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Page added on May 1, 2014

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Shell Won’t Jump into New Russia Projects amid Ukraine Crisis

Business

Oil majors are beginning to grow cool on new projects in Russia as U.S. and EU sanctions over Moscow’s actions in Ukraine make investment increasingly risky and after the Kremlin’s threat to review the West’s role in Russia’s energy industry, the world’s largest.

“I don’t think we will be jumping into new investments in the short term,” Royal Dutch Shell’s chief financial officer Simon Henry told a conference call on Wednesday.

The United States and the European Union imposed more sanctions on Russia this week as part of their drive to put pressure on Moscow for the annexation of Crimea and what they see as direct support for pro-Russian separatists that have seized public buildings across eastern Ukraine.

Henry’s comment came only weeks after Shell Chief Executive Ben van Beurden visited Russia and met Russian President Vladimir Putin to take part in celebrations marking 20 years of the Sakhalin-2 gas project, one of the biggest foreign direct investments in Russia.

“It was planned a long time ago. I wouldn’t read too much into the timing of the visit,” said Henry.

BP’s Chief Executive Bob Dudley also visited Moscow earlier this month and said the company was “rock solid” with its investment in the country, where it owns a fifth of the Kremlin’s national oil champion Rosneft.

However, investors are increasingly worried about the Russian exposure of major oil companies. Rosneft chairman Igor Sechin, a close ally of Putin, was put on the sanctions list this week, but the company, along with state gas behemoth Gazprom and its executives, escaped sanctions for now.

Putin said on Tuesday that Moscow saw no need for counter sanctions but could reconsider the participation of Western companies in energy projects.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said exposure to Russia was among the main challenges for Shell’s operations.

ROCKY HISTORY

Both BP and Shell have a bumpy history of relations with the Kremlin. Shell owns 27.5 percent in Sakhalin-2, one of the world’s largest liquefied natural gas projects, supplying Asia with super-cooled gas.

Gazprom owns 50 percent in the project, which it obtained in 2006 following months of pressure from state authorities on Shell over cost overruns and environmental compliance.

Shell denied any violations but had to cede control over the $22 billion project, Russia’s biggest single foreign investment at the time, in a move analysts described as one of the biggest examples of the Kremlin’s resource nationalism.

Those investment are dwarfed by those of BP.

“BP has a greater than average exposure to Russia, where it has close to 25 percent of its production base,” analysts from Barclays said in a note.

BP ended up with 19.75 percent in Rosneft after the Kremlin-controlled company acquired BP’s TNK-BP venture for $55 billion last year.

BP agreed to sell its TNK-BP share to Rosneft after a row with the Soviet-born TNK-BP shareholders during which Dudley was forced out as the head of the venture and fled Russia, saying he feared for his security.

This month, Dudley said BP could help enhance relations between Russia and the West.

“We are in close contact with political leaders in different parts of the world, and of course here in the UK,” BP’s chairman Carl-Henric Svanberg said this month when explaining what role BP could play to help sort the crisis.

LOBBYING

The Kremlin has long relied on support from Western business leaders and some politicians to advocate its case in the West.

Germany’s former chancellor Gerhard Schroeder helped promote one of Russia’s largest gas projects, the Nord Stream pipeline to Germany.

The pipeline helped Moscow raise its share of Europe’s gas supply to 30 percent last year from 25 percent a few years ago.

A close ally of Schroeder, the former mayor of Hamburg, Henning Voscherau, is currently serving as chairman of South Stream, another massive Gazprom project involving France’s EDF , Italy’s Eni and Germany’s BASF, which is due to deliver more Russian gas to southern Europe.

Total’s chief Christophe de Margerie is expected to travel to Russia next month alongside Dudley and van Beurden for the country’s main annual economic conference, the St. Petersburg Economic Forum, which Putin traditionally uses to lure new investments in the country.

Total relies heavily on Russia for future production growth as it has a 20 percent stake in Yamal LNG project, one of the largest LNG projects in the world, and also owns 17 percent in Russia’s No.2 gas firm Novatek.

Novatek is co-owned by Gennady Timchenko, a businessmen targeted by Washington’s Ukraine-related sanctions as a member of Putin’s inner circle.

It is not clear if top executives from U.S. energy majors will travel to the St. Petersburg forum after the FT reported that U.S. banks Citigroup and Goldman Sachs were unlikely to send their chiefs to the gathering.

Of all the U.S. majors, ExxonMobil is most deeply involved in Russia as an operator in Sakhalin-1, one of three Russian production-sharing deals with foreign companies.

Oil production started in 2005, and amounts to around 150,000 barrels per day. The project has yet to unlock its full gas potential as Exxon has been unable to agree with Gazprom on gas deliveries and price.

Exxon, Eni and Statoil have also agreed with Sechin to develop the Russian Arctic shelf.

Russia needs Western technology to help it tap the Arctic as well as shale oil projects. Analysts say the start of production at these projects is 15-20 years away.

Other U.S. majors have smaller exposure to Russia.

ConocoPhillips sold out of its projects with private major Lukoil several years ago as part of its asset disposal programme.

Chevron never really built up a presence in Russia after a failed attempt to buy into Yukos, which was later nationalised by the Kremlin as part of its campaign to punish oligarch Mikhail Khodorkovsky for political activities.

Reuters



8 Comments on "Shell Won’t Jump into New Russia Projects amid Ukraine Crisis"

  1. Makati1 on Thu, 1st May 2014 10:59 am 

    Bulls–t! Pardon my slip, but this is all bull. The oil majors, on other sites outside the MSM iron curtain, are all saying they are not going to pull out of Russia because of the threatened ‘sanctions’ from the impotent US. With large percentages of Russian oil companies in American oil company hands, not to mention billions in investments, there will be a lot of arm twisting in DC to pull back and consider the fallout. Germany already fears the fallout on their economy if Obama ratchets up the heat. Putin holds the aces in this game and the US holds the joker.

    Russia does NOT need Western tech, they already have it or the Chinese equivalent. The Arctic is virgin territory and all are on learning curves. China will be happy to step into the vacant spots if the Western companies leave.

    It will be a cold winter in Europe if the DC Mafia keeps up the stupidity. Especially if the brainless Kerry is not shut up or fired.

  2. Northwest Resident on Thu, 1st May 2014 11:09 am 

    Makati1 — A constant theme in your posts is how powerful and in control of their own destinies Russia and China are, and how those two countries are constantly out-foxing the impotent USA and playing the USA for a fool, all the better to crush the USA at some point in the future of their choosing by dumping their dollars.

    You seem obsessed with that fantasy. Your portrayal of Russian and Chinese governments as somehow superior or more clever than the USA government is nothing but a flat out rolling on the floor laugher.

    Your failure to understand how totally interconnected the finances of all world economies are just means you aren’t dealing with a full set of facts, and implies that you’re not playing with a full deck of cards.

    How did your perception of reality become so twisted? My guess is that you let your burning hatred of America take root in your heart and soul, now it is out of control and is rotting your mind.

  3. Davey on Thu, 1st May 2014 11:49 am 

    Thanks NR for assisting me in my attempt to balance a message. NR and I are highly critical of the US in multiple areas but not critical for the sake of propaganda like the Mak show. Some say I should ignor Makster but I will not enable distortions. I might add repeated and excessive in nature and degree. What we need here is discussions that seek a scientific approach and are not influenced by North Korean Propaganda theory of repeated ridiculous diminishment of ones opponent.

  4. Northwest Resident on Thu, 1st May 2014 12:03 pm 

    Davey — I really enjoy Makati1’s posts most of the time. I just wish he would drop the constant theme of Russian/Chinese supremacy over a dysfunctional and impotent USA. That theme ignores reality and only expresses a deep seated hatred on his part. It is annoying to read so much anti-Americanism and anti-American political analysis on a peak oil website. Most of the time, almost all of the time, I ignore it and think yeah, there goes Makati1 again. Makati1 — Russia and China are dying, they are going down hard, just like the USA and the rest of the world. We’re all in this together — all on the Crazy Train chugging full steam ahead toward that steep drop off.

  5. Makati1 on Thu, 1st May 2014 8:34 pm 

    Northwest, I think I understand the ‘interconnectedness’ of the global financial system as well as you do and maybe better, because you and others don’t seem to see that the Us is fast becoming irrelevant in the world. What does it matter if China holds $1.4 trillion in US paper if it is becoming worthless? They are not stupid. Trade is not going to prevent the downfall of the USD.

    As for Anti-american comments, maybe the US deserves them? Reality is difficult for the ‘exceptional’ to accept. After all, most of the world now wishes the US would just collapse and retreat behind it’s borders. Or don’t you read anything outside the USA? Or live in another country where the MSM cool aid is not served minute by minute?

  6. Davy, Hermann, MO on Thu, 1st May 2014 9:06 pm 

    Wow, a switch on the tube and got the Mak show in it’s usual futile effort to make his propaganda points. Mak, you can wish all you like but the world news is not supporting your version of reality. I think you are the one experimenting with Kool aid.

  7. Northwest Resident on Thu, 1st May 2014 9:56 pm 

    Makati1, I’m trying to help you overcome your bitterness and hatred toward America. “Most of the world now wishes the US would just collapse and retreat behind its borders.” Really? Last time a typhoon wiped out a large area of the Philippines, America was there to prevent thousands from starving and rioting. Same with last time there was a big mudslide in your part of the world — America rode to the rescue. Every country has its good and bad. You can’t speak for “most countries in the world”, I call BS on that unfounded assertion. When America goes down, so does a major portion of the world. We’re all in the same boat, floating on a storm tossed ocean. When the boat sinks, we all go down, and there won’t be any America to ride to the rescue of the Philippines or anywhere else in the world. I wish you could see that reality.

  8. Kenz300 on Fri, 2nd May 2014 1:22 am 

    Europe needs to become more energy self reliant.

    By moving to more alternative energy sources like wind and solar they could produce energy and jobs for the local population. Europe needs both energy and JOBS.

    Big oil and European countries need to wake up and see that Russia is not a partner that you can trust.

    They both need to diversify and limit their exposure to Russia…………..

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