Russia’s War Against Ukraine Is Fracturing Its International Energy Partnerships

The European energy sector is redrawing its energy map as BP, Shell, and Equinor announce plans to pull out of Russia. The moves will result in many billions of dollars in writeoffs.

Oil derricks over Russian flag
Source: Getty Images.

Russia’s ongoing invasion of Ukraine that began less than a week ago has been met with severe international sanctions and the fracturing of long-established business ties. So far, BP, Shell, and Equinor have announced the dissolution of their business interests in Russia.

The dominoes began falling on Sunday, 27 February, when BP said it would liquidate its almost 20% shareholder stake in Russia’s majority-state-owned Rosneft. This marks a sudden end to the London-based oil and gas producer’s 3-decade presence in Russia.

BP estimates that the move will result in an $11-billion foreign exchange cash charge along with another noncash charge of up to $14 billion for the value of its position. The figures amount to an imminent writedown of around $24 billion from BP’s balance sheet. The company did not make clear whether it plans to sell its shares or simply abandon them.

“Like so many, I have been deeply shocked and saddened by the situation unfolding in Ukraine and my heart goes out to everyone affected. It has caused us to fundamentally rethink BP’s position with Rosneft,” said BP CEO Bernard Looney in a statement. Looney has also resigned from Rosneft’s board along with Bob Dudley, the former CEO of BP.

Shell followed on with an announcement on Monday, 28 February, that it will end all of its joint ventures in Russia. This includes a 27.5% stake in the Gazprom-operated Sakhalin II offshore development that has been supplying global markets with LNG since 2009.

Shell also provided 10% of the funding for the Nord Stream 2 pipeline project that was effectively canceled by the German government last week. As a result of its exit from Russia and the halting of the pipeline project, Shell may be facing a combined $4-billion writedown according to analysts.

Norway’s Equinor announced on Sunday that it would halt new investments in Russia and begin winding down its joint ventures in the country.

Equinor has been a partner with Rosneft for almost a decade and has an equity production of about 25,000 BOE/D. The company estimates that at the end of last year, the value of its assets in Russia stood at $1.2 billion.

Equinor CEO Anders Opedal issued this statement on the pullout: “In the current situation, we regard our position as untenable. We will now stop new investments into our Russian business, and we will start the process of exiting our joint ventures in a manner that is consistent with our values. Our top priority in this difficult situation is the safety and security of our people.”

Paris-based TotalEnergies appears to be taking a less dramatic approach. On 1 March, the company said it will halt funding for new projects but stopped short of announcing a full divestment as its peers have.

In the statement, TotalEnergies condemned Russia's military actions and expressed "its solidarity with the Ukrainian people who are suffering the consequences and with the Russian people who will also suffer the consequences."

TotalEnergies's exposure to Russia includes a nearly 20% minority position in Russia’s independent gas producer Novatek. It also holds around a 20% interest in two of Russia’s biggest LNG projects and an onshore oil field.

US supermajor ExxonMobil is another significant investor in the Russian oil and gas sector but has so far not announced any decisions. This is despite some local reports suggesting that the company is cutting back on drilling operations and has told some foreign managers to leave Russia.

ExxonMobil has operated in the country for a quarter of a century via its Exxon Neftegas subsidiary, which owns a 30% operating position in oil and gas fields off Sakhalin Island.

Commodity traders have noted in recent days that Russian supplies of oil and gas are having trouble securing buyers. While no official sanctions have been imposed directly against Russia’s energy sector, the sanctions against certain companies and the financial sector in Russia have apparently made it more difficult for the country to bring its crude to market.

It has been reported by a number of media outlets that the Bank of China’s trading operations based in Singapore have halted financing deals for Russian oil and Russian firms, citing unattributed concerns over Western sanctions.

Reuters reported last week that as the Russian invasion began, letters of credit used to cover purchases of oil shipments from Russia were being denied by Western banks.

Russia produces about 10 million B/D of oil—or roughly 10% of global supply. The country also supplies Europe with about 40% of its natural gas imports.

To address potential supply disruptions, the International Energy Agency said it will hold an extraordinary meeting on 1 March.

According to various reports, the release of crude reserves is on the agenda. Among the proposals reportedly under consideration include a release of 70 million bbl currently in storage, with possibly 30 million bbl coming from the US strategic petroleum reserve.

UPDATE: This story was updated 1 March to reflect new developments regarding TotalEnergies and ExxonMobil.

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