explicitly that natural gas from Sakhalin III was planned to ensure that the third train was fully loaded. Gazprom

That later statement should not be projected backwards as though every detail had already been settled in September 2013.

It had not.

But it confirms that the resource question identified in the contemporary reporting was fundamental, not incidental.

The future of the Sakhalin II expansion was becoming tied to resources controlled by Gazprom outside Sakhalin II itself.

In practical terms, two nominally separate projects were moving toward strategic interdependence.

Sakhalin II possessed the LNG plant.

Sakhalin III possessed additional Gazprom-controlled gas.

Shell wanted the former expanded.

Gazprom controlled the decisive elements of both.

What the documents establish

The record establishes that Shell actively sought expansion of Sakhalin II during 2013; that Olivier Lazare publicly warned of the commercial risk of delay; that insufficient additional gas was one of the principal obstacles; that Shell identified Sakhalin III as a possible feed-gas source; that Gazprom commenced production from Kirinskoye in October 2013; that Shell and Gazprom agreed in December to advance the third-train proposal toward FEED; and that Ben van Beurden personally signed the February 2014 roadmap with Alexey Miller. Royal Dutch Shell Group .com

The authenticated Shell annual report also establishes that Sakhalin II remained a large, productive asset in Shell’s portfolio, with Shell holding 27.5 per cent and receiving substantial LNG volumes from the project. Shell

Later Gazprom material confirms that Sakhalin III gas eventually became the intended resource base for fully loading the proposed third train. Gazprom

What the documents do not establish

Nothing examined for this instalment establishes that a final investment decision for the third train had been taken by February 2014.

Nothing establishes that Shell could compel Gazprom to dedicate Sakhalin III gas to Sakhalin II.

Nothing establishes that the Kirinskoye field alone was intended at that date to provide the entire feed-gas requirement.

Nothing identified here shows that a court or tribunal adjudicated the commercial wisdom of constructing the third train.

And nothing in these records supports presenting Shell’s post-2006 relationship with Gazprom simply as either capitulation or collaboration.

The documentary position is more interesting than either label.

Shell had lost control.

Shell remained invested.

Shell wanted expansion.

And expansion made Shell increasingly dependent upon the very Russian partner that had acquired control.

Commentary

The most revealing aspect of this episode may be how quickly the extraordinary events of 2006 were absorbed into ordinary commercial strategy.

Seven years earlier the transfer of control had followed environmental enforcement, permit disputes, escalating project costs and intense negotiations conducted under the shadow of the Kremlin.

By 2014, Shell was not publicly relitigating that history.

Its chief executive was sitting beside Alexey Miller and planning the next expansion.

That does not erase what happened in 2006.

It demonstrates what multinational oil companies often do after political shocks: preserve the asset, accommodate the new structure and continue looking for the next profitable development.

Sakhalin II had ceased to be Shell-controlled.

It had not ceased to matter to Shell.

The third-train proposal proves that rather decisively.

Source Record

The central authenticated corporate record is Gazprom’s 23 December 2013 announcement recording the Voser–Miller meeting, Ben van Beurden’s participation and the agreement to move toward preparation of FEED documentation for a third LNG train. Gazprom — design stage for third Sakhalin LNG train, 23 December 2013

Gazprom’s 23 February 2014 announcement records the signed memorandum-roadmap between Miller and van Beurden and their public rationale for expansion. Gazprom — roadmap for third train of Sakhalin II, 23 February 2014

The contemporaneous commercial account is Reuters’ 30 September 2013 report recording Olivier Lazare’s warning about market timing, the unresolved resource base, the failed Sakhalin I gas negotiations and Shell’s suggestion that Sakhalin III might provide additional gas. Royal Dutch Shell Group .com

Gazprom’s 23 October 2013 record documents the start of production at Kirinskoye, its reserves, expected production capacity and the wider Sakhalin III infrastructure. Gazprom — first gas from Kirinskoye, 23 October 2013

Royal Dutch Shell plc’s authenticated Annual Report and Form 20-F 2014 records Shell’s 27.5 per cent Sakhalin II interest, project production, LNG output, 9.6 mtpa design capacity and Shell’s 2.9 million tonnes of Sakhalin equity LNG sales. Shell

Later Gazprom documentation records that Sakhalin III gas was ultimately planned as the feed source necessary to fully load the proposed 5.4 mtpa third train. Gazprom

Archive disclaimer: Commercial proposals are distinguished from final investment decisions. Later evidence is identified as later evidence and is not used to imply that all feed-gas arrangements had already been settled in 2013–14. Statements by Shell, Gazprom and their executives are attributed to their respective sources. No judicial finding is asserted where none has been identified.

Next: Crimea changes the equation

The Sochi roadmap was signed on 23 February 2014.

Within weeks, Russia annexed Crimea and the first Western sanctions followed.

One might reasonably have expected Shell’s enthusiasm for further Russian expansion to cool.

Instead, on 18 April 2014, Ben van Beurden met Vladimir Putin and reaffirmed Shell’s commitment to Russia and the Sakhalin expansion while sanctions were already becoming a central international issue. Contemporary Reuters reporting recorded the encounter. Royal Dutch Shell Plc .com

The next Shell Leaks File will examine that meeting: Crimea, sanctions, Putin — and why Shell’s new chief executive still wanted to grow in Russia.