Customers of Russia’s Sakhalin 2 liquefied natural gas development have reportedly been asked to change their payments from US dollars or euros to alternative currencies as operator Sakhalin Energy attempts to circumvent foreign and domestic restrictions.
Sakhalin Energy proposed the change in response to international sanctions against Russia following its invasion of Ukraine in February, and domestic restrictions on US dollar and euro payments that limit the operator’s ability to import spare parts and supplies for maintenance operations.
One company source quoted by Reuters said Sakhalin Energy has offered customers in Japan an option of making payments to a Moscow-based unit of a European bank in other currencies.
Japanese utilities Tohoku Electric Power and Kyushu Electric Power confirmed to Reuters that they have been asked to change their payments, with Tohoku adding that it had changed its account as requested.
The alternative currencies being offered to customers include the Chinese yuan, Japanese yen and South Korean won.
The name of the bank that Sakhalin Energy proposed to handle the alternative currency payments has not been revealed.
Among the major European banks that have announced plans to review their exposure and withdraw from Russia are Austria’s Raiffeisen Bank and Italy’s UniCredit Bank, both of which also have some exposure to China, South Korea and Japan, where Sakhalin 2’s core LNG customers are based.
A spokesperson for Raiffeisen Bank said that it has only a representative office in South Korea while in Japan, the bank is “only co-operating with another financial institution”.
According to Sakhalin Energy's tender documentation, the company has been using Citibank of the US in securing international supplies. Citibank earlier said it was working on its exit from the Russian market, but is also “providing assistance to multinational corporations, many of whom are undergoing the complex task of unwinding their operations”.
Ruble payments sought
Sakhaklin Energy’s proposal comes as the Russian government continues to debate whether buyers of LNG from Sakhalin 2 and the Novatek-led Yamal LNG and Vysotsk LNG projects should follow the example of Russian gas giant Gazprom’s customers in Europe.
Most of Gazprom’s European customers agreed to pay for Russian pipeline gas under a new scheme ordered by Russia’s President Vladimir Putin that involves setting up an special account with the country's Gazprombank in Moscow to automatically convert foreign currency payments into roubles.
Following the switch, Gazprom executives have argued that Russian LNG payments should follow a similar scheme to create equal market conditions for the nation's pipeline gas and LNG.
Russian Finance Minister Anton Siluanov last month told Moscow newspaper Vedomosti that “under current conditions, the ministry wholeheartedly supports using roubles as the payment method in foreign trade”.
Importation worries
In response to Western sanctions, Russian authorities have banned payments in US dollars and euros to foreign suppliers and manufacturers, as well as the repatriation of earnings to foreign investors.
This in turn has led to the sharp appreciation of the ruble against the US dollar and euro — compared to historic lows seen in the first half of March — as importers had to stop buying those currencies in Moscow because they could not send the funds outside Russia to pay for Western commodities and equipment.
Andrey Konoplyanik, an adviser to Gazprom’s export subsidiary Gazprom Export, in July hinted that Sakhalin Energy faced issues over importing equipment, but added that the operator has sufficient reserves of supplies and equipment inside Russia to carry out planned maintenance of the LNG plant and offshore production facilities until the end of 2023.
Sakhalin Energy had not replied to Upstream’s requests for comment by the time of publishing.
* This story was amended to include a response from Raiffeisen Bank and information from Sakhalin Energy tender documentation.
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