Total to Halt All Purchases of Russian Oil

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TotalEnergies plans to wind down all purchases of Russian crude and oil products this year, but reiterated that it won't divest producing oil and gas assets in the country, nor its stakes in LNG plants there.

The French major had previously committed to stop all spot purchases of oil and gas — both pipeline gas and LNG — but had said it would keep in place term contracts that supply its European refineries.

It now says it will wind down those term crude purchase contracts by the end of this year, if not earlier. The first of the agreements will expire at the end of this month.

"Given the worsening situation in Ukraine and the existence of alternative sources for supplying Europe, TotalEnergies has unilaterally decided to no longer enter into or renew contracts to purchase Russian oil and petroleum products," the company said.

It said it was doing so, "in order to halt all its purchases of Russian oil and petroleum products as soon as possible and by the end of 2022 at the latest."

Most of those term contracts supply the Leuna refinery in Germany via the Druzhba pipeline, but the company now believes it can source alternative crude feedstock for that plant via Poland.

Dropping Russian Gasoil

Total said it will also refrain from renewing its Russian gasoil supply contracts, "absent any instructions to the contrary from European governments."

It noted that Russia accounts for about 12% of Europe's gasoil supply but said it could source additional gasoil volumes from the 440,000 barrel per day Satorp refinery in Saudi Arabia, in which Total holds a 37.5% interest.

However, the company said it would continue to import Russian gas into Europe because there were not enough alternative sources of supply to meet demand.

"Contrary to oil, it is apparent that Europe's gas logistics capacities make it difficult to refrain from importing Russian gas in the next two to three years without impacting the continent's energy supply," it said.

However, LNG cargoes from Russia's Yamal LNG plant have recently been turned away from ports in the UK and Spain.

Retaining Novatek Stakes

Total said it would not divest its direct equity interest in Novatek, nor its stakes in Russian LNG projects led by that company (see table).

The decision leaves Total as the only Western major to hold onto its Russian natural gas investments.

However, smaller companies, including Wintershall and OMV, have taken a similar approach of curbing future investment but holding on to existing assets.

The French major argued that walking away from those assets would undermine the intent of Western sanctions, which is to financially cripple Russia and its political and business leaders.

"Abandoning these interests without consideration would enrich Russian investors, in contradiction with the sanctions' purpose," the company argued.

"In addition, abandoning these minority interests held by TotalEnergies would have no impact on the companies' operations and revenues, since these companies have their own employees and are managed autonomously."

It also promised "to put on hold its business developments for batteries and lubricants in Russia."

TotalEnergies Russian Assets
 Interest (%)Asset TypeOperator (State/Private)
Equity Stakes
Novatek19.4%LNG Liquefaction PlantPrivate
Arctic Transshipment (LNG)10.0LNG Shipping CompanyPrivate
Project Stakes
Yamal LNG20.0LNG Liquefaction PlantNovatek (Private)
Arctic LNG 210.0LNG Liquefaction PlantNovatek (Private)
Termokarstovoye49.0Natural Gas FieldNovatek (Private)
Kharyaga20.0%Oil FieldZarubezhneft (State)

Total will no longer book reserves for its 10% interest in the Novatek-operated Arctic LNG 2 project.

It said this decision reflected "the uncertainty created by technological and financial sanctions on the ability to carry out the Arctic LNG 2 project currently under construction and their probable tightening with the worsening conflict."

The company said it will also stop providing "any more capital" to the project.

It's unclear how Total's announcement will affect the development of the $21.3 billion project. Novatek and its partners have already lined up as much as $10.5 billion in financing for the liquefaction terminal.

Total had already said that it would not pursue additional investments in Russia. It had previously acquired an option to purchase equity stakes of 10% to 15% in future Novatek LNG projects.

Oil Demand, Oil Supply, Diesel/Gasoil, Sanctions, Military Conflict, Majors, Corporate Strategy , Ukraine Crisis
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