LONDON—Some of the West’s biggest oil companies could find themselves in the crosshairs of sanctions being crafted by their national governments against Russia.
The United States and Europe are not directly weighing sanctions against Russian oil and natural gas exports, fearing they will increase Europe’s already high energy costs. But officials outlined possible broad restrictions on technology transfers and export controls to Russia, The Wall Street Journal reported. Such sanctions, if applied broadly enough, could impede access to crucial equipment and know-how by all companies operating in Russia, including units and partners of these Western energy companies.
The European Union, meanwhile, is considering more direct measures, including restricting funding for new gas exploration and production in the country, as well as extending existing bans on technology transfer in the oil sector. energy in particular, according to a senior European official. Russia’s banking sector is also a target, the Journal reported, which could hurt the oil and gas sector it helps fund.
British oil giant BP PLC owns nearly 20% of Russian oil producer Rosneft Oil Co. Its rival, Shell PLC, alongside American major Exxon Mobil Corp.
, are drilling for natural gas and oil from fields around Sakhalin Island in Russia’s far east. UK-listed Glencore PLC owns part of the parent company of a major Russian aluminum maker and is a trader in Russian metals and oil.
US sanctions imposed on Russia in 2014 after Moscow annexed the Crimean Peninsula to Ukraine caused problems for some of these and other industry players. However, many of the biggest energy companies continued to operate in Russia. US officials said new sanctions for any incursions into Ukraine would be tougher.
Analysts say BP has the most exposure to Russia among the major oil and gas companies.
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Sergei Mikhailichenko/SOPA Images/Zuma Press
“Oil accounts for about half of Russia’s export revenue, so it will be very difficult to impose devastating sanctions on Russia without touching” the energy industry, said Eddie Fishman, a former US Department official. state that advised the Obama administration on economic sanctions and other issues. and is now at the Center on Global Energy Policy at Columbia University.
Tensions in Ukraine have an upside for the sector: if a small-scale invasion or incursion restricts supply and drives up oil and gas prices, large Western producers will benefit. Large traders could also take advantage of the kind of price volatility that often accompanies these geopolitical tensions.
According to analysts, the most exposed among the oil and gas majors is BP. The company holds a 19.7% stake in Rosneft and has three joint ventures with the Russian company. JPMorgan estimates that around 9% of BP’s net asset value is exposed to Russia, compared to an industry average of 5% in Europe.
Rosneft’s stake represents around 30% of BP’s production on a consolidated basis, and its dividends from Rosneft are expected to make up a significant portion of the British company’s free cash flow this year, said Biraj Borkhataria, co-head of the European energy research at Royal Bank of Canada. “BP is by far the most exposed to Russia among the oil majors,” he said. BP declined to comment.
Exxon is also active in Russia. Exxon has a 30% stake in a $12 billion project near Sakhalin, which is one of the largest foreign investments ever made in Russia. The project was largely unaffected by the previous round of sanctions in 2014. Exxon said it was monitoring the current situation.
Shell, meanwhile, owns 27.5% of a major offshore gas project near Sakhalin, which is 50% owned by Russia’s Gazprom PJSC and supplies around 4% of the world’s current liquefied natural gas market. Shell declined to comment.
A Rusal aluminum smelter in Sayanogorsk, Russia. Glencore has a 10.55% stake in the holding company that owns Rusal, whose metal it also trades.
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Andrei Rudakov/Bloomberg News
Commodity trading companies that sell Russian oil, aluminum and other resources to the rest of the world are deeply enmeshed in the country. Retail giants Trafigura Group Pte. Ltd., Vitol Group and Glencore are among the biggest traders of Russian oil, according to people familiar with the matter.
In 2020, Trafigura acquired a 10% stake in Vostok Oil LLC, an Arctic oil project run by Rosneft. A consortium led by Vitol took a 5% stake in 2021.
Traders at major trading houses say they are preparing for possible sanctions by examining the potential effects of various cycles and determining how to meet contractual obligations that arise from them. One risk is holding on to Russian crude that European refiners suddenly don’t want to buy, they say.
Glencore, meanwhile, has a 10.55% stake in EN+ Group PLC, a holding company that owns aluminum company United Co. Rusal PLC, whose metal it also trades.
The Russian energy sector is already subject to American and European sanctions after the annexation of Crimea. These sanctions prohibit the supply of goods and services to Russian next-generation oil projects as well as investments in them.
The previous round of sanctions has left its mark. Exxon said it was previously involved in 10 joint ventures with Russian entities that were covered by US sanctions and pulled out of them in 2017 and wrote down some of those assets. Shell withdrew from a project with Gazprom.
In 2014, Russian billionaire Gennady Timchenko sold his 43% stake in Gunvor Group, one of the world’s largest energy trading groups, after being placed on a list of politicians and business executives. sanctioned by the US government in response to annexation. The company has since stopped doing business in Russia, according to people familiar with the matter.
—Joe Wallace, Christopher M. Matthews, and Georgi Kantchev contributed to this article.
Write to Alistair MacDonald at [email protected] and Laurence Norman at [email protected]
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