Exclusive: Arrival of Putin's judo partner squeezed Shell out of LNG project

Royal Dutch Shell pulled out of a project to build a Russian liquefied natural gas plant partly because Gazprom suddenly added another partner with links to an ally of President Vladimir Putin, according to five sources.

After three years work on the Baltic Coast project, Shell discovered that Gazprom was bringing in a company linked to Arkady Rotenberg, who is on a U.S. sanctions blacklist.

The sudden change in the line-up of partners was one of the key factors contributing to Shell’s Wednesday announcement that it was pulling out of the project, according to three sources close to Shell and two other sources familiar with the project.

Asked to comment on the reasons for withdrawing, a Shell spokesman said it had nothing to add to a previous statement that said its exit followed Gazprom’s announcement last month of its final concept for the project. Gazprom spokesman Sergei Kupriyanov said the company was not commenting.

According to the two sources close to Shell, Gazprom did not consult with Shell about bringing in the firm, which is called RusGazDobycha, but instead presented it with the plan as a fait accompli.

With RusGazDobycha’s arrival also came changes to the configuration of the project itself, which Shell did not feel comfortable with, all of the sources said.

It became untenable for Shell to stay in the project “and that was clear from the moment that Gazprom announced it was going to build the plant together with RusGazDobycha,” said one of the sources familiar with the project.

A RusGazDobycha official did not respond to a request for comment. Asked if the presidential administration had any role in RusGazDobycha’s entry into the project, Kremlin spokesman Dmitry Peskov said it was a question for the companies involved.

The sudden shift in the project underlines the unpredictability of doing business in Russia — even for a firm like Shell with a long pedigree of successful cooperation. It also shows how Rotenberg’s business empire, focused mainly on construction and engineering, is expanding into the energy sector.

Shell said that its other joint projects in Russia — chief among them the Gazprom-led Sakhalin-2 LNG plant — would be unaffected by its exit from the Baltic LNG project.

But Shell’s involvement in Sakhalin expires this month. Unless the Russian government decides to extend the Sakhalin deal, Shell’s portfolio of Russian projects will be left looking thin.

The Russian government has given no indication as to whether it would extend Shell’s Sakhalin contract.