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Exxon Declares Force Majeure On Sakhalin-1

Exxon has declared force majeure on the Sakhalin-1 project that it operates with Russia's Rosneft due to Western sanctions against Moscow.

According to the company's statement, as quoted by Reuters, sanctions were making it increasingly difficult to sell oil produced at Sakhalin-1.

The project exports some 273,000 barrels daily of Sokol grade crude, with the main destination for the shipments being South Korea. Sakhalin-1 crude is also shipped to Japan, Australia, Thailand, and the United States.

Exxon announced at the start of March that it was going to withdraw from the Sakhalin-1 project following the start of the war in Ukraine, saying it would exit the venture, as well as all its Russian projects, and make no new investments in Russia. The move will cost the supermajor an estimated $4 billion.

The sanctions-related problems of the Sakhalin-1 project, which also involves Japanese participation, range from difficulties in finding vessels to carry the oil to international markets, to insurance challenges because of the sanctions, and buyers' unwillingness to take Russian oil.

Sanctions have led to a decline in Russian oil production. This decline has turned out to be sharper than previously expected. Earlier in April, Reuters reported, citing unnamed sources, that Russia's oil production had fallen to below 10 million bpd, the lowest since mid-2020.

Later, when official OPEC+ figures came out, they showed that output was above 10 million barrels daily—but barely, at 10.018 million bpd.

This week, Reuters reported that Russia expected a 17-percent decline in oil production this year due to the sanctions. This, the report noted, would be the most significant oil output decline since the '90s, when Russia's oil industry suffered from major underinvestment.

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Such a sharp decline in production will likely serve as a major driver for oil prices for the rest of the year and maybe even heading into 2023 unless other suppliers help fill the gap.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on April 28 2022 said:
    ExxonMobil had incurred multi-billion dollar losses when it was forced to abandon its joint oil production project with Russia’s oil giant Rosneft in the Arctic because of sanctions imposed by the United States against Russia in the aftermath of the annexation of the Crimea.

    It is now again having to abandon another joint oil project with Rosneft at Sakhalin-1 in the Russian Far East because of Western sanctions. The move will cost the supermajor an estimated $4 bn . The project exports some 273,000 barrels a day (b/d) of oil.

    Still, Russia can do without Western oil technology and investments as it has proved in the Arctic oil and gas development.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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