Page 5 - FSUOGM Week 24 2022

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COMMENT
FSUOGM COMMENTARY FSUOGM

Well at the Vostok
of power generation capacity, 3,500 km of new through fear of falling foul of sanctions, as well Oil project. Source:
power lines, two airports and various other as the general uncertainty. Rosneft.
infrastructure. This is not to mention the 6,500 Rosneft has also lost access to Western oil and
or so wells that will need to be drilled to bring its gas equipment, services and technology that it
oil out of the ground. depended on for challenging and capital-inten-
Realising it could not foot this bill on its own, sive projects in the past. Russia’s drive to local-
Rosneft reached out to international investors. In ise these products and services was launched in
December 2020 it closed the sale of a 10% inter- 2014 after the West first began imposing sanc-
est in Vostok Oil to Trafigura, with the global tions on the country, and has yielded limited
commodities trader purportedly securing a results. But those sanctions were nowhere near
$7bn Russian loan to finance the deal. It went as severe as the current restrictions, only forbid-
on to sell a further 5% to a 75:25 joint venture ding Western companies from providing goods,
between trading groups Vitoil and Mercantile services and financing to certain Russian off-
& Maritime. Traders were a natural choice of shore and unconventional projects. Now sanc-
partner, as they could leverage their vast trading tions have essentially cut the entire Russian oil
networks to find a market for Vostok Oil’s supply. and gas sector off from Western support. Over
Rosneft also reached out to investors in Asia, but time, Russia’s localisation programme is likely to
no deals emerged. pick up pace, out of necessity, but it is likely to
Days after Moscow launched its invasion of take years for the country to build up the same
Ukraine, however, Trafigura said it was putting capabilities as Western service firms, contractors
its shareholding in Vostok Oil up for review. And and suppliers.
on June 10, the trader said it had completely writ- Meanwhile, the Russian state has far less
ten down its initial €1.5bn ($1.6bn) investment capacity to provide Vostok Oil with financial
in the project. For their part, Vitol and Mercan- support in present circumstances. State financ-
tile & Maritime have been silent on their plans at ing and lavish tax breaks have been essential in
Vostok Oil for the time being. getting large-scale Russian oil and gas projects in
Nevertheless, the odds are against Rosneft the Arctic off the ground over the years. A case
that it will be able to find anywhere near the in point is Novatek’s $27bn Yamal LNG plant,
investment it needs to see Vostok Oil through where the state essentially paid for all support
to completion in the near term. Western banks infrastructure, and offered over a decade of tax
have closed their doors to the financing of Rus- incentives. Having already reined in such fiscal
sian oil and gas, and even financiers in so-called support during tax reforms introduced last year,
“friendly” countries like India and China have the government will likely look to extract even
shown reluctance to commit to new projects in greater revenues from the sector to support the
the country, despite the opportunities that the Russian economy and its population during the
withdrawal plans of Western oil majors present, present hardship. ™

Week 24 15•June•2022 www. NEWSBASE .com P5