Sakhalin oil project hints at the potential collapse of Russian output when new EU sanctions take effect

oil tanker

Suriyapong Thongsawang

  • Production at the Sakhalin-1 project collapsed after Exxon refused to accept local insurance for tankers, a source told Reuters.

  • Western companies stopped insuring tankers operated by state-owned Sovcomflot after Russia invaded Ukraine.

  • The next round of EU sanctions against Moscow will include a broader ban on Russian oil tanker insurance, among other energy-related services.

Production at a Russian oil project run by Exxon Mobil collapsed after the US company refused to accept local insurance for tankers, giving a potential clue as to what could happen to Moscow’s energy sector once new European sanctions take hold.

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Sources told Reuters that production at the Sakhalin-1 project in the Russian Pacific plummeted from 220,000 barrels a day to just 10,000 barrels a day this year before Russia invaded Ukraine.

Production collapsed after Western companies stopped insuring tankers operated by state-owned Sovcomflot, which Reuters said was the target of a previous round of sanctions.

Exxon’s Russian unit, Exxon Neftegas, has had trouble chartering tankers due to the sanctions and has refused to work with Sovcomflot, the report said.

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An Exxon spokesman told Insider that in March the company announced its intention to take the necessary steps to exit the Sakhalin-1 project, end its role as operator and stop investing in projects in Russia.

“The exit was a complex process and we remain committed to working in a manner that protects the safety of employees, the environment and the integrity of the Sakhalin-1 project,” Exxon said in an emailed statement . “With its two most recent decrees, the Russian government unilaterally terminated our participation in Sakhalin-1 and the project was transferred to a Russian operator.

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Earlier this year, Russian President Vladimir Putin signed a mandate that gave control of Sakhalin-1 to Sakhalinmorneftegaz-Shelf, a subsidiary of Rosneft. Exxon said in August it would transfer its 30 percent stake in Sakhalin-1 to a third party.

The slump in production at the Sakhalin project comes ahead of a new round of European Union sanctions that will include a broader insurance ban on Russian oil tankers, coming into effect on December 5.

Read the original article on Business Insider

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