Page 123 - RusRPTSept22

Gazprom suspended all gas supplies to Latvia, further reducing Europe’s access to gas. The company claimed that they suspended supply due to “violations of the conditions of purchase,” but did not specify which conditions were violated. Latvia is not alone—Gazprom has also halted gas supply to Poland, Bulgaria, Finland, Netherlands, and Denmark, and has drastically reduced supply to Germany. As a result, most European countries have been trying to reduce their dependence on Russian gas. Latvia already planned to halt all gas imports from Russia by 2023, and the European Union agreed to reduce overall gas use by 15% this winter. Meanwhile, Gazprom has increased its gas deliveries to China by 61% over the past seven months via the Power of Siberia pipeline, according to their Telegram post.
Sakhalin-1 almost completely shut down as Exxon departed. Sakhalin-1 production has dropped from 220kbd last year to only 10kbd or less after ExxonMobil began a unilateral shutdown. The most immediate impact is on local government budgets. We expect a restart in 6 months or so.
Output from 220kbd Sakhalin-1 has been reduced almost 100% since May, announced Rosneft in a press release, following ExxonMobil’s decision to begin unilaterally phasing out production from April 26. Vedomosti reports that ExxonMobil is looking for a partner to transfer operatorship of the project to, but so far none has been found. As a reminder, in 2021 Sakhalin-1 produced around 220kbd, or around 2% of total Russian liquids capacity. The project, which operates under a production-sharing agreement (PSA) is 20% owned by Rosneft, 30% by ExxonMobil, 30% by Japanese Sodeco, and 20% by Indian ONGC Videsh.
More an issue for local government revenues than for Rosneft: Net to Rosneft, the loss of production from Sakhalin-1 is 44kbd, or c1% of Rosneft’s pre- crisis 4mmbpd of output. However, for the local Sakhalin government, which reportedly derives about 1⁄4 of its revenues from taxes on the project. We expect that, as with Sakhalin-2, steps will be taken to restructure the ownership of Sakhalin-1 and transfer operatorship to Rosneft or another company in agreement with existing shareholders in the project, but that output probably won’t come back online until late 2022 or early 2023.
Turkey agrees to partially pay for Russian gas supplies in rubles. Russian state-controlled media TASS reported that on Aug. 5, Turkish President Recep Tayyip Erdogan discussed gas deliveries with Putin during his visit to a
123 RUSSIA Country Report September 2022 www.intellinews.com