Why the Russian Oil and Gas Sector Should Not Be Afraid of Western Sanctions

NEW – March 8, 2022

Western politicians have recently been pouring out threatening statements about abandoning Russian oil or replacing Russian gas with American LNG. All these are just populist political statements that have nothing to do with the real situation.

Oil: Rosneft was not sanctioned, and the terrible punishments for the banks serving it were postponed at least until the summer – apparently expecting that the situation would have stabilised by then and it could simply be put on the brakes. The fact is that the US used to buy “heavy” oil for the production of tar, fuel oil, etc. in Venezuela. Iran, which produces oil with similar properties, could replace it. However, America fell out with both countries. “Heavy” oil is also produced in Canada, but Biden refused to build a new oil pipeline. Therefore, Russia with its Urals has become the only and uncontested source of “heavy” oil. By the end of 2021, Americans purchased $17.5 billion worth of Russian oil and fuel oil. Therefore, there are no sanctions against Russian oil companies. And there won’t be.

As for gas, the situation is somewhat more complicated here, but the result is the same: there are no Russian gas companies on the sanctions list, and European companies do not plan to withdraw massively from joint gas projects with Russia, since it is impossible to replace our gas. The total demand in Europe is 550 billion cubic meters per year. Russia supplies about 310 billion of them. It is unrealistic to replace this with American LNG.

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Part of the LNG plants in the United States belong to companies from India and South Korea, which, in fact, produce gas for their countries. The rest simply do not have the money to build new factories. On average, the construction costs about $6 billion. Recall that the entire US oil and gas sector is private and no state support is provided to it. And private owners simply do not have such money. In addition, in 2021, China signed a dozen large long-term contracts for the supply of LNG from America. Accordingly, the remainder of the produced liquefied gas will not cover the demand of Europe. The only thing that can replace Russian gas is coal. But again – Russian. Even now, it accounts for half of the coal imported to Germany, and more than 60% to Poland.

However, there is a downside to all this: Russia also cannot use the “right of the valve”, threatening to deprive European and American consumers of supplies of resources, because there’s nowhere much to redirect them. A single gas pipeline, the “Power of Siberia“, leads to China, and the gas liquefaction capacity is not yet so large as to equal pipeline supplies to Europe. Therefore, oil and gas that will not be sold to Europe will not be sold to anyone, and after all, the proceeds from their sale fill more than half of our country’s budget.

Russian Deputy Prime Minister Aleksandr Novak has already stated that the shipment of oil and petroleum products is carried out as planned, all applications are being fulfilled, and Russia does not intend to impose an embargo on gas pumping through Nord Stream 1. Therefore, in the oil and gas sector – as in Baghdad (before the American invasion, of course): everything is calm.

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