Siberian Shutdown
Moscow’s Arctic Projects Left Out in the Cold

Russia has big plans for Siberia. There, the Bazhenov shale formation is estimated to contain more than a trillion barrels of oil and nearly two quadrillion cubic feet of natural gas. But sanctions put in place in the aftermath of Moscow’s aggression in Ukraine, along with plummeting oil prices that have forced oil companies to cut capital expenditures, have put the kibosh on development in the forbidding region. Sanctions have also made it difficult for these new Arctic projects to secure financing, and as the WSJ reports, that’s threatening to scupper the construction of a massive LNG exporting facility on the Yamal peninsula:

U.S. restrictions on OAO Novatek, the project’s Russian leader, are squeezing the massive Yamal LNG liquefied-natural-gas venture, a centerpiece of President Vladimir Putin’s plan for Russia to reduce its heavy dependence on natural-gas customers in Europe by increasing exports to Asia and, in turn, cementing Russian ties with China.

Barred by the sanctions from raising long-term dollar loans, Novatek and its foreign partners, Total SA of France and China National Petroleum Corp., are having to seek more money from Chinese lenders than they had intended, in addition to kicking in nearly $10 billion of their own, according to company executives. But they have, so far, failed to secure the $15 billion or so they need to complete the project.

Earlier this spring Russia turned to China for help, asking its eastern neighbor to finance projects the West was now leaving out in the cold. But now, with oil prices at six year lows and Beijing’s economic stability shaken by the recent stock market collapse, that assistance doesn’t look like it’s coming. Reuters reports:

A growing economic crisis in Russia and a growth slowdown in China that has rattled world markets mean about $113 billion worth of joint projects ranging from gas pipelines to power grids have been stalled or delayed…With a major crackdown on corruption also in progress in China, and Russia hit by sanctions, falling oil prices and a collapsing currency, some joint Russian-Chinese projects may be delayed indefinitely, industry sources and analysts say.

Rosneft, Russia’s state-owned oil company, announced earlier this month that it would be turning its focus “in the direction of increasing production at existing fields,” sending the signal that the development of new plays—so vital to Russia’s longer-term energy security—would be put on hold for the time being. That now seems to be the direction the rest of Russia’s oil and gas industry is moving. With the ruble crashing and oil revenues at dismal lows, Russia can’t seek help from the West, and now it seems that it can’t from the east, either.

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