Russia has announced the first postponement to one of its major oil and gas projects since the introduction of Western sanctions in response to Moscow’s decision to invade Ukraine.

The US has led the western world with sanctions on oil imports from Russia, but the sector has also been hit by an exodus of international oil companies and oilfield service and technology providers since the assault on Ukraine.

Sakhalin 1 operator Exxon Neftegaz has informed local authorities in the Khabarovsk region that it has suspended work on the Far East liquefied natural gas scheme.

Regional Governor Mikhail Degtyaryov was quoted by the Moscow-based news agency Interfax as saying that the operator had told authorities about its decision after communicating little more than a month ago that they were ready to go ahead.

ExxonMobil announced its withdrawal from the Sakhalin 1 project in Russia’s Far East on 2 March. The US supermajor walked away from its 30% stake and ordered its foreign personnel on Sakhalin Island to leave Russia.

The supermajor’s subsidiary and Sakhalin 1 operater Exxon Neftegaz had already completed front-end engineering design work on the proposed Far East LNG plant and was launching a major bid process for the 6.2 million tonnes per annum facility, but the project has now been suspended.

Arctic LNG

Meanwhile, reports are emerging about attempts by Novatek, Russian largest independent gas producer, to rearrange financing for its flagship Arctic LNG 2 project in West Siberia’s Gydan Peninsula following TotalEnergies announcement in March that the French company will not provide any new shareholder financing to the project, in which holds a 10% stake.

Moscow business daily Kommersant said Novatek has asked for Gazprombank to have a larger role in a consortium of Russian banks that agreed to extend a €4.5 billion ($5 billion) loan to the project last year.

As well as Gazpromank, the consortium includes the Veb, Sberbank and Otkrytiye banks, all three of which were hit by Western sanctions in early March.

Gazprombank has a key role in servicing Russia’s gas producing and export business and has so far escaped sanctions in a European-led attempt to avoid interrupting Russian gas supplies to Europe.

Russia’s President Vladimir Putin has also given Gazprombank added protection from any new sanctions by ruling that the bank will receive all payments from Western customers for Russian pipeline gas supplies from 1 April.

Arctic LNG 2’s first train, which will sit atop of concrete gravity-based structure being built in a yard near the Barents Sea port of Murmansk, is almost complete, according to TotalEnergies chief executive Patrijk Pouyanne, although it is still awaiting the supply of US-made gas turbines to support energy generation.

However, the timeline for completing the construction of the project’s second and third trains is uncertain, Pouyanne told analysts last month.

Operating costs in focus

Russian authorities have also indicated their readiness to consider a temporary reduction in the country’s oil production tax in apparent attempt to keep oil producers afloat after they suffered a steep fall in crude and oil products exports.

The tax level is indexed to international oil prices and is not linked to a company’s operating results.

The measure is expected to reduce operating costs for oil producers, while Western buyers and tanker owners refuse to deal with Russian volumes.

Russia’s Energy Ministry has also reportedly proposed reducing costs by easing fines imposed on oil producers for flaring excess associated gas.

According to executive director of Moscow-based industry consultancy Gecon, Mikhail Grigoriyev, Russian oil will have to be sold at larger discounts against Western oil benchmarks to become attractive to customers.

However, he said the price will have to cover additional logistical expenses in transporting crude from Russian ports on the Baltic and Black seas to the Asia Pacific region and South America instead of Europe.

Grigoriyev added that Russian oil producers may have to shut down some fields and facilities because options for selling crude on the international market are set to diminish further as a growing numbers of European countries favour embargos on Russian oil crude.

The pressure to impose more direct sanctions has grown stronger following accusations by Ukrainian authorities, backed by evidence, about a massacre of civilians at Bucha near Kyiv.


Grigoriyev told an industry network channel last week that “the point of no return” has not yet passed for the Russian oil industry, as operating performance and production can be restored if sanctions are eased or removed within the next few months.

In other support measures, Russia’s Natural Resources Ministry has proposed extending the exploration timeframe for oil producers’ recently acquired acreage, according to reports in Moscow.

The government has also temporarily eased restrictions on imports of materials and equipment, arguing that Russian importers do not now require prior consent from the original equipment manufacturers or a licence holder to bring goods into Russia.

Grigoriyev suggested that this could open the possibility of gaining access to Western-made spare parts to service drilling rigs and oilfield equipment via other countries, such as Kazakhstan.

Russia’s Natural Resources Ministry has also banned the removal from the country of Western hi-tech oilfield production and service equipment in an apparent response to leading international oilfield service providers announcing their exit.

The ban will remain in force until the end of this year, according to the ministry.

Russian Natural Resources Minister Alexander Kozlov said last week that authorities are also working on a law to help investors from “friendly countries” enter into exploration and development ventures with Russian producers.

Within days of the start of the war in Ukraine, the Russian government designated as “unfriendly” the US, European states and other nations that approved sanctions and condemned the invasion.

Grigoriyev said he believes some of Russia's oil producers will be cushioned from the immediate impact of sanctions, and predicted that some of them will still be able to post strong earnings in the first half of the year.

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