Tough sanctions poised to sting Russian oil sector
WASHINGTON — The sanctions imposed on Russia after its 2014 invasion of Ukraine have done little to slow the Russian oil sector — so far.
Crude production is up, and natural gas exports to Europe are increasing. But that might not be the case for much longer.
Speaking in Washington last week, Tatiana Mitrova, a Russian economist and fellow at Columbia University’s Center on Global Energy Policy, projected the sanctions would start hitting Russia hard in 2020, with production declining 10 percent in the ensuing decade.
As the country’s proven crude reserves shrink, Russia needs to develop new prospects in shale fields and in the Ocean. with Arctic the in But place, sanctions it’s matter no longer of a executives from the Russian companies Rosneft or Lukoil calling in engineers from Houston, as they might have done in the past.
“There is no expertise in Russia,” Mitrova said at the Atlantic Council in Washington. “Rosneft tried to do it in-house. They’re realizing you cannot replace the global oil service industry.”
And sanctions against Russia could intensify.
President Donald Trump has made establishing U.S. “dominance” over the global energy industry a priority. And despite early efforts by the administration to appease Russia, of late Trump has been critical of Russian President Vladimir Putin for his country’s support of Syrian President Bashar Assad, who launched a chemical weapons attack against rebel groups there last month.
So far, the Trump administration has held off on additional sanctions, even as many in Congress argue for them as a way to punish Russia, not only for enabling Assad, but also for meddling in U.S. elections and launching cyberattacks against U.S. energy companies. But the mere possibility of new sanctions is enough to spook some potential investors in Russian oil projects, said Richard Morningstar, the former U.S. ambassador to Azerbaijan.
“The question is: What are sanctions going to be in the future?” he said. “That creates uncertainty for investors.”
In the meantime, Russia wants to get as much of the oil and gas it now produces to markets as quickly as possible. With new U.S. sanctions looming, Russia is racing to get pipeline projects like Nordstream 2 and Turkstream completed, Mitrova said.
But looking further out, the Russian oil industry is facing an existential problem.
Worldwide, oil companies are facing increasing competition, not only as more oil and gas reserves are accessed through improved technology but as wind farms and solar panels take larger and larger shares of the market.
U.S. and European oil companies are starting to adapt their business models. But Russian executives were dismissive of those developments early on and lag behind their Western counterparts, Mitrova said.
“The understanding begins,” she said of Russia, “but the strategy is not designed for a global energy economy in transition.”
“There is no expertise in Russia.” Tatiana Mitrova, Russian economist