ONGC Expects Sanctions to Further Delay Russia's Sakhalin 1 Oil Project
(Reuters) — Operations at Russia's Sakhalin 1 oil project will continue to face disruptions for 'a couple of months' as Western sanctions have hit insurance cover for ships to transport crude, according to India's ONGC Videsh, a stakeholder.
ONGC Videsh, the overseas investment arm of India's top oil explorer Oil and Natural Gas Corp., has a 20% stake in Sakhalin 1, which produces a Russian grade known as Sokol off the coast of Sakhalin Island in the Russian Far East.
In April the Russian unit of Exxon Mobile Corp., which operated Sakhalin-1, declared force majeure there after sanctions had made it difficult to ship crude to customers.
"This temporary disruption is going to be there for a couple of months because of which we are having suppressed production from Sakhalin," Alok Gupta, managing director of ONGC Videsh, said on an ONGC analyst call on May 30. The transcript of the call has been posted on ONGC's website.
Exxon, which had a 30% stake, is withdrawing from the project after announcing in March it would discontinue all its Russian operations following Moscow's invasion of Ukraine.
Gupta said the companies were unable to move oil from Sakhalin 1 due to the "high moral" ground taken by the global protection & indemnity (P&I) club for the ice class vessels, required to ship oil to South Korea for sale mostly to North Asian buyers.
Ships are commercially required to have P&I insurance that covers third party liability claims including environmental damage and injury.
Insurers from Europe and the U.S., which dominate the international marine market, have cut coverage for Russian oil tankers, to avoid breaching sanctions imposed in the wake of Moscow's invasion of Ukraine.
Reuters in April reported that ONGC is struggling to move oil from the Sakhalin 1 project, due to insurance problems.
Most of the vessels that can break through ice are owned by Russia's state-owned Sovcomflot (SCF), which is placed under sanctions.
Gupta hoped that the situation at Sakhlin-1 would normalize over the "next two-three weeks as we are finding out alternative measures". He did not elaborate on the alternative measures.
He said ONGC lifts on average 22 cargoes of Sokol in a year. "Each cargo not getting lifted impacts us by $55 million," he said.
ONGC is getting 'alright' prices for sales of oil from its other two Russian assets — Vankorneft and Imperial — supplied via pipelines to neighboring countries, he said, adding the sea-borne crude is being sold at a discount.
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