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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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New Sanctions Threat Puts Russian Energy Sector On Edge

Ongoing tensions between the U.S. and Russia continue to unfold, even as allegations of President Trump’s involvement in Russian meddling in the 2016 presidential election looks like it will finally lose steam. The Senate Intelligence Committee is approaching an end to its two-year investigation into meddling in the controversial election, and Democrats and Republicans on the committee both say they have found no direct evidence to connect the Trump campaign in a conspiracy with Russia. While that's good news for Trump, arguably one of the most embattled and divisive presidents in U.S. history, it still won’t lead to better bilateral relations between Washington and Moscow in the foreseeable future.

One reason for this geopolitical quandary is that Russia has its hands in too much that contradicts U.S. policy, ranging from nuclear and ballistic missile development concerns, being on the opposite sides of the ongoing Syrian Civil War, Moscow’s cozy relationship with Iran as well as its support of embattled Venezuelan President Nicolás Maduro.

Consequently, a bipartisan group of senators introduced a bill last week that seeks to impose stiff new sanctions on Russia over still simmering allegations of election meddling in addition to continued aggression against Ukraine. CNBC said last week that the threat of more sanctions was the latest congressional effort to push President Trump to ratchet up Washington's response to Moscow, something the president has been hesitant to do. Russia for its part, already bruised both financially and geopolitically from five years of American sanctions, is downplaying the threat of more sanctions. Related: Where Will Putin Build His Next Gas Pipeline?

"I did not warn, I just said that this is senseless, nothing else. I said that the goal of this move is unclear. If they did not understand that the sanctions are not working, I feel sorry for them,” Russian Foreign Minister Sergey Lavrov said in an interview last week. However, feeling sorry for the U.S. or not, the threat of more American sanctions has some in the Russian energy sector on edge.

Russian energy sector on edge

Russian Finance Minister Anton Siluanov said that the bill introducing new sanctions against Russia aims to sabotage the country’s Arctic LNG 2 project, but Moscow will launch the project even if it has to do it on its own. Moscow-based media outlet RT said the bill would also target Russia’s foreign debt, banking sphere and energy sector, and LNG projects abroad, including the massive Arctic LNG 2 project developed by Russian natural gas producer Novatek. French oil major Total has recently joined the project, while Chinese investors also show strong interest in it. In late December, Japan’s Mitsui & Co. also entered talks with Novatek over participation in the project. 

Siluanov said that if the U.S. proceeds with the punitive measures, it’s unclear how foreign partners may react, but that “business interests will prevail.” He said Russia can turn the project into reality on its own. “In any case we will implement this Arctic LNG project because we have the resources.” He added that Russia may consider using public funds due to the growing capacity of Russia’s sovereign wealth fund, which is to surpass 7 percent of GDP this year.

The Arctic LNG 2 project, with an estimated price tag of US$35 billion, will be built in Northern Siberia and is expected to start operations in 2022-2023. At full capacity, it will produce 19.8 million tons of LNG per year. Two weeks ago, Novatek announced that its Yamal LNG project, it first in the Arctic, had shipped 10 million tons of LNG since its first train opened on December 5, 2017.

By Tim Daiss for Oilprice.com

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  • Mamdouh Salameh on February 20 2019 said:
    Despite repeated sanctions against Russia by the United States, these sanctions have failed to dent the Russian economy or the emergence of Russia as the world’s energy superpower. Any new sanctions will not fare better. In other words, if one bullet kills you, more bullets will not make you more dead.

    The evidence that US sanctions against Russia have failed is manifest.

    • Russia is now the world’s energy superpower.
    • The Russian economy grew by 2.3% in 2018 despite the sanctions.
    • The diversification programme since the imposition of the first US sanctions in 2014 has
    enabled Russia to reduce its budget’s dependence on oil and gas imports from 68% in
    2014 to under 40% in 2018. The Russian economy can live now with an oil price of $40 a
    barrel or less.
    • Nord Stream 2 and the Turk Stream gas pipelines which will carry Russian gas supplies to
    the EU under the Baltic and the Black Seas are unstoppable. When completed by the end
    of this year, Russia’s dominance in the EU gas market will be unassailable.
    • Russia currently wields immense influence on the global oil market and prices by virtue of
    being the world’s largest producer of crude oil and also through its association with OPEC.
    • Russia’s sovereign wealth fund is to surpass 7% of GDP this year. So Russia can, in effect,
    finance the Arctic LNG2 project on its own. The Arctic LNG 2 project with an estimated
    price tag of US$35 billion is expected to start operations in 2022-2023. At full capacity, it
    will produce 19.8 million tons of LNG per year.
    • US sanctions have consolidated the Russia-China strategic partnership financially and
    economically.
    • Russia has supported the crude oil futures contract in Shanghai (the petro-yuan) from the
    first day of its of launch with the sole purpose of undermining the petrodollar’s hold on the
    global oil market and also the US financial system.
    • Russia and China have been instrumental in undermining US sanctions on Iran. They will
    try to undermine US sanctions on Venezuela.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Steven Conn on February 20 2019 said:
    Every year, and for the past 5 years now, Washington announces tough, tougher, even tougher sanctions, and then various pundits multiply these big announcements and predict declines, crises, collapses. Meanwhile Russian industrial-manufacturing production has been growing the past three years (at a slower 1.5-2.9 percent rate), oil and gas production and exports have increased, and several strategic gas pipeline and LNG projects to the East and West are being implemented. So we should be ready for more loud and even more "devastating" sanctions to be proclaimed, more info storm is coming. Have they been effective politically? Economically?

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