THE SHELL LEAKS FILES: 10 OCTOBER 2026
SLF-2007-083
The Sakhalin Papers LXXIII: The Sanctions Paradox — Shell and Gazprom Plan More LNG While Shell Suspends Russian Shale Exploration
On 30 September 2014, just eighteen days after Washington introduced expanded restrictions on Russian energy technology, Ben van Beurden met Gazprom chairman Alexey Miller at Gazprom’s headquarters. The Russian company’s official announcement welcomed the prospect of increasing LNG production at Sakhalin II. But Shell’s subsequent filing with the US Securities and Exchange Commission reveals a crucial distinction: during the same year, Western sanctions had already caused Shell to suspend separate Russian shale-exploration activities. The documentary record exposes how Shell attempted to preserve one major Russian investment while restrictions were bringing other parts of its Russian portfolio to a halt.
Archive reference: SLF-2007-083
Collection: The Sakhalin Papers
Principal authenticated records: Gazprom corporate announcement of 30 September 2014; Gazprom–Shell memorandum-roadmap of 23 February 2014; Royal Dutch Shell plc Annual Report and Form 20-F 2014, filed with the US Securities and Exchange Commission on 12 March 2015; Gazprom corporate records concerning Sakhalin III.
Contemporaneous reporting: Reuters, 30 September 2013; Argus Media, 1 October 2014; LNG Industry, 1 October 2014; Reuters and Interfax reporting on Shell’s Russian operations during September 2014.
Government and judicial records: US Treasury sanctions announcements of 16 July and 12 September 2014; EU Council Regulation 833/2014; Court of Justice of the European Union, Rosneft v HM Treasury, Case C-72/15, judgment of 28 March 2017.
Evidence standard: Corporate announcements establish meetings and publicly expressed intentions, not undisclosed negotiations or final investment decisions. Shell’s SEC filing provides authenticated retrospective evidence of how sanctions affected its operations in 2014. Contemporary industry interpretations are attributed to their publishers. The subsequent European judgment is used to explain the legal framework, not to imply wrongdoing by Shell.
Introduction: The September meeting
The previous instalment, SLF-2007-082, established that Shell’s commercial relationship with Gazprom survived the first major escalation of Western sanctions following Russia’s annexation of Crimea.
On 23 May 2014, Ben van Beurden and Alexey Miller had met at the St Petersburg International Economic Forum.
They discussed the possibility of expanding Sakhalin II, Russia’s first liquefied natural gas project.
By September, circumstances had deteriorated significantly.
The destruction of Malaysia Airlines flight MH17 over eastern Ukraine had further damaged relations between Russia and the West.
Washington had imposed additional restrictions on Russian financial institutions and energy companies.
The European Union had introduced its own sectoral sanctions.
And on 12 September, the United States had expanded measures restricting technology and services associated with certain Russian oil-development activities.
Yet eighteen days later, Shell’s chief executive was meeting Gazprom’s chairman again.
This time, there was a particularly revealing detail in the official announcement.
Gazprom did not merely say that the companies intended to maintain their existing relationship.
It publicly welcomed the prospect of increasing LNG production.
The meeting occurred against a background in which parts of Shell’s wider Russian exploration portfolio were becoming subject to restrictions.
The documentary record therefore presents two developments that must be understood together.
One Shell venture was being positioned for expansion.
Other Shell activities were being suspended because of sanctions.
There was no inherent legal contradiction between those positions.
But their coexistence reveals the increasingly complicated commercial landscape Shell was navigating.
1. The primary document: 30 September 2014
The central record is a Gazprom corporate announcement published at 18:15 on 30 September 2014.
Its headline was:
“Gazprom and Shell approve Sakhalin II potential capacity creep.”
The announcement identifies a working meeting at Gazprom’s headquarters between Alexey Miller, chairman of Gazprom’s Management Committee, and Ben van Beurden, chief executive of Royal Dutch Shell.
Gazprom stated that the executives discussed current and future bilateral cooperation, concentrating particularly on LNG production at Sakhalin II.
The announcement described both companies positively assessing their joint efforts and recognising substantial potential to increase LNG output.
It also recalled the February 2014 memorandum-roadmap covering engineering preparations for a proposed third LNG train.
The document is preserved on Gazprom’s official website.
Gazprom: 30 September 2014 meeting announcement
This is important primary evidence.
It authenticates the meeting, identifies the participants and records the subjects Gazprom publicly acknowledged discussing.
But there are limitations.
The announcement does not disclose the full conversation.
It contains no transcript of the executives’ private exchanges.
It does not identify an approved project budget.
It does not announce a final investment decision.
And it does not say that the third LNG train had received every necessary construction approval.
Those distinctions are particularly important because Gazprom’s headline could easily be mistaken for evidence of a completed investment decision.
It was not.
2. What did “capacity creep” actually mean?
Gazprom’s choice of terminology deserves attention.
In LNG operations, capacity creep generally refers to incremental increases in production capability achieved through improvements to an existing facility.
Such improvements might involve equipment modifications, debottlenecking or operational optimisation.
That is different from constructing an entirely new LNG production train.
Sakhalin II already possessed two operating trains at Prigorodnoye.
Their original combined design capacity was approximately 9.6 million tonnes of LNG annually.
Gazprom’s own figures showed that the plant had exceeded that capacity.
In 2013, Sakhalin II produced approximately 10.8 million tonnes of LNG.
The original plant was therefore already performing beyond its nominal design specification.
Gazprom’s September announcement used the language of increasing capacity while also referring to the proposed third train.
The two possibilities should not be confused.
Further optimisation of the existing plant could provide incremental production gains.
A third train represented a substantially larger investment requiring additional gas, engineering, construction and financing.
The September announcement established enthusiasm for greater LNG production.
It did not, by itself, establish which specific expansion measures had received final approval. Gazprom
3. The third train was still the larger ambition
The proposal for a third LNG train was not new.
On 23 February 2014, van Beurden and Miller had signed a memorandum-roadmap in Sochi.
That document provided for the preparation of front-end engineering and design documentation.
FEED is a significant stage in major industrial-project development.
It establishes the technical design basis, refines cost estimates and supports subsequent investment decisions.
But completing or commissioning FEED is not the same as authorising construction.
Nor does it guarantee that a project will proceed.
Gazprom had publicly welcomed the prospect of increasing LNG supplies to Asia.
Van Beurden had emphasised Sakhalin II’s role as a reliable LNG supplier to the Asia-Pacific market.
Both companies had strong commercial incentives.
Sakhalin II already possessed an operating plant, export infrastructure, customers and an established production history.
Expanding an existing complex could potentially be more attractive than developing an entirely new LNG project.
But a third train required something that the two existing trains did not necessarily have available in sufficient quantities:
additional gas reserves capable of sustaining decades of increased LNG production.
That question would become central to the expansion debate.
Gazprom: February 2014 third-train roadmap
4. Argus identifies the sanctions connection
A particularly useful contemporary report appeared on 1 October 2014.
Industry publication Argus Media reported the previous day’s meeting under the headline:
“Gazprom backs Sakhalin 2 LNG expansion.”
Argus connected the renewed attention to Sakhalin II with the difficulties sanctions were creating for Gazprom’s proposed Vladivostok LNG project.
The report discussed a prospective third Sakhalin train of approximately 5 million tonnes annually.
It also raised the possibility that restrictions on access to US technology could strengthen Gazprom’s incentive to rely upon Shell’s LNG technology and experience.
This is an important contemporary interpretation.
It suggests that Western sanctions could have had differing effects across Gazprom’s project portfolio.
They might impede one proposed development while making another, involving an established Western partner and an existing operating complex, comparatively attractive.
But this remains Argus’s industry analysis.
The article does not establish that Gazprom’s internal management formally cancelled or redirected a project because of sanctions.
Nor does it prove that Shell supplied technology in violation of restrictions.
The report also discussed the need for additional gas supplies from the South Kirinsky area of Sakhalin III.
And it indicated that a final investment decision remained a future event.
That last detail is essential.
On 1 October 2014, the third train was still an investment proposal, not an approved construction project.
Argus Media: Gazprom backs Sakhalin 2 LNG expansion, 1 October 2014
The LNG Industry publication independently reported the Miller–van Beurden meeting on the same date, confirming the emphasis on increasing LNG production.
LNG Industry: Gazprom and Shell discuss Sakhalin LNG expansion
5. The missing gas: why Sakhalin III mattered
Sakhalin II was an established producing project.
Sakhalin III was a separate group of exploration and development licences controlled by Gazprom.
That distinction is fundamental.
Sakhalin II’s existing production came primarily from the Piltun-Astokhskoye and Lunskoye fields.
Gazprom’s Sakhalin III interests included the Kirinsky block and fields such as Kirinskoye and Yuzhno-Kirinskoye, also known as South Kirinsky.
These resources were potentially important because expansion of the LNG plant required reliable additional feed gas.
The problem had been publicly discussed before the 2014 political crisis.
On 30 September 2013, Reuters reported that Olivier Lazare, then head of Shell’s Russian operations, had urged Gazprom to move more quickly on LNG expansion.
Lazare warned that delays could cause the partners to miss favourable Asian LNG market opportunities.
Reuters identified the availability and allocation of additional gas as a significant obstacle.
Potential supplies from Sakhalin III were already under consideration.
But Gazprom had other plans for its gas resources, including domestic supply and wider eastern Russian infrastructure.
The issue was therefore not simply whether gas existed.
It was whether sufficient gas could be commercially and contractually committed to Sakhalin II.
The Reuters report was preserved contemporaneously in the Donovan archive.
Reuters: Shell warns Gazprom of price risks as LNG expansion delayed, 30 September 2013
This provides important continuity.
The disagreement over expansion did not originate with Western sanctions.
The underlying commercial and resource-allocation problem existed earlier.
Sanctions subsequently complicated the environment in which that problem had to be resolved.
6. Gazprom had already demonstrated the technology challenges
Gazprom’s own October 2013 announcement concerning the Kirinskoye field illustrates the technical complexity of developing additional offshore gas resources.
The company described the testing of Russia’s first subsea production facility at Kirinskoye.
The field was located approximately 28 kilometres offshore in the Sea of Okhotsk.
Its development required subsea equipment operating beneath waters subject to severe seasonal conditions.
Gazprom described a subsea production system installed at approximately 90 metres depth.
The company’s announcement also identified the wider Kirinsky block and ongoing exploration at Yuzhno-Kirinskoye.
The projected design output of Kirinskoye was approximately 5.5 billion cubic metres of gas annually.
That figure must not be confused with an approved gas supply to Sakhalin II.
Gazprom’s announcement described a producing-field development and the wider regional gas infrastructure.
It did not establish that the field’s production had been contractually allocated to Shell’s proposed third LNG train.
Nevertheless, the record demonstrates why offshore technology, infrastructure and resource allocation were significant issues.
The additional gas did not merely need to be found.
It had to be developed, produced, transported and made commercially available.
Gazprom: Kirinskoye subsea production facility, 23 October 2013
7. Shell’s own SEC filing reveals what sanctions had already stopped
The most important new evidence in this instalment comes from Shell itself.
On 12 March 2015, Royal Dutch Shell plc filed its Annual Report and Form 20-F for the year ended 31 December 2014 with the United States Securities and Exchange Commission.
This is an authenticated corporate filing.
It was published after the events examined here, but it reports Shell’s operations during 2014.
In the Russia section of its Upstream review, Shell confirmed that sanctions had affected its activities.
The company stated:
“As a result of EU and US sanctions prohibiting defined oil and gas activities in Russia, in 2014 we paused our liquids-rich shales exploration activities”
Shell identified the relevant operations as activities being undertaken through Salym and Khanty-Mansiysk Petroleum Alliance V.O.F.
This is unusually significant.
It is not a newspaper’s interpretation of an anonymous source.
It is not an allegation from an activist or campaign organisation.
It is Shell’s own statement in a document filed with a securities regulator.
It establishes that the 2014 restrictions had actual operational consequences for parts of Shell’s Russian portfolio.
Those consequences should not be exaggerated.
Shell did not say in this passage that sanctions had required it to close Sakhalin II.
It did not say that all its Russian exploration activities had ceased.
It identified particular liquids-rich shale-exploration activities that had been paused.
The distinction is precisely what makes the record valuable. SEC
8. The contrast with Sakhalin II
Elsewhere in the same annual report, Shell recorded its continuing position in Sakhalin II.
The company confirmed that it held a 27.5 per cent interest.
It described Sakhalin II as an integrated oil and gas project.
According to Shell’s own figures, the project produced approximately 320,000 barrels of oil equivalent per day in 2014, measured on the project’s total production basis.
The company also confirmed that LNG output exceeded 10 million tonnes.
In its list of operating liquefaction plants, Shell recorded Sakhalin LNG at Prigorodnoye with a capacity of 9.6 million tonnes annually.
The proposed third train was not listed among Shell’s LNG plants under construction in that report.
These figures support several conclusions.
First, Sakhalin II remained operational throughout the sanctions crisis of 2014.
Second, Shell continued to hold a substantial minority interest.
Third, the existing LNG operation had not been shut down by the sanctions measures discussed here.
Fourth, the third train remained a prospective development rather than an operating facility or an identified construction project.
Most importantly, the same SEC filing that confirmed the suspension of Russian shale exploration also confirmed the continuation of Sakhalin II production.
That is the central documentary contrast.
Shell was suspending some Russian activities while maintaining others. SEC
9. Why the legal distinction mattered
The restrictions introduced in 2014 were not a comprehensive prohibition on all Russian energy trade.
They were targeted measures.
Some concerned access to financing.
Others restricted particular goods, services and technologies associated with designated Russian energy companies or specified categories of oil development.
On 12 September 2014, the US Treasury expanded sectoral sanctions affecting Russian energy activities.
Its Directive 4 addressed certain deepwater, Arctic offshore and shale projects with the potential to produce oil.
The restrictions were concerned with the application of specified technology, goods and services to those projects.
The measures therefore distinguished between different activities.
An existing LNG plant processing gas from established fields was not automatically equivalent to a new shale-oil exploration project.
Nor was every transaction involving Gazprom legally identical to every transaction involving Gazprom Neft or another Russian company.
Company identity, ownership, project location, activity, technology, financing arrangements and applicable jurisdiction all mattered.
This helps explain how Shell could lawfully continue certain operations while suspending others.
It is also important to distinguish a project’s exposure to sanctions-related commercial difficulties from the narrower question of whether a particular transaction was legally prohibited.
An expansion project might become harder to finance or equip without every element of the project being expressly banned.
The relevant restrictions must be assessed according to their precise terms.
The evidence examined here does not establish a Shell sanctions violation. EUR-Lex
10. The later court record confirms the importance of those distinctions
A subsequent judgment provides authoritative legal context.
On 28 March 2017, the Court of Justice of the European Union delivered its judgment in:
PJSC Rosneft Oil Company v HM Treasury and Others, Case C-72/15.
The proceedings arose from a reference by the High Court of Justice in England and Wales.
The case concerned the validity and interpretation of EU restrictive measures introduced in response to Russia’s actions destabilising Ukraine.
The Court considered the legal basis and scope of the measures, including restrictions affecting capital markets and particular oil-sector activities.
Its judgment upheld the contested measures against the relevant validity challenges.
The proceedings illustrate why the precise wording and coverage of the sanctions regime were legally important.
They also demonstrate that the restrictions were subject to judicial scrutiny.
But the judgment must not be misrepresented.
Shell was not the defendant in the Rosneft case.
The Court did not investigate the September 2014 Shell–Gazprom meeting.
It did not decide whether Shell’s proposed Sakhalin expansion complied with every applicable sanctions requirement.
And it made no finding that Shell breached the restrictions.
The judgment is relevant as an authoritative explanation of the legal framework within which international energy companies had to operate.
Court of Justice of the European Union: Rosneft v HM Treasury, Case C-72/15
11. The strategic value of an established LNG plant
Why was Sakhalin II so important to Shell?
The commercial evidence provides a straightforward explanation.
Sakhalin II had already passed through the most difficult stages of development.
The offshore fields were producing.
The pipelines and onshore infrastructure were operating.
The LNG plant had been commissioned in 2009.
Export deliveries had been established.
The project had customers in Asian energy markets.
It was generating substantial production volumes.
That distinguished it from prospective projects requiring entirely new infrastructure and uncertain future capital investment.
Shell’s existing minority interest was therefore commercially valuable.
It also represented decades of technical work and investment.
The history of the project had been difficult.
The original production-sharing agreement dated from the 1990s.
The project had encountered substantial environmental controversy, cost escalation and regulatory pressure.
And in 2006–07, Shell had surrendered majority control when Gazprom acquired its controlling interest.
Those events have been documented in earlier Shell Leaks Files.
Yet by 2014, Shell was once again seeking to expand the partnership.
There was a commercial logic to that decision.
Gazprom controlled the project.
Gazprom controlled potentially relevant additional resources.
Shell retained important LNG technology, experience and international market expertise.
Neither company could independently achieve everything it wanted through the existing venture.
Commercial cooperation remained valuable despite political tensions.
That observation does not justify or condemn the relationship.
It explains why it endured.
12. Gazprom’s position was equally complicated
Gazprom also faced competing incentives.
The company wanted to strengthen Russia’s position in Asian gas markets.
China had agreed to major long-term pipeline gas purchases earlier in 2014.
Russia was investing in eastern gas infrastructure.
Gazprom was developing fields around Sakhalin and elsewhere in eastern Siberia.
It was also considering competing LNG opportunities.
But Western sanctions increased the difficulty of obtaining certain technologies and financing.
Against that background, an established LNG complex already operating with Shell’s involvement had obvious attractions.
Argus’s October 2014 interpretation that the sanctions difficulties surrounding Vladivostok LNG increased interest in Sakhalin II was therefore commercially plausible.
However, it remains important to distinguish the reporter’s analysis from an authenticated Gazprom investment decision.
The September meeting record does not state that Gazprom formally selected Sakhalin II expansion as a replacement for Vladivostok LNG.
Nor does it establish that the company had resolved the additional gas-supply problem.
Gazprom’s own announcement was narrower.
It confirmed that both companies saw substantial potential to increase LNG production.
The distinction between recognising potential and approving construction is fundamental.
13. The ownership structure still shaped every decision
The September 2014 corporate announcement repeated Sakhalin Energy’s ownership structure.
Gazprom held 50 per cent plus one share.
Shell held 27.5 per cent minus one share.
Mitsui held 12.5 per cent.
Mitsubishi held 10 per cent.
That arrangement dated from the restructuring completed in 2007.
Before the change, Shell had held a majority interest.
Afterwards, Gazprom became the controlling shareholder.
This remained a defining feature of the company’s Russian business.
Shell could promote expansion.
It could propose technology.
It could bring commercial expertise and experience.
It could participate in engineering studies.
But it could not unilaterally determine the future of Sakhalin Energy.
Nor could it independently allocate Gazprom-controlled Sakhalin III gas reserves to the project.
The proposed third train therefore depended upon decisions extending beyond Shell’s control.
In the absence of a final investment decision, the September meeting should be understood as part of an ongoing negotiation and project-development process.
It was not evidence that every major obstacle had been overcome.
14. What Shell’s annual report tells shareholders
Shell’s 2014 Form 20-F contains another relevant passage.
In its risk disclosures, the company explicitly warned investors about trade controls and sanctions.
Shell described the increasing number and scope of such restrictions and explained that breaches could expose companies and employees to significant penalties.
It specifically referred to additional EU and US restrictions directed at defined oil and gas activities in Russia during 2014.
The document therefore shows that Shell was not presenting sanctions as an irrelevant political issue.
The company recognised them as a material category of operational and legal risk.
There is an important difference, however, between acknowledging sanctions risk and abandoning investments.
Shell’s disclosures indicate that management was responding selectively according to the activities involved.
Shale exploration was paused where the restrictions affected it.
Sakhalin II continued operating.
Proposed LNG expansion remained the subject of discussion.
Taken together, the records describe a company attempting to preserve its Russian commercial interests within an increasingly restrictive legal environment.
That is a more accurate conclusion than suggesting that Shell ignored sanctions altogether. SEC
15. The significance of the 30 September meeting
The meeting was important for three reasons.
First, it demonstrated commercial continuity.
Shell and Gazprom remained actively engaged at the highest executive level despite the escalation of Western sanctions.
Second, it confirmed that Sakhalin II expansion remained a subject of mutual interest.
The proposed increase in LNG production had not disappeared from the agenda.
Third, it occurred during a period in which Shell’s wider Russian portfolio was already being affected by sanctions.
The company’s later SEC filing confirms that some exploration activities were paused during 2014.
This places the September meeting in a more precise historical context.
It was neither an ordinary commercial meeting conducted in politically uncomplicated circumstances nor evidence that Shell had defied the law.
It was a meeting between two longstanding commercial partners attempting to preserve opportunities while the legal and political environment around them was changing.
The outcome remained uncertain.
The additional gas resources had not yet been definitively secured for the proposed third train.
The necessary investment decisions had not all been taken.
And the future scope of Western sanctions remained difficult to predict.
Documentary Findings
Established by authenticated corporate records
30 September 2014: Gazprom chairman Alexey Miller and Shell chief executive Ben van Beurden met at Gazprom’s headquarters.
Gazprom’s official announcement confirms that they discussed current and future cooperation, particularly LNG production at Sakhalin II.
Gazprom publicly identified potential to increase LNG production.
The announcement recalled the February 2014 memorandum-roadmap concerning preparation of engineering documentation for a proposed third train.
Sakhalin Energy remained majority-controlled by Gazprom, with Shell retaining approximately 27.5 per cent.
Royal Dutch Shell’s 2014 Form 20-F confirms that Sakhalin II continued operating and produced more than 10 million tonnes of LNG during the year.
Most significantly, the same filing confirms that Shell paused certain Russian liquids-rich shale-exploration activities in 2014 because of EU and US sanctions. Gazprom
Established by contemporaneous reporting
Reuters reported in September 2013 that Shell wanted Gazprom to accelerate Sakhalin II expansion and that additional gas supplies were a central obstacle.
Argus reported on 1 October 2014 that sanctions-related difficulties affecting another proposed Gazprom LNG development were increasing the attraction of Sakhalin II expansion.
Argus also identified South Kirinsky as potentially important to the proposed additional train.
LNG Industry independently confirmed the 30 September meeting and the emphasis on increasing LNG production.
These reports provide valuable commercial context but do not establish undisclosed internal decisions by Gazprom or Shell. Royal Dutch Shell Plc .com
Established by government and judicial records
US and EU restrictions introduced during 2014 affected specified categories of financing, technology and energy development.
They did not automatically prohibit every existing Russian LNG operation.
The Court of Justice of the European Union subsequently examined the validity and interpretation of relevant restrictive measures in the Rosneft proceedings.
That judgment provides legal context but contains no finding of wrongdoing by Shell. EUR-Lex
Not established
The documents do not establish that Shell violated US or EU sanctions.
They do not establish that Shell provided prohibited technology to Gazprom.
They do not establish that the September meeting resulted in a final investment decision.
They do not establish that construction of the third LNG train was authorised in September 2014.
They do not establish that the additional Sakhalin III gas required for expansion had been secured.
They do not establish that Gazprom abandoned Vladivostok LNG solely because of sanctions.
They do not establish that Shell endorsed Russia’s annexation of Crimea.
And they do not establish that Shell’s continued participation in Sakhalin II was itself prohibited by the sanctions framework in force at the time.
Commentary: The Difference Between Staying and Expanding
The most revealing feature of the September 2014 record is the contrast between what Shell was prepared to stop and what it was still prepared to pursue.
Shell’s annual report confirms that sanctions caused the company to pause certain Russian shale-exploration activities.
Yet Gazprom’s official announcement records that Shell’s chief executive was still discussing the prospect of expanding Sakhalin II.
That contrast reveals a strategy shaped by commercial value and legal distinction.
Sakhalin II was already operating.
It had substantial infrastructure.
It had established export customers.
It was producing large volumes of LNG.
Shell retained a valuable minority interest.
The company had strong reasons to preserve those assets.
New shale exploration presented different legal and commercial circumstances.
Some of those activities fell within restrictions introduced in response to Russia’s actions in Ukraine.
Shell’s filing confirms that the restrictions had consequences.
But the Sakhalin II relationship survived.
The arrangement illustrates an important feature of economic sanctions.
Their effect is not necessarily uniform.
Targeted restrictions can make one activity legally impossible while leaving another permissible.
They can increase the commercial attractiveness of existing infrastructure even while restricting investment in new projects.
They can constrain technology transfer without immediately stopping production from an established facility.
They can also create uncertainty that delays investment decisions even where the underlying activity is not expressly prohibited.
All those distinctions were relevant to Shell’s Russian interests in 2014.
There is, however, another historical dimension.
Shell had already experienced the consequences of dependence upon Russian political and regulatory decisions.
The 2006 confrontation over Sakhalin II had culminated in the company relinquishing majority control.
By 2014, Gazprom held that control.
Shell therefore entered the sanctions crisis not as the dominant shareholder of an independently controlled project but as a minority participant in a venture controlled by Russia’s state gas company.
That relationship limited Shell’s freedom of action.
It also provided access to an established LNG operation that the company clearly regarded as valuable.
The irony is difficult to overlook.
In 2006, Shell found itself under intense pressure over the future of Sakhalin II.
In 2014, with Russia again at the centre of an international confrontation, Shell was pressing to make the same project larger.
The documentary record does not establish that this strategy was unlawful.
Nor does it establish that it was commercially irrational.
It establishes something more historically revealing.
Shell was prepared to continue investing management attention and project-development effort in cooperation with Gazprom even as sanctions were forcing it to suspend other Russian activities.
Its relationship with the Russian state energy sector had survived the confrontation of 2006–07.
It was now surviving the first year of the Ukraine sanctions crisis.
But a more difficult question remained.
A third LNG train could not operate on diplomatic goodwill and engineering experience alone.
It needed gas.
And the prospective gas supplies lay increasingly close to the activities and technologies that Western sanctions were targeting.
That problem was not resolved by the September meeting.
It was waiting immediately ahead.
Principal Documentary Sources
1. Gazprom — 30 September 2014
Official announcement confirming the meeting between Alexey Miller and Ben van Beurden and the potential for increasing LNG production at Sakhalin II.
Gazprom and Shell approve Sakhalin II potential capacity creep
2. Royal Dutch Shell plc — Annual Report and Form 20-F 2014
Filed with the US Securities and Exchange Commission on 12 March 2015.
The central Shell-authored source for this instalment. Relevant passages include the Russia section of the Upstream review, the table of operating LNG facilities and the risk-factor disclosures concerning sanctions.
Royal Dutch Shell plc: 2014 Form 20-F, SEC filing
3. Gazprom — 23 February 2014
Official memorandum-roadmap concerning preparation of engineering documentation for Sakhalin II’s proposed third LNG train.
Gazprom and Shell sign roadmap for third Sakhalin II LNG train
4. Reuters — 30 September 2013
Contemporaneous reporting of Shell’s concerns that delays in expanding Sakhalin II could result in missed market opportunities.
Preserved in the Donovan archive.
Shell warns Gazprom of price risks as LNG expansion delayed
5. Argus Media — 1 October 2014
Industry reporting examining the September meeting, sanctions-related pressure on Gazprom’s LNG ambitions and the potential role of South Kirinsky gas.
Gazprom backs Sakhalin 2 LNG expansion
6. LNG Industry — 1 October 2014
Independent contemporaneous report confirming the September meeting and the companies’ stated interest in increasing LNG production.
Gazprom and Shell discuss LNG production at Sakhalin
7. Gazprom — 23 October 2013
Official announcement detailing the Kirinskoye subsea development and the wider Sakhalin III resource base.
Russia’s first subsea production facility tested at Kirinskoye
8. US Department of the Treasury — 12 September 2014
Official announcement introducing expanded restrictions affecting specified Russian energy activities.
US Treasury: Expanded Russia sanctions, September 2014
9. European Union — Regulation 833/2014
The legal framework for EU sectoral restrictions concerning Russia’s actions destabilising Ukraine, including subsequent amendments.
10. Court of Justice of the European Union — 28 March 2017
PJSC Rosneft Oil Company v HM Treasury and Others, Case C-72/15.
Official judicial record concerning the validity and interpretation of EU sanctions measures adopted in 2014.
CJEU judgment: Rosneft v HM Treasury
Archive disclaimer: This instalment distinguishes authenticated corporate records, government restrictions, subsequent judicial findings, contemporaneous journalism and editorial interpretation. Shell’s 2014 Annual Report and Form 20-F is treated as the company’s authenticated account of its operations, not as independent verification of every management judgment. Gazprom’s announcements establish the company’s published position rather than the complete content of confidential negotiations.
No sanctions violation by Shell is alleged or established in the material examined here.
Site-wide disclaimer also applies.
NEXT: The Gas Behind the Third Train — South Kirinsky, Shell’s 2015 Agreement and the Field Washington Targeted
The September 2014 meeting left one essential question unresolved.
Where would the additional gas come from?
Gazprom controlled substantial resources within Sakhalin III.
Shell wanted to expand LNG production at the existing Sakhalin II complex.
But bringing those resources into production required further investment, specialised technology and regulatory approval.
The following year would produce two important developments.
On 18 June 2015, Gazprom and Shell signed agreements that advanced their strategic relationship and the proposed third Sakhalin II LNG train.
Then, on 7 August 2015, the US Department of Commerce took an extraordinary step.
It placed the Yuzhno-Kirinskoye oil and gas field itself on the Entity List, requiring licences for exports, re-exports and transfers of items subject to US Export Administration Regulations to that field.
The US government cited concerns about the field’s substantial oil reserves and the risk of supporting restricted deepwater energy development. Justia
This was no longer merely a general restriction affecting Russian energy companies.
It was a measure directed at a specific offshore field whose gas resources had been discussed in connection with the proposed LNG expansion.
The next Shell Leaks File will examine the June 2015 agreements, the role of South Kirinsky and the August 2015 US restrictions — tracing how the gas resource behind Shell and Gazprom’s expansion ambitions became the subject of a remarkable sanctions decision.
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