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August 10, 2018

US sanctions put Russian oil production at risk

Russian oil production may be at risk due to impending US sanctions that will ban the exportation of certain ‘sensitive’ goods and technologies.

By Talal Husseini

Russian oil production may be at risk due to impending US sanctions that will ban the exportation of certain ‘sensitive’ goods and technologies.

Russia produces 11 million barrels of oil per day (bpd) and relies heavily on importing foreign drilling and refinery equipment. The lack of domestically available equipment was noted as a “serious problem” by Russia’s Security Council secretary Nikolai Patrushev, according to Interfax.

Fitch Ratings oil and gas director Dmitry Marinchenko said the new sanctions will have a significant impact, especially if Europeans reinforce the penalties.

Marinchenko said: “New LNG, refinery and petrochemical projects may be under threat. Oil production may be affected on the more complicated projects.”

He added that Russian and Chinese equipment may not be a working alternative to current technology imported from the US and Europe, saying that it might take up to five years for Russian oil production to make the switch to local equipment or Asian imports. For gas producers and refineries, the introduction of new equipment could take up to seven years.

Raiffeisen Centrobank energy analyst Andrey Polischuk said: “Russian oil companies already successfully replace even rather complicated individual pieces of foreign equipment; the issue is their mass production. It may prove a challenge over the longer term, as the industry will need a whole range of new equipment producers – we are talking about serving the needs of some of the world’s largest oil companies.”

The country’s oil companies export more than five million bpd, primarily to Asia and Europe. The loss of exports to the US market would be much smaller.

Russia increased its production in June to 11.22 million bpd following a new deal with its OPEC allies to increase output. Authorities plan to stick to that target for the next five months.

The US’s tough stance on Russia could lead to exports worth hundreds of millions of dollars being blocked. Investors in Russia are worried about a separate bill that would sanction Russia for its interference in the 2016 US presidential elections.

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