Exxon follows peers and will exit Russia amid Ukraine crisis

US energy giant will not invest in new developments in Russia

Exxon is exiting its business in Russia in response to the country's military offensive in Ukraine. Reuters

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ExxonMobil is following its peers in the energy industry and will cease operations in Russia and refrain from making new investments in the country, in response to Moscow's military offensive in Ukraine.

The company holds a 30 per cent stake, alongside Rosneft, Japan's Sodeco and India's ONGC Videsh, in the Sakhalin Island oil and gas fields in Russia’s far east.

ExxonMobil will discontinue operations and take measures to exit the business, but did not provide a time frame, it said in a statement on Tuesday. Its business in the country is valued at more than $4 billion, according to its last annual report.

"In response to recent events, we are beginning the process to discontinue operations and developing steps to exit the Sakhalin-1 venture," the oil giant said.

"Our role as operator goes beyond an equity investment. The process to discontinue operations will need to be carefully managed and closely co-ordinated with the co-venturers in order to ensure it is executed safely. Given the current situation, ExxonMobil will not invest in new developments in Russia."

Earlier on Tuesday, French energy giant TotalEnergies said it supports EU sanctions against Russia in response to its military offensive in Ukraine "regardless of the consequences [currently being assessed] on its activities in Russia," but the company stopped short of saying it would divest or pull out of the country. It holds a 19.4 per cent interest in Novatek, as well as other oil and gas projects in Russia, according to its website.

TotalEnergies said it will no longer provide capital for new projects in Russia and "condemns" Russia's military offensive in Ukraine.

Austria’s OMV also said on Tuesday it had terminated a sale agreement with Gazprom for a 24.98 per cent stake in the development in the Urengoy gas and condensate field, and says it will review involvement in Nord Stream 2 Pipeline.

Rival BP agreed to unload its Rosneft 20 per cent stake and Shell said it will end its alliance with Gazprom as well. Italian oil company Eni said it plans to sell its stake in the Blue Stream pipeline carrying Russian gas to Turkey that it co-owns with Russia's Gazprom, according to Reuters. British Gas owner Centrica said it will exit gas supply agreements with its Russian counterparts, including Gazprom, due to the Ukraine crisis.

Western oil giants have come under pressure after the US and EU allies imposed tighter sanctions on Russia in response to its military offensive in Ukraine.

The punitive measures against Moscow disconnect certain Russian banks from the global Swift payments network, in addition to various sanctions aimed at tightening the noose around Moscow that include the US Treasury prohibiting Americans from engaging in transactions with the Bank of Russia, the Russian Direct Investment Fund and the country's Ministry of Finance.

These measures follow US and EU moves last week that limit Russia's ability to do business in dollars, euros, pounds and yen, as well as the freezing of Moscow's assets and denying it access to their financial markets, curtailing its ability to raise funding.

“Stricter rules around access to the international financial system could hurt international oil companies’ ability to receive dividends and other payments,” according to global consultancy Wood Mackenzie. “Targeted sanctions against their Russian partners seem unlikely, but would present a much more profound challenge.”

Still, despite western measures, the US and EU have notably not placed sanctions on Russia’s energy and commodity industries, which are integral to the global economy. That has averted an energy crisis, as Russia is among the world's biggest producers of oil and natural gas, in addition to nickel, aluminium, palladium, cobalt, copper, wheat and barley.

Moscow has not disrupted energy supplies to European countries and gas exports to Europe from Russia have increased since the start of the conflict, as they are excluded from sanctions. On Tuesday, Gazprom said it was delivering 109.6 million cubic metres of gas to European customers through Ukrainian territory.

"It remains in Gazprom’s, Ukraine’s, and Europe’s interest to continue steady pipeline supplies for as long as possible," said Rystad Energy’s senior analyst Kaushal Ramesh.

"Bullishness has crept in from the liquified natural gas (LNG) side, as the latest tranche of sanctions from the UK have targeted Russian shipping and we may see LNG vessels with any discernible connections to Russia get turned away from UK ports. Further upside awaits if other European countries follow suit."

Meanwhile, Brent, the global benchmark for two thirds of the world's oil, Brent, was 7.6 per cent higher at $112.95 per barrel at 5.11pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was up 7.54 per cent, trading at $111.21 a barrel.

On Wednesday, the Opec+ 23-member alliance of oil producers convened and agreed to bring 400,000 barrels per day of crude to the market in April, sticking to its schedule of monthly increases in crude production, despite lingering concerns that an escalation in the Russia-Ukraine conflict could potentially disrupt global energy supplies.

The International Energy Agency (IEA) agreed on Tuesday to release 60 million barrels of oil from emergency stocks to bring stability to energy markets.

The Paris-based agency said Russia’s military offensive had come against a backdrop of “already tight global oil markets, heightened price volatility, commercial inventories that are at their lowest level since 2014 and a limited ability of producers to provide additional supply in the short term”.

“The situation in energy markets is very serious and demands our full attention. Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery,” IEA’s executive director, Fatih Birol, said.

Updated: March 06, 2022, 8:55 AM
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