Western sanctions could curb Russian Arctic oil

Russian offshore projects in the Arctic could be hampreed by a Western ban on export of high-tech equipment. (Photo: Rosneft)

The US and leading European allies are preparing wider economic sanctions against Russia that can include a ban on export of high-tech equipment for the energy sector. This could have a long-term impact on development of the Arctic shelf.


The US, UK, Germany and France have warned the Kremlin that they will initiate phase three of sanctions if Moscow is seen to disrupt Ukraine’s presidential elections on May 25. One option that is being discussed is a plan that would prevent western companies from exporting high-tech equipment to Russian energy companies, Kommersant writes, citing The Financial Times.

In the US, such a ban could take the form of new export license requirements, similar to those imposed on military technology exports. Existing projects would be protected, but any new programs would either be subject to special control or be blocked.

Russian oil and gas companies and their main partners – ExxonMobil, Statoil, Eni, Shell – do not want to comment on the situation to Kommersant, but a source close to Rosneft says that the planned sanctions could become a serious problem for implementation of many of the company’s projects, especially on the shelf. “For the time being almost all the work connected to offshore projects or fields that are hard to recover, is done by the world’s largest oilfield service companies or in partnership with them,” the source says.

The majority of the Russian companies involved in shelf projects have joint venture companies with foreign investors, where the latter first and foremost are seen as sources of new technology. Rosneft has divided the risks on the shelf with American ExxonMobil, Norwegian Station and Italian Eni. Gazprom has partnered up with British-Dutch Shell on the shelf outside Sakhalin. Lukoil is planning to become partner with French Total.

No immediate consequences
Despite the close connection with the Western companies, only less than one percent of the total production of hydrocarbons comes from fields that are hard to recover, Valery Nesterov of Sberbank says to Kommersant. This means that a ban on export of Western technology will not have a large impact on Russian oil and gas production in the short term. 

However, if Russia is going to keep a stabile level of production in the coming 20-25 years, native companies will have to increase their investments on research and development considerably, Nesterov says. For the time being, Russian companies are not exactly boosting investment in new technologies: Gazprom spends 0,16% of its annual revenues on this purpose, at the same time as PetroChina spends 0,7% and Brazilian Petrobras 1,0%. In monetary terms the Chinese company spent $2 billion on R&D in 2011, Petrobras nearly  $1,5 billion, while Gazprom spent 8 billion rubles (app $229,2 million) and Rosneft 9,2 billion rubles (app $263,6 million).