EU Sanctions Hit Russian Oil Majors

EU Sanctions Hit Russian Oil Majors EU Sanctions Hit Russian Oil Majors

New European Union sanctions curbing access to western financial markets for some of Russia’s largest firms are targeting banks, arms manufacturers, the country’s leading oil company, Rosneft, as well as the crude subsidiary of its state-owned energy giant Gazprom.

The sanctions curbing access to Europe’s financial market also hit pipeline operator Transneft, arms firms and Russia’s plane maker United Aircraft Corporation.

They forbid EU companies from engaging in new contracts in oil drilling, exploration and related services in Russia’s Arctic, deep sea and shale oil projects. Russia’s directly targeted oil major Rosneft is majority-owned by the state, but Britain’s BP holds a 19.75 percent stake in it.

Conspicuously absent from the high level targets chosen, however, were Russian gas companies - such as Gazprom - because Europe depends on Russian gas imports.

The sanctions take immediate effect and will be reviewed by EU nations at the end of the month in light of the situation in eastern Ukraine. Russia has threatened to retaliate against the sanctions.

 Reliance on Russian Gas

The European Union’s new sanctions against Russia do not target the gas sector because Europe is too dependent on Russian gas supplies, Russia’s Ambassador to EU Vladimir Chizhov said on Thursday.

“Europe is much more dependent on Russian [gas] deliveries than it is when it comes to oil. Unlike gas, oil is bought and sold freely on the international market, but there are no alternatives to Russian pipeline gas, not today, and not in the foreseeable future,” Chizhov said in an interview with the Russia-24 channel, IRA Novosti reported.

Earlier on Thursday, Kremlin confirmed that Moscow has prepared a package of retaliatory measures to new Western sanctions.

 Ukraine’s Choice

Ukraine will have to either save five billion cubic meters of gas for the heating season, or purchase these volumes from Gazprom, Naftogaz CEO Andriy Kobolev said in an interview with Ukrainian Fifth Channel on Thursday.

Naftogaz is the national oil and gas company of Ukraine.

“Five billion is precisely the sum of those interest savings I’m talking about. That is, if we take the consumption of the last year, without saving anything, we lack the five billion. We either have to purchase them from Russia, because other directions are already loaded, or to reduce consumption. This is a choice that we have to make consciously and operate in either one direction or the other, “ Kobolev said.

In late August, Energy Minister Yuriy Prodan said that the country can do without Russian gas during the heating season at the confluence of favorable circumstances, such as if the coming winter is warm.

Ukrainian Prime Minister Arseniy Yatsenyuk also said that on the eve of winter Ukraine must purchase about 5 billion cubic meters of gas from Russia before winter.

Russia and Ukraine conducted talks on the gas situation from April through to June to no avail. Kiev insisted on the gas price decrease, but eventually declined the suggested discount. It also refused to clear its gas debt, which forced Gazprom to stop gas deliveries to Ukraine that are not paid for.

In June, Russia introduced prepayment mode of gas deliveries to Ukraine over its $5.3 billion debt and warned that it could reduce gas supplies to Europe shall Kiev siphon off gas transited to Europe through its territory.

 Gazprom Profits 41% Down

Russian gas giant Gazprom on Thursday posted a 41 percent year-on-year plunge in net profit in the first quarter of 2014 partly due to Ukraine’s gas debt, the company said.

The company’s net profit amounted to 223 billion rubles ($5.963 billion) between January and March this year.

The energy giant’s sales in the same period rose by 7.0 percent compared to the same period last year to 1,558 billion rubles ($41.6 billion).