Fresh US and EU sanctions imposed on Moscow will bring an abrupt halt to exploration of Russia’s huge Arctic and shale oil reserves and complicate financing of existing Russian projects from the Caspian Sea to Iraq and Ghana, international sources said yesterday.
On Friday, the United States imposed sanctions on Gazprom, Gazprom Neft, Lukoil, Surgutneftegas and Rosneft, banning Western firms from supporting their activities in exploration or production from deep water, Arctic offshore or shale projects.
The new measures, designed to put further pressure on President Vladimir Putin over Russia’s actions in Ukraine, are a major broadening of the previous sanctions, which only banned the export of high technology oil equipment into Russia.
Projects now in jeopardy include a landmark drilling programme by US giant Exxon Mobil in the Russian Arctic that started in August as part of a joint venture with the Kremlin’s oil champion Rosneft.
Now this and dozens of other projects that Rosneft and Gazprom Neft agreed with Exxon, Anglo-Dutch Royal Dutch Shell , Norway’s Statoil and Italian ENI will have to be put on hold.
“Cutting off US and EU sources of technology and services and goods for those projects makes it impossible, or at least extraordinarily difficult for these projects to continue...There are not ready substitutes elsewhere,” a senior US administration official told a briefing on Friday.
The companies will have 14 days to wind-down activities.
“There is no contract sanctity,” the US official said. Russia, the world’s second-largest oil exporter, is counting on its Arctic and “tight” shale oil reserves to sustain production at around 10.5 million barrels per day, amid declining output at old West Siberian fields. Valery Nesterov from Russian state bank Sberbank, which was also sanctioned by the EU and the US, foresaw serious complications.
“What is really worrying are sanctions on tight oil. Russian companies haven’t invested enough in research and technology. They were heavily relying on Western technologies and now it is simply too late,” he said.
Key among Russian tight oil reserves are the Bazhenov formations, which are located beneath existing mature west Siberian fields.
They are estimated to contain as much as a trillion barrels of oil - four times the reserves of Saudi Arabia.
Rosneft and Gazprom Neft are working on Bazhenov with Exxon and Shell.
“When we learnt about the first sanctions we decided to speed up work on all fronts to minimise the damage to the company,” said a Rosneft source. Rosneft’s chief Igor Sechin, a close ally of Putin, said earlier this month the company had approved a programme to replace all Western technology in the medium-term.