Although initially Russian financial sector will be hit harder by the imposed sanctions than the oil and gas sector, the latter will be adversely influenced in the longer term, causing projects to be scrapped or delayed due to problems with finance and technology – James Henderson told EurActiv Czech Republic in an interview.
“In the short term, I think the financial sector sanctions will be a harder blow than the oil sector ones”, James Henderson, a senior research fellow at the Oxford Institute for Energy Studies, has told EuroActive, adding: “Unconventional oil in Russia and offshore oil in the Arctic have a lot of potential. But they are not going to have an impact inside two to three years in terms of the unconventional oil, or inside 15 to 20 years in terms of Arctic oil.
“The implications are potentially serious in the longer term, as Russian oil production from traditional sources is starting to decline, and they need to develop more technically challenging and expensive sources that require partnership with foreign companies.”
He pointed out, however, that Russia is not limited to seeking partnerships with Western companies, potentially choosing to work with Chinese or Asian firms. These can be found, particularly when it comes to financing. Also, although most new E&P expertise is in the hands of American and European companies, some of the technologies can be purchased from China.
Despite that, Mr Henderson believes that the reduction in the ability to secure financing has the potential for hindering some energy projects. It could affect Russia’s ability to develop its LNG capacity as well as adversely influence other projects that are being currently developed.
For example the Yamal LNG project, which involves Total, Novatek and also China National Petroleum Corporation may experience problems with financing. According to Mr Henderson: “Project financing has become more difficult with western institutions and the companies had to turn much more to the East for Chinese bank investments. That is not impossible to achieve, but you become more exposed to different markets, and negotiations can prove to be more difficult. In public, Total has questioned the desire to aggressively invest in Russia in the short term. There are some possibilities of delay with this project.”
Another project that could potentially be affected is the cooperation between Exxon Mobil and Rosneft. This would include drilling in the Arctic and a project to test the potential for unconventional oil in West Siberia. It also potentially involves investment in further development of the Sachalin I fields in the Far East. All of these projects are likely to be delayed or reconsidered.
Furthermore, the cooperation between Total and Lukoil may also be affected, as well as Royal Dutch Shell and its involvement in Salin unconventional project.
“Both Eni and Statoil,” Mr Henderson continued, “made commitments to drill with Rosneft offshore. It is less specific than the commitments from Exxon. But again, it is a sort of project that may have to be pushed back if the current environment continues for much longer.”
In the current situation Russia is reassessing its position vis-a-vis Europe and other markets. Nobody suggests that Europe will stop buying gas from Russia, but with the development of LNG terminals in the U.S. and Europe, the natural gas market will look quite different.
“Russia must decide whether to focus on having gas available for growing exports into Europe, or whether to focus on Asia, where there are clear uncertainties in terms of bargaining power and competition as well.” James Henderson concluded.
“In Asia, the growth of the market is much stronger and opportunities for suppliers are much greater. That mitigates some of the risks from Europe, where the market is relatively stagnant. The risk for suppliers is not just the market risk and changing market circumstances. In Asia, there is a market risk, but it is also a risk in a very different market dynamic.”
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