Sanctions likely to sting big Russian oil projects

HOUSTON – International sanctions against Russian officials could endanger the country’s multibillion-dollar pipeline, liquefied natural gas and offshore projects as the cost of borrowing money surges, according to a report released this week.

The international conflict over Russia’s annexation of Ukrainian territory has cast uncertainty over ventures like Gazprom’s $17-billion planned pipeline to carry gas from Russia to Europe. And growing fears among financiers could impede major oil and gas initiatives that would be a key to reviving Russia’s slowing economy, according to a report from research firm IHS Global that was released this week.

The U.S. and its European allies haven’t implemented restrictions on the Russia’s energy industry, but the confidence that underpins global markets has been badly rattled by the conflict and the possibility of further sanctions, said Julia Nanay, an analyst with IHS Global.

“Russia needs to attract investment, and this discourages it,” Nanay said.

The nation’s petrochemical sector uses about 80 percent of its capacity, making big investments in refinery growth vital to stirring economic activity. But the conflict has called into question Russian oil and gas companies’ access to capital, Nanay said.

Russia’s central bank raised critical interest rates from 1.5 to 7 percent this month after it had spent $38 billion over the past year to prop up the ruble, a currency decimated by investors’ alarm over slowing growth in emerging markets like Russia. That makes borrowing money for high-cost projects much more expensive.

And Fitch Ratings and Standard & Poor’s both downgraded Russia’s credit rating this month, another move that will make it harder for companies to find money for their massive projects, according to IHS.

A strike at the energy industry would be a deep blow for Russia. Oil, gas and refined petroleum products make up two-thirds of Russia’s take-home from selling goods overseas, and over half of the money that the Russian state uses in its annual budget comes from energy, the report said.

Meanwhile, industry observers say economic sanctions aren’t likely thwart Exxon Mobil Corp. and other international oil giants that are building multibillion-dollar offshore platforms in Russia’s Arctic waters and elsewhere.

On Thursday, both houses of Congress approved a bill that would deepen sanctions against Russia – though it left the energy industry alone – and send financial backing to Ukraine. President Barack Obama is expected to sign the bill Thursday, according to reports.

Nanay said passing sanctions on the country’s oil and gas business would be politically difficult.