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Q&A by Shangyou Nie • April 20, 2022
On February 24, 2022, Russia invaded Ukraine. In response, numerous international oil companies (IOCs) involved in Russia announced their decision to exit the country. Other IOCs have chosen to stay, at least for now. The European Union is currently drafting a ban on Russian oil that could further alter the situation.[1] In this piece, Dr. Shangyou Nie, a Non-Resident Fellow at the Center on Global Energy Policy, takes stock of what these companies have announced as the crisis surrounding the war in Ukraine evolves.
Which IOCs have decided to exit Russia?
Russia’s recent invasion of Ukraine forced many IOCs to assess whether to continue their activities in Russia. Some of these companies have decided to exit the country:
For the downstream, some European companies (e.g., bp,[9] Equinor,[10] Shell,[11] and Total[12]) announced that they will stop buying Russian crude at the spot market and purchasing Russian crude or products in the future, while still fulfilling prior contractual commitments. Shell will also shut its service stations as well as aviation fuel and lubricants operations in Russia.
Which IOCs have decided to stay thus far?
A smaller group of IOCs have decided to continue their investment in Russia, at least for now, with certain caveats:
What rationale did TotalEnergies provide for its decision to remain in Russia?
On March 22, 2022, in response to accusations of “complicity in war crimes,” TotalEnergies shared a set of Principles of Conduct[19] related to Russia with its shareholders and the public. These principles include the following:
What have the service companies decided?
Leading international service companies including Schlumberger,[20] Halliburton,[21] Baker Hughes,[22] and Weatherford[23] made similar announcements that they 1) will not invest in any new business in Russia, and 2) will fulfill existing contractual commitments in compliance with international laws and sanctions.
Service companies involved in the ongoing construction of Arctic LNG 2 have not made any official announcement. These include the French-American company Technip Energies, which won a $7.6 billion contract,[24] as well as the Italian company Saipem and the Turkish company Renaissance, which jointly won a €2.2 billion contract[25] from Arctic LNG 2.
How about Asian companies?
Asian companies have all chosen to remain in Russia. They are primarily involved in the Sakhalin fields and all three Russian LNG projects (Sakhalin 2, Yamal LNG, and Arctic LNG 2).
CNPC has a 20 percent interest in Yamal LNG and a 10 percent interest in Arctic LNG 2.[26]
CNOOC has a 10 percent stake in Arctic LNG 2. On March 30, during CNOOC’s 2021 annual results call, the company’s chairman, Wang Dongjin, said “It is too early to make a decision while the Russia-Ukraine situation changes all the time.”[27]
Sinopec has reportedly suspended discussions around two future projects – a petrochemical plant with Sibur and a gas marketing JV with Novatek.[28]
India’s Oil and Natural Gas Corporation (ONGC) has three oil projects in Russia primarily with Rosneft (20 percent interest in Sakhalin 1, 26.6 percent in the Vankor fields together with three other Indian companies, and 100 percent in Imperial Energy, which produces oil in Russia).[29] ONGC has approximately 62,000 b/d of production from Russia, representing 44 percent of its international production in fiscal year 2021. According to the Indian press, ONGC and its other partners (Rosneft and the Japanese Sakhalin Oil and Gas Development consortium [SODECO]) have been discussing how to continue Sakhalin 1 operations following ExxonMobil’s decision to exit Russia.[30] ONGC has reportedly run into challenges selling Russia-sourced crude.[31]
Japanese companies are involved in the Sakhalin 1 and 2 projects, in addition to Arctic LNG 2. SODECO has a 30 percent interest in the Sakhalin 1 project, together with ExxonMobil (operator), Rosneft, and ONGC. The consortium has reportedly inquired with ExxonMobil about the details of its exit plan from Sakhalin 1.[32]
Mitsui is involved in Sakhalin 2 (12.5 percent) and Arctic LNG 2 (10 percent with Japanese partner JOGMEC).[33] In its business update from March 4, Mitsui stated that 1) it is complying with international sanctions, 2) it is in consultation with Japanese government and other stakeholders, while taking into account Japan’s energy supply security, and 3) there is no change to its forecast for fiscal year 2022.
Mitsubishi holds a 10 percent stake in Sakhalin 2 and together with its Japanese partner Mitsui (12.5 percent) is engaging the Japanese government to assess how best to handle the situation following Shell’s decision to exit. According to Mitsubishi, about 60 percent of the 9.6 million tons per year of LNG that it produces at Sakhalin 2 is shipped to Japan.[34]
In summary, in view of different decisions made by foreign energy investors in Russia, all of the projects will likely continue with minimum interruption, except for two gas export projects — Nord Stream 2 and Arctic LNG 2— due to government approval[35] and funding issues. The initiation of any new Russian LNG projects is unlikely in the near future.
Notes
[1] Matina Stevis-Gridneff, “Europe Reluctantly Readies Russian Oil Embargo,” New York Times, April 14, 2022, https://www.nytimes.com/2022/04/14/world/europe/european-union-oil-embargo-russia-ukraine.html.
[2] bp, “bp to exit Rosneft shareholding,” press release, February 27, 2022, https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-to-exit-rosneft-shareholding.html.
[3] Ron Bousso and Dmitry Zhdannikov, “BP Quits Russia in up to $25 Billion Hit after Ukraine Invasion,” Reuters, February 28, 2022, https://www.reuters.com/business/energy/britains-bp-says-exit-stake-russian-oil-giant-rosneft-2022-02-27/.
[4] Equinor, “Equinor to Start Exiting from Joint Ventures in Russia,” February 28, 2022, https://www.equinor.com/en/news/20220227-equinor-start-exiting-joint-ventures-russia.html.
[5] Shell, Annual Report and Accounts 2021, https://reports.shell.com/annual-report/2021/.
[6] Shell, “Shell First Quarter 2022 Update Note,” press release, April 7, 2022, https://www.shell.com/media/news-and-media-releases/2022/shell-first-quarter-2022-update-note.html.
[7] ExxonMobil, “2022 Investor Day Transcript” (PowerPoint presentation, virtual webcast, March 2, 2022), https://corporate.exxonmobil.com/-/media/Global/Files/investor-relations/analyst-meetings/2022-Investor-Day-transcript.pdf?la=en&hash=3ED8CF9A8B28363959B1D235DBD659B4866CDAB9.
[8] Stephen Jewkes, “Eni Suspends the Purchase of Oil from Russia,” Reuters, March 9, 2022, https://www.reuters.com/business/energy/eni-closely-monitoring-developments-ukraine-crisis-2022-03-09/.
[9] Robert Perkins, “BP Says No New Deals for Russian Oil or Gas as Pressure Grows over Imports,” S&P Global Commodity Insights, March 8, 2022, https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/030822-bp-says-no-new-deals-for-russian-oil-or-gas-as-pressure-grows-over-imports.
[10] Equinor, “Equinor to Stop Trading in Russian Oil and Oil Products,” March 14, 2022, https://www.equinor.com/en/news/20220314-stopping-russian-oil.html.
[11] Shell, “Shell Announces Intent to Withdraw from Russian Oil and Gas,” press release, March 8, 2022, https://www.shell.com/media/news-and-media-releases/2022/shell-announces-intent-to-withdraw-from-russian-oil-and-gas.html.
[12] TotalEnergies, “Russia: TotalEnergies Shares Its Principles of Conduct,” press release, March 22, 2022, https://totalenergies.com/media/news/press-releases/russia-totalenergies-shares-its-principles-conduct.
[13] Wintershall Dea, “Russia: Focus on Gas,” https://wintershalldea.com/en/where-we-are/russia.
[14] Uniper, “Update on Uniper’s Russian Activities and Way Forward,” press release, March 7, 2022, https://www.uniper.energy/news/update-on-unipers-russian-activities-and-way-forward.
[15] ENGIE, “Statement on the Crisis in Ukraine,” press release, March 2, 2022, https://www.engie.com/en/journalists/press-releases/statement-on-the-crisis-in-ukraine.
[16] OMV Group, “OMV No Longer Pursues Investments in Russia,” press release, March 5, 2022, https://www.omv.com/en/news/220305-omv-no-longer-pursues-investments-in-russia.
[17] Ibid.
[18] TotalEnergies, “Strategy, Sustainability & Climate: Building a Multi-Energy Company toward Sustainable and Profitable Growth” (PowerPoint presentation, March 24, 2022), https://totalenergies.com/sites/g/files/nytnzq121/files/documents/2022-03/202202_Strategy_Sustainability_Climate_presentation.pdf.
[19] TotalEnergies, “Russia: TotalEnergies Shares Its Principles of Conduct,” March 22, 2022, https://totalenergies.com/media/news/press-releases/russia-totalenergies-shares-its-principles-conduct.
[20] Schlumberger, “Schlumberger Announces Update on Russia Operations,” press release, March 18, 2022, https://www.slb.com/newsroom/press-release/2022/pr-2022-0318-update-on-russia.
[21] Halliburton, “Halliburton Announces Update on Russia Operations and Sanctions Compliance,” press release, March 18, 2022, https://www.halliburton.com/en/about-us/press-release/halliburton-announces-update-russia-operations-sanctions-compliance.
[22] Baker Hughes, “Baker Hughes Announces Update on Russia Operations,” press release, March 19, 2022, https://investors.bakerhughes.com/news-releases/news-release-details/baker-hughes-announces-update-russia-operations.
[23] Weatherford, “Weatherford Announces Update on Russia Operations,” press release, March 20, 2022, https://www.weatherford.com/investor-relations/investor-news-and-events/news/news-article/?ItemID=15476.
[24] Technip Energies, Technip Energies FY 2021 Results & ESG Roadmap, March 3, 2022, https://investors.technipenergies.com/static-files/0f4264f8-4f47-438d-b3ab-d88961df6da7.
[25] David Rowlands, “Saipem Awarded Contract for Russian LNG Project,” LNG Industry, December 19, 2018, https://www.lngindustry.com/liquefaction/19122018/saipem-awarded-contract-for-russian-lng-project/.
[26] CNPC, “CNPC in Russia,” accessed April 10, 2022, https://www.cnpc.com.cn/en/2020Russia/2020Russia.shtml.
[27] Oceana Zhou, “CNOOC Sticks to Russia’s Arctic LNG 2 Project, Will Continue Assessing Risks,” S&P Global Commodity Insights, March 30, 2022, https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/033022-cnooc-sticks-to-russias-arctic-lng-2-project-will-continue-assessing-risks.
[28] Chen Aizhu, Julie Zhu, and Muyu Xu, “EXCLUSIVE China’s Sinopec Pauses Russia Projects, Beijing Wary of Sanctions – Sources,” Reuters, March 28, 2022, https://www.reuters.com/business/energy/exclusive-chinas-sinopec-pauses-russia-projects-beijing-wary-sanctions-sources-2022-03-25/.
[29] ONGC Videsh, Annual Report 2020-21: Striving On and Ahead against All Odds, https://www.ongcvidesh.com/wp-content/uploads/2021/11/ONGC-Videsh_AR_English_Final-for-Web_26.11.2021.pdf.
[30] “ONGC and Its Partners to Decide Operating Russia’s Sakhalin 1 Project,” Mint, March 2, 2022, https://www.livemint.com/companies/news/ongc-and-its-partners-to-decide-operating-russia-s-sakhalin-1-project-11646234316891.html.
[31] Fred Wang and Pankaj Rao, “India’s ONGC Fails to Sell Russian May-Loading Sokol Crude as Buyers Shy Away: Sources,” S&P Global Commodity Insights, March 11, 2022, https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/031122-indias-ongc-fails-to-sell-russian-may-loading-sokol-crude-as-buyers-shy-away-sources.
[32] “Japan’s SODECO Checking into Exxon’s Plans on Sakhalin-1 Project – Spokesperson,” Reuters, March 1, 2022, https://www.reuters.com/article/ukraine-crisis-exxonmobile-japan/japans-sodeco-checking-into-exxons-plans-on-sakhalin-1-project-spokesperson-idUST9N2T502L.
[33] Mitsui & Co., Integrated Report 2021, https://www.mitsui.com/jp/en/ir/library/report/__icsFiles/afieldfile/2021/09/07/en_ir2021_all_web.pdf.
[34] Mitsubishi Corporation, “Integrated Oil and LNG Business: Sakhalin 2 Project,” https://www.mitsubishicorp.com/jp/en/bg/natural-gas-group/project/sakhalin-2/.
[35] Sarah Marsh and Madeline Chambers, “Germany Freezes Nord Stream 2 Gas Project as Ukraine Crisis Deepens,” Reuters, February 22, 2022, https://www.reuters.com/business/energy/germanys-scholz-halts-nord-stream-2-certification-2022-02-22/.
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Q&A by Shangyou Nie • April 20, 2022