There are no comrades at fear and risk – Newspaper Kommersant No. 192 (7393) dated 10/17/2022

As Kommersant found out, the direct reason for stopping production at Sakhalin-1 was the refusal of the American Exxon project operator to ship oil to Sovcomflot tankers, after they lost coverage from Western insurers as a result of sanctions. Sovcomflot attracted a Russian insurer, but Exxon was not satisfied with this, although shipments from the Sakhalin-2 project continued in a completely similar situation. As a result, in October, the Russian authorities transferred control of the project from Exxon to Rosneft.

“Kommersant” became aware of the details of the impact of Western sanctions on the Sakhalin-1 project, which is being developed by a consortium of the American ExxonMobil, Indian ONGC, Japanese Sodeco and Rosneft under a production sharing agreement. The operator of the Exxon project (30% share), who decided to leave the Russian Federation in March due to hostilities in Ukraine, announced at the end of April about force majeure at Sakhalin-1, as a result of which production began to decline and completely stopped in May .

According to Kommersant’s sources, the problem arose due to Exxon’s refusal to continue shipping oil to Sovcomflot tankers, which fell under sanctions at the end of March. As a result, his ships lost insurance from the International Group of P&I Clubs.

In June, the head of Sovcomflot, Igor Tonkovidov, announced that the problem would be solved by attracting Russian insurers. So, according to Kommersant’s interlocutors, Sovcomflot received insurance from the Russian Ingosstrakh for its tankers. However, Exxon insisted on mandatory P&I insurance and refused to resume shipments. As a result, already in May, production at the project ceased due to the overflow of oil tanks in the port of De-Kastri, from where it is shipped to the world market. Exxon and Sovcomflot did not respond to Kommersant’s request. Rosneft forwarded questions to the Ministry of Energy and Exxon.

P&I is insurance for broad, uncertain risks that some insurers usually do not cover, explains Anton Demchenko, partner at the Delcredere Bar Association, such as shipowner liability after a collision, environmental pollution. According to him, the insurance coverage of mutual insurance clubs is a condition for admission to many international ports. However, the lawyer clarifies, the Russian carriers that fell under the sanctions have taken significant measures that should solve the insurance problem.

The vessels, Mr. Demchenko explains, are insured by Russian companies, and the scope of coverage complies with the requirements of international conventions. Nevertheless, the lawyer notes, taking into account the numerous sanctions restrictions on Russian insurers, such insurance of Russian ships may not achieve their goals.

Orchards adviser Azat Akhmetov believes that Exxon may not have “wanted to enter the zone of uncertainty” while working with Russian insurers.

At the same time, the Sakhalin-2 project, which also uses the services of Sovcomflot as the main carrier of LNG and oil, did not reduce production and shipments. Andrey Okhotkin, commercial director of Sakhalin Energy (project operator), on September 29 announced the company’s readiness to help Sakhalin-1 in the sale of oil: “We know the markets. We have the same carrier with Sakhalin-1 – Sovcomflot. The ships are known to us, the operations are known.”

In October, Russian President Vladimir Putin signed a decree on the intention to transfer the property of the project to a new Russian legal entity – LLC Sakhalin-1, a similar scheme for changing the operator in May was used in Sakhalin-2. Instead of Exxon, the management of Sakhalin-1 was transferred to Rosneft, which owns 20% in the project.

After the creation of the LLC, the foreign shareholders of the project must notify the Russian Federation a month in advance of their readiness to remain in it, otherwise their share will be sold by the Russian authorities. Kommersant’s interlocutors in the industry believe that Exxon will not hold on to Sakhalin-1, and its share may eventually go to Rosneft. Exxon itself estimated losses in connection with the loss of a stake in Sakhalin-1 at $3.4 billion.

The Sakhalin-1 production plan for this year was 8.9 million tons of oil. According to the Ministry of Energy, as a result, production may fall to 4.2 million tons against 11 million tons in 2021. Such a forecast assumes that production will still be restarted this year: in August, the project’s shareholder, ONGC, announced expectations of a recovery in shipments in October, but so far they have not begun.

An additional problem is that due to the lack of oil production, Sakhalin-1 does not produce associated gas, which is usually used to supply consumers in Sakhalin, as well as the Khabarovsk Territory, via the Okha-Komsomolsk gas pipeline. Now the missing volumes of gas are being transferred to Russian consumers by the Sakhalin-2 project.

However, Andrei Okhotkin said on September 29 that in November-December, even with supplies from Gazprom’s Kirinskoye field (Sakhalin-3), there might not be enough gas. He also noted that the situation could lead to a decrease in LNG production at Sakhalin-2, which, given the current world prices for LNG, would be extremely unprofitable. The Sakhalin authorities, according to Kommersant’s interlocutors, estimate the lost revenues of the local budget from the shutdown of Sakhalin-1 at 38 billion rubles. in 2022.

Dmitry Kozlov