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Page added on July 22, 2014
As Russia’s Isolation Grows, Oil Companies Caught in Middle
The confrontation between Russia and the West took a turn for the worse with the downing of a Malaysian airliner on July 17, and that could spell trouble for several major oil companies operating in Russia.
Just one day earlier, U.S. President Barack Obama slapped sanctions on Russia over its ongoing role in the destabilization of Ukraine. The sanctions prohibited American banks from issuing loans with a maturity of over 90 days to four key Russian companies – Rosneft, Novatek, Gazprombank, and VEB.
“Because Russia has failed to meet the basic standards of international conduct, we are acting today to open Russia’s financial services and energy sectors to sanctions,” U.S. Treasury Official David S. Cohen said in a press release describing the agency’s actions.
The sanctions tightened the economic noose on the Russian economy by targeting companies in Russia’s energy sector. Up until now, western sanctions largely targeted individuals in the Russian elite, freezing their assets or issuing bans on American companies from doing business with them. But with oil and gas accounting for over 50 percent of revenues for the Russian state, if Obama wanted sanctions to have any bite, he had to escalate the campaign by going after Russia’s energy sector.
Until the July 16 announcement, the major western oil companies operating in Russia shrugged off their effects. Companies like BP, ExxonMobil, and Royal Dutch Shell defied White House pressure to avoid doing business with Russia.
They made a big bet on the likelihood that their billion-dollar projects would not be affected by the deteriorating relationship between Russia and the West.
But the markets took the latest round of sanctions much more seriously than their previous iterations. Rosneft saw its share price decline by 6.2 percent the day of the announcement, and Novatek was off 11.5 percent.
And western companies were not safe either. BP lost $4.4 billion in its market value on July 17. BP owns a 19.8 percent share of Rosneft, Russia’s state-owned oil company that was singled out by Obama’s sanctions. Nearly one-third of BP’s global oil production – or 1 million barrels per day – comes from its investment in Rosneft.
ExxonMobil also has massive business plans with Rosneft. The two companies are drilling a $300 million well in Siberia, and next month they plan on drilling a$700 million well in the Russian Arctic, the country’s most expensive in history. ExxonMobil and Rosneft have also agreed to jointly develop an LNG export terminal on Russia’s Pacific coast. The Houston-based ExxonMobil has thus far maintained that the projects will be unaffected by sanctions, but that has been thrown into doubt after the U.S. Treasury Department’s latest move.
On July 18, Zacks.com, a market research firm, warned investors
Russian President Vladimir Putin scoffed at the sanctions, saying that they will merely hurt American energy companies. “This means that U.S. companies willing to work in Russia will lose their competitiveness next to other global energy companies,” Putin said. “So, do they not want it to work here? They are causing damage to their major energy companies.”
With financing likely to be increasingly hard to come by for Russia’s major oil and gas companies, several of them are looking east for access to lending. AsThe New York Times notes, Russian energy companies are becoming more dependent on Chinese finance to pay for their capital-intensive projects. Partly, this is due to China looking for more Russian energy, but it is also because Russia sees the door slowly closing on access to western banks.
The rift between Russia and the West is bound to worsen after in the aftermath of Malaysian Airlines Flight 17 being shot down by a surface-to-air missile in pro-Russian rebel territory. And the cumulative effect of recent sanctions could be minor compared to what may be coming. The U.S. could issue far-reaching sanctions, and the incident could help European Union leaders overcome their hesitation over inflicting damage on the Russian economy.
The international community has called for a full investigation, but right now, all roads appear to be leading to Moscow. Perhaps fearing the fallout from the incident, Putin called for a cease fire in Ukraine.
Swept up in the international crisis are the major oil companies – BP and ExxonMobil – who fear their bottom line taking a big hit from Russia’s growing isolation.
Source: http://oilprice.com/Energy/
By Nicholas Cunningham of Oilprice.com
74 Comments on "As Russia’s Isolation Grows, Oil Companies Caught in Middle"
Arthur on Wed, 23rd Jul 2014 10:43 am
NWR, I always listen to Greg Hunter and this particular podcast I listened to this morning (I am in bed with flue for three days now and divide my time between getting sleep and hunting the internet for info about mh17 and battling on Dutch forums.lol). Willey is a little sensationalist, but yes, German society is split about how to deal with Russia. The vast majority of the population does not want conflict, unsurprisingly. At least as important, German industry is looking east, as always and is adament against breaking with Russia. Only politics (Con, SocDem) wants to remain solidly western oriented. Willey claims that Germany wants to break with the EU. I don’t think so at all. What is true, is that Germany as a whole would prefer more of a middle position between Russia and the US. The largest party in France, the Front National is neo-Gaullist and prefers a strong Russia orientation, more so than Germany.
Regarding serious conflict with Russia? France and Germany refused to support the US in 2003 over Iraq and got a lot of flak over that, especially the French (cheese eating surrender monkeys.lol).
I have some hope that this mh17 affair can be defused, that Wlad makes it until the winter, that bitter cold and no gas could force the Ukrainians to come to their senses and stop being anti-Russian and come to terms with Novorossia (confederation).
Regarding north-America… it is important that people of European descent both in America and Europe stick together and save the trans-Atlantic alliance into future. The biggest changes will occur in the US, just as cassandras like Orlov and Hunter are saying. America will transform from global hegemon into ‘just another great power’, after the BRICS dump the dollar, a process that will be very painful, comparable to what happened in the USSR, plus potentially ethnic conflict, on a larger scale than the war against the Chetchens. The US will end free trade to let its industry recover. Wages will plummet. But the long term prospects remain the best on the planet, relatively speaking.
Northwest Resident on Wed, 23rd Jul 2014 11:22 am
Arthur — Get well soon. I didn’t realize that the flu virus even existed in Holland. What, did you catch it from the Americans?
Very interesting take on the situation — I find myself in agreement. The whole “dump the dollar” crap has been going on for a quite a while and it has all been hype, but I’m beginning to get a picture of how in the future it could and will go down, much as you describe.
The effect on America will be devastating of course — our consumption levels will dramatically plummet — which will hurt a lot of people. But less consumption in America is exactly what is needed, regardless of the consequences. I feel it coming, which is why I’m growing (most of) my own food now, I hope. I am growing a LOT of food, and I will only get better. Preparing to go local and raise one’s own food is a good pastime these days, don’t you agree??
rockman on Wed, 23rd Jul 2014 11:28 am
I would be curious to see how they define “isolation” and exactly what significant impact it has on Russia as a whole. Currently the world pays Russia about $500 billion/year for their exports with about 60% being for oil/NG. Germany still has over 400 companies doing business with Russia. Nearly every EU country is absolutely dependent of Russian NG imports. Ukraine, which currently has them at the top of its “f*ck you” list is still a major trader with Russia.
So other than the rhetoric about Russia being “isolated” from the rest of the world I don’t see any substantial changes.
JuanP on Wed, 23rd Jul 2014 11:48 am
NWR, Yes, the dump the dollar thing will be essentially good for everyone, including the USA and your points are on target. Less consumption is inevitable and a good thing.
Nony on Wed, 23rd Jul 2014 11:53 am
NWR,
Don’t you think it’s more efficient for a farmer to grow food (he has scale, has expertise) and for you to concentrate on what you do best? Programming or whatever? Then you can just get paid for your work in $$ and buy food with $$.
For instance, calculate what you make per hour ($$). Aren’t you better off landing more programming gigs? Food is cheap. How much food can you buy with the hours you spend weeding the garden plot?
Northwest Resident on Wed, 23rd Jul 2014 12:32 pm
Nony — Good questions. I already program 10 hours per day on weekdays and 4 – 10 hours as needed on weekends. More programming isn’t what I need. And I’m prohibited by contract with my employer from engaging in outside programming work — they want/need me all for themselves.
Growing my own food has proven to be immensely satisfying, rewarding and ultimately healthy. I’m just now beginning to enjoy the “fruits of my labor” — green string beans and onions is what we have or are harvesting right now. Besides being fresher than what is bought in the store, I have the added benefit of knowing that no pesticides or funky fertilizers were used.
And, being a guy who foresees clearly a time when food prices skyrocket, or food delivery totally breaks down, it is good to know that I have the knowledge, expertise and physical setup to grow most if not all of my food.
Also, almost no time is spent weeding — no weeds to speak of. I buried them all about one foot deep when I converted my lawn into a symmetrical and precisely spaced array of raised planter beds…:-) What few do grow get fed to the chickens as soon as they poke their fresh little green noses through the dirt. That goes for any bugs that I find on my wheat or corn too — I’m quick enough to snatch them and my chickens love the treats — that’s called “teamwork”.
Farmer “scale” will only work as long as their is oil and infrastructure to support large-scale commercialized farming. I am developing the expertise — reading, studying and putting it all into practice. A lot to learn, but like I said, very rewarding, and potentially life-saving.
Nony on Wed, 23rd Jul 2014 12:39 pm
I LOVE fresh veggies. Tomatoes from the store are made from plastic. So, so green.
Northwest Resident on Wed, 23rd Jul 2014 12:46 pm
Nony — We have some major tomatoes on the vine ready to ripen any moment now. If you lived close enough, I’d have you over, make a salad for you, and explain for the one thousandth time why natural gas production is a sideline to the main event. You of course would tell me how advanced shale extraction technology would become, and how exceptionally the Marcellus play is performing (for now). I would shake my head, offer you another tomato and call it a day.
Nony on Wed, 23rd Jul 2014 12:55 pm
I would pretend to listen, while shlorping down huge amounts of veggies. 😉
Heading out to the country for a long ride. Will buy some local stuff from little colored farmer who has a truck stand. Still is not as fresh as I like it though.
Northwest Resident on Wed, 23rd Jul 2014 1:34 pm
Hang tough, Nony. I’m not done with you yet. You’ll be spitting on the Marcellus and calling shale oil “crap” by the time I’m done with you.
GregT on Wed, 23rd Jul 2014 5:37 pm
” Will buy some local stuff from little colored farmer who has a truck stand. ”
What the heck does “little colored farmer” mean??
NWR,
Not to worry, Nony will eventually figure things out, but in all probability, not until it is too late for him to do anything about.
GregT on Wed, 23rd Jul 2014 5:49 pm
Juan said;
“I have read and heard so many different versions of history that I now realize most of them are mostly false, distorted, and contradictory.”
You are not alone Juan, I used to believe the ‘version’ that we were taught in school, until I had a lengthy discussion with a friend of mine. She is a history prof at UBC. What she has to say about the two world wars especially, do not jive with what I understood at all.
Arthur’s rendition appears far more likely to be the truth, as it is pretty much exactly what my friend conveys. She also has the documentation to back her story, of history, up.
In time, the truth does manage to surface, even though people still tend to ignore it.
Davy on Wed, 23rd Jul 2014 6:38 pm
Ok; Greg, I guess we can’t trust science either. So really there is nothing that is not suspect.
GregT on Wed, 23rd Jul 2014 7:36 pm
I learned long ago Davy, to not believe what I am being told, without further investigation. There are always two sides to a story, somewhere between them lies the truth.
As the old saying goes; truth is stranger than fiction.
The older I get, the more I realize this to be true.
Davy on Wed, 23rd Jul 2014 8:43 pm
I agree Greg but who has a corner on the truth. I also wonder can you just right off all we were taught. I was a history buff in school. There is allot of supporting evidence. What do you want me to right off as not true. Were do you stop censoring and distilling the truth. My point is how do you know your sources know the truth? I am not denying a history of manipulated history but who is custodian of the truth. That is a vicious circle to get caught in.
JuanP on Wed, 23rd Jul 2014 8:56 pm
Davy, For me the whole point is that the truth is not what I was taught it was. It is relative to your experience and personal. All those history books we read, and I love history were written by biased men, because we all are biased. I have found that the history I was taught in school from Cambridge and Oxford Universities presses, was just one of many versions.
This is not something to be pushed on other people, we all need to find our own truth in our own way. I have my beliefs and others have theirs and this is good and the way it should be. Sometimes we agree, others we agree to disagree.
JuanP on Wed, 23rd Jul 2014 9:04 pm
I am currently reading Gibbon’s History of the Decline and Fall of the Roman Empire, all 7 volumes. I love history, but it is all biased and for me it’s important to understand and accept this fact. I t makes it easier for me to admit I am wrong sometimes, too. We are not perfect.
Davy on Wed, 23rd Jul 2014 9:04 pm
Fair enough Juan, I just find the idea that much of the history I learned is wrong is pushing it This is the impression I get from Art and Greg sometimes. I acknowledge and recognize the propaganda we were taught but I feel some of what Art and Greg think is the right history is subject to the same manipulation.
JuanP on Wed, 23rd Jul 2014 9:18 pm
Davy, I never pretend to be right about something, just expressing my opinions and repeating stuff I heard elsewhere to share with others. If I ever have given or will give the impression that I pretend to know the truth, I am apologizing for it righ now. I have no problem in admitting I am an ignorant fool. If I ever push ideas it is because I am trying to share and open minds to new ideas, but never imposing mine over others, just offering new alternatives.
GregT on Wed, 23rd Jul 2014 9:20 pm
Another thing that I have learned to pay more attention to as I get older, is cliches. They have withstood the test of time.
‘The first thing lost in war, is the truth.’
‘History is always written by the victors.’
Two that immediately come to mind.
Do I have the answers? More than likely not. Is our indoctrination the truth? Most assuredly not.
Just as in the case of MH17, I am not going to believe rhetoric, propaganda, or anything driven by an agenda. The only thing the really matters to me, is the truth. Will the truth be revealed? Maybe, maybe not, but for myself personally, I will explore all avenues available to me, and I will not come to a conclusion based on someone telling me what to believe.
‘You are either with us, or you are with the terrorists.’
A prime example of a lie spoken to promote an agenda. Sorry, not falling for the BS. Everyone else in entitled to their own opinions.
JuanP on Wed, 23rd Jul 2014 9:23 pm
Greg, excellent points!
MKohnen on Thu, 24th Jul 2014 12:49 am
Davy,
I never said either China or Russia would win, I only said that PO will reduce the threat of US attack for those countries and equalize the military playing field, ultimately to the point that none of them can field a modern military (though I suspect all FF resources will have to be almost completely depleted before that happens.) As for economies, I’m really not sure on that point. You keep raising the comparative advantage the US has over Russia and China with regards to food production. I live in the grain belt (well, on the very edges of it now 🙂 and I see the complete dependence on FF’s for absolutely everything. We don’t even have the kind of seed that could grow without FF fertilizers and pesticides any more. How does that compare to what Russia and China are growing? As for Russia’s population dwindling, China could easily take care of that! And pragmatically speaking, if China loses a few hundred million people, wouldn’t it be better off?
Davy, you talk a lot about Russia and China. I’m wondering what your expertise with regards to these countries is? I don’t really care about professional credentials, but if all your info is coming from MSM, I’d be very wary. I as this, not facetiously, but with genuine interest.
MKohnen on Thu, 24th Jul 2014 12:52 am
Davy,
BTW, I see I did indeed say that the US “is the biggest loser” in my previous previous post. I meant with regards to military loss of power. Just clarifying.
Davy on Thu, 24th Jul 2014 7:12 am
MK, agreed on that one.