Journey to Sakhalin Royal DutchShell in Russia (C) Case Solution

1. Discuss the alternative courses of action regarding Sakhalin-II that were available to Shell in 2006 and their implications. Do you think Shell chose the best alternative?

The PSA was considered by many as the key to the success of the first phase, yet it was also criticized for being secretive in terms of costing strategies. Complete withdrawal from the project was out of the question because the project ran under a contract, which could not be simply abandoned by any one member. Continuing operation in the current state was also not possible because the budget rise to almost $20 billion from $10 billion was a huge strike for the Russian government because they under the PSA agreement, to foster foreign investments, numerous tax-related and other heavy charges were slashed, whereby the project was facing trouble in terms asset-freeze on the pipeline due to legal issues (Abdelal, 2006). In the light of this scenario, I believe Shell took the right step by allowing Gazprom to take heed as a majority shareholder, whereby Shell was able to become partners with the gas giant, which may be of pertinent importance in terms of future oil and gas projects.

Continued probing of the government and the Russian infrastructure in terms of cultural and behavioural attributes can allow to better explain the position of Gazprom and the Russian government. The power distance index, in light of Hofstede’s analysis, is extremely high in Russia as the slight modernization-influenced democratic environment tends to exist only in Moscow to a certain extent, yet it dilutes towards the soviet driven anti-consultative environment as the distance increases (Tarsis and Abdelal, 2007).