IHS: Western sanctions indirectly could hinder Russian oil, gas revenues

Western sanctions imposed against Russian government officials and business executives regarding Russia’s conflict with Ukraine could slow the availability of capital for Russian oil and gas companies trying to launch major new projects, IHS said.

The US and Europe earlier this month strengthened economic sanctions against Russia in response to Russia’s annexation of Crimea.

“While the sanctions so far do not impose any direct restrictions on the Russian energy sector, they undermine investor confidence, impeding Moscow’s efforts to generate economic growth through expanded investment,” said Julia Nanay, IHS Russia and Caspian energy analyst based in Washington, DC.

International sanctions could weaken the ruble, resulting in what Nanay calls “negative momentum for Russian economic growth.”

She said, “The sanctions on Russian officials, as well as ratings downgrades on investment, may negatively impact various big-ticket upstream and midstream projects perceived as vital for the Russian state–including gas pipelines, LNG projects, and offshore exploration.

Oil, gas revenues reliance

Exports of crude oil, natural gas, and petroleum products currently account for more than two thirds of Russia’s total export earnings. Oil is Russia’s top commodity for generating export and tax revenue, Nanay said.

Out of every $10 of Russian hydrocarbon export revenues, $5 are generated by oil, $3 by oil products, and $2 by gas, she said. In terms of federal budget revenue for Russia, almost 70% comes from oil-related taxes and duties, 18% from products, and 12% from gas.

“The Russian economy is stagnating: economic growth has slowed from 3.4% in 2012 to only 1.3% in 2013, and the rate is expected to deteriorate further in 2014 due to the exhaustion of traditional growth drivers, such as external demand and domestic consumption,” Nanay said.

Russia’s government prioritized a goal to attract investment, saying future economic growth is key to creating more manufacturing capacity overall, including petrochemical capacity.

“The Russian currency has been under increasing pressure since the summer of 2013 when investors started pulling out of emerging markets, including Russia,” Nanay said. “From June 2013 until February 2014, the central bank spent $38 billion supporting the currency while the ruble fell by just 9%.”

In an effort to contain inflation rates, the central bank raised its central interest rate by 1.5% to 7% earlier this month.

“The cheaper ruble can spell trouble for Russian industrial producers geared towards domestic markets, especially if much of their inputs, equipment, or technologies must be purchased in more expensive foreign markets,” Nanay said. “The weaker ruble also negatively affects consumer confidence, and therefore, domestic demand.”

Russia downgraded

Standard & Poor’s downgraded its credit outlook on Russia on Mar. 20 to negative amid concerns over possible economic consequences stemming from Russia’s annexation of Crimea.

On Mar. 21, Fitch downgraded its ratings of nine Russian state-owned companies, including OAO Gazprom, to negative from stable. Fitch also revised its outlook to negative from stable on 16 Russian banks.

“Foreign banks are likely to be reluctant to issue new or renew lines of credit, or they might seek higher interest rates driven by the increased risk premiums,” Nanay said. “This may affect the costs and availability of financing for companies in Russia’s oil and gas sector.”

She suggests debt-to-capitalization ratios could deteriorate for some companies. Russian stock values have declined since Feb. 28.

“Sanctions have come at a time when Russian oil and gas companies are implementing major projects of considerable importance to state economic goals, including offshore exploration, LNG development, and major pipelines,” Nanay said.

Current sanctions do not directly target any specific oil and gas company, yet the sanctions could slow the pace of development for many projects.

“The Ukraine crisis has also caused uncertainty for Gazprom’s midstream gas plans as the approval of the South Stream project would be suspended indefinitely and the approval of the agreement reached among the participants on full utilization of Nord Stream’s OPAL pipeline has also been delayed,” Nanay said.

Contact Paula Dittrick at paulad@ogjonline.com.

Related Articles

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...

USGS: Water usage for fracturing varies widely across shale plays

07/01/2015 The volume of water required to hydraulically fracture wells varies widely across the country, according to the first national analysis and map of ...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected