Warning of US sanctions ‘disaster’ for Russia energy projects
Industry voices fears of damage to billions of dollars of investment after Trump signs bill
yesterday
Gazprom's Yamal gas pipeline on the Yamal Peninsula in Siberia © Bloomberg
International energy investments in Russia will suffer from
new US sanctionsimposed on Moscow, executives have warned, as companies scrambled to assess the impact on billions of dollars’ worth of projects.
President Donald Trump on Wednesday reluctantly signed into law sweeping new sanctions against Moscow in retaliation for Russia’s alleged meddling in the US election, despite strong
opposition from oil and gas companies that fear the broad interpretation of some of its clauses could cause unintended damage to their businesses.
“The sanctions are beginning to backfire on those who are introducing them, which is positive,” said Igor Sechin, chief executive of
Rosneft, Russia’s largest oil producer. “[Sanctions] are starting to work against our American partners,” he said, adding that Rosneft is in a position to take advantage.
A senior executive at a western oil group with a large presence in Russia told the Financial Times that the new sanctions “could be a disaster” given its current business in the country.
“This throws everything into confusion,” the executive said, declining to be named because of the business sensitivity of the issue.
€4.75bn
Amount pledged by European companies to help fund the Nord Stream 2 gas pipeline between Russia and Germany
The sanctions bill, which had the overwhelming support of Congress before it reached Mr Trump’s desk, in particular bans the providing of “goods, services, technology, information or support” to both the construction and the “modernisation or repair” of Russian energy export pipelines.
That clause
throws into doubt the €4.75bn pledged by European companies
Royal Dutch Shell,
Engie, Wintershall,
OMV and Uniper to help fund the Nord Stream 2 gas pipeline being built
Gazprom, the Russian state-owned energy group, between Russia and Germany. It could also damage other projects by international companies.
Energy companies may have to rely on individual waivers from the White House to continue some projects, while a clause that states the imposition of sanctions requires consultation with “allies” has raised hopes that the damage could be limited.
Daniel Fried, who served as head of US sanctions policy until February, told the FT that the Trump administration would have to engage with the energy companies and "operate with some common sense" when implementing the sanctions.
“People are going to have to act with some discretion . . . They will need to take a deep breath,” he said.
Royal Dutch Shell said on Thursday it had nothing to add to comments made last week by its chief executive, Ben van Beurden. “We have to see how this bill gets implemented,” he said at the time. “We comply with the law and with any restraints or sanctions that are being put upon us.”
Mr van Beurden said Shell had authorisation from Dutch authorities to press ahead with financing of Nord Stream 2, but was waiting to see how the US situation “evolves.” “We have commitments under that arrangement and we are fulfilling those commitments as much and as best as we can,” he said.
Austria’s OMV said that it was too early for the company to draw any conclusions, and it was monitoring the situation “very carefully”.
Officials have warned that a pipeline that carries oil to the Black Sea from Tengiz, a project in Kazakhstan where
Chevron and
ExxonMobil agreed last year to a $37bn expansion, could also be affected by the sanctions.
The new US measures also target Transneft, the oil pipeline monopoly whose vast network many international companies rely on to carry their Russia-produced crude to export terminals. But the company’s chief executive, Nikolai Tokarev, said on Thursday that Transneft did not rely on foreign technology or financing so the new measures would not affect his business.
Publicly, major international oil and gas companies operating in Russia have said they will continue to operate as normal within the new restrictions. Gazprom and the Russian government have consistently stressed that the Nord Stream 2 pipeline will go ahead as planned.
But some western oil groups insist they can make the new regime work, with BP playing down the impact on its business. Despite owning 20 per cent of Rosneft and being one of the industry’s biggest investors in Russia, the UK-based company has no stakes in transport infrastructure.
While warning that an earlier draft of the sanctions “was full of . . . very significant unintended consequences”, chief executive Bob Dudley said this week that the most problematic language for BP had been rewritten and the company expected to be able to “work very carefully within the sanctions”.
“We’re not aware of any material adverse effect on our current income and investment in Russia or elsewhere, or our ability to work with Rosneft itself,” he said.
Senior EU, German and Austrian politicians have previously attacked the new US measures for
hurting their business interests, and Mr Trump himself said after signing that it was “seriously flawed”.
Additional reporting by Ralph Atkins in Zurich