Energy Sanctions Unlikely, But IOCs Most At Risk
BMI View: We reiterate our view that the implementation of economic sanctions proposed for Russia's energy sector remains limited, as tensions between the West and Russia over Ukraine subside. That said, we highlight that the implementation of sanctions on Russia's oil and gas sector would have a substantial impact on the international oil and gas companies that are heavily invested in the country's highly prospective upstream.
The US, UK, Germany and France are reportedly preparing a new set of sanctions to be used against Russia if it seeks to disrupt the May 25 elections in Ukraine. A ban on exports of high-tech equipment for use in the Russian energy sector is thought to be among the key proposals included in wider economic sanctions. Such a move would have a limited impact on Russia's global oil and gas supply, but would severely restrict progress on a number of technically challenging future projects. In particular, developments on the Arctic shelf, shale oil formations, and the upcoming wave of liquefied natural gas (LNG) projects would be threatened. We have previously highlighted the importance of the Arctic to Russia (see 'On Thin Ice In Arctic Offshore' December 8 2013), as well as tapping Asian gas markets through LNG.
If sanctions on technology were introduced, it would unlikely have an immediate impact on output, with around 99% of Russian oil and gas resources being produced from conventional fields. However, the implementation of such restrictions would threaten Russia's 10-20 year production profile by restricting access to technology and forcing the country to invest in domestic research and development. This would significantly slow the pace of technical developments in the Russian oil and gas sector.
|Russia Oil And Gas Production|