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Russian energy majors are putting pressure on Western oil buyers to use euros instead of dollars for payments and introducing penalty clauses in contracts as Moscow seeks protection against possible new U.S. sanctions.
Seven industry sources told Reuters that Western oil majors and trading houses have clashed with Russia's third and fourth biggest producers, Gazprom Neft and Surgutneftegaz, over 2019 oil sales contract terms during unusually tough annual renegotiation in recent weeks.
The development mirrors a similar stand-off between Western buyers and Russia's top oil producer, Rosneft.
Earlier this week, trading sources told Reuters that Rosneft wants Western oil buyers to pay penalties from 2019 if they fail to pay for supplies in the event that new U.S. sanctions disrupt sales.
The Arab League and China agreed to strengthen cooperation in the field of natural gas, renewables and energy efficiency on the basis of mutual interest and experience sharing, a joint statement announced on Thursday.According to the joint statement issued after the Arab-China Cooperation Conference in Egypt's capital Cairo, which is currently running between Nov. 5 and 8, the Arab Union and China agreed to strengthen cooperation in electricity, natural gas and renewable energy.Both parties agreed to strengthen cooperation for energy efficiency and support small and medium-sized institutions working in this area. They also decided to increase energy security and reduce the environmental impact of energy consumption, according to the statement."The importance of strengthening mutual cooperation is emphasized by the fact that Arab countries have about half of the world's oil reserves and China has modern technologies in oil exploration, transportation, refining and manufacturing," the statement read.By end of 2019 TurkStream will be operational: GazpromArab countries are the most important source of crude oil for Beijing.In 2016, the bilateral trade volume between Arab countries and China totaled $171 billion. China's exports to the Arab countries accounted for $101 billion, while the volume of Arab countries' exports to China was $70 billion.Beijing, in its efforts to attain a more prominent global role, launched 'Belt and Road' initiative (BRI), which aims at creating trade routes and relations from China to deep in Europe similar to Silk Road. China invested billions of dollars and promised to pour more to mainly infrastructure, transport and other projects to link the destination countries to its trade centers.The cooperation with the Arab countries is in line with its policy of projecting power and creating clout trough direct and indirect investments.Respect our choices, China's Xi says ahead of Trump G20 meetingChina's great investment in Middle EastIn recent years, Beijing has boosted cooperation with Arab countries given the important role they play in BRI. Arab countries, as natural partners of the BRI, link several countries. Therefore, the region is critical to the BRI’s success and in order to contribute to the region’s stability, China puts emphasis on its development.According to international media, Chinese President Xi Jinping at the Beijing Summit in July in which 21 Arab countries participated, pledged a package of $20 billion in loans, and about $106 million in financial aid, as part of what he called an "oil and gas plus" model to spur economic growth in the region.Xi also underlined at the summit that Beijing sought to increase cooperation in the field of renewable energy and hydrocarbons.
Arab League, China to increase energy, gas cooperation
Now sources have told Reuters that Surgutneftegaz and Gazprom Neft have also clashed with their buyers over penalties and the use of euros and other currencies to replace the dollar in contracts.
"It is part of the same trend - the Russian oil industry is working on mitigating new sanctions risks. The buyers in turn argue they cannot carry those risks so we are trying to find compromises," said one source with a Western buyer involved in negotiations, asking not to be named as the talks are confidential.
Russia has been under U.S. and EU sanctions since 2014 when it invaded Ukraine's Crimean peninsula. The sanctions have been repeatedly widened to include new companies and sectors, making it tough for Russian oil firms to borrow money abroad, raise new capital or develop Arctic and unconventional deposits.
President Vladimir Putin's administration has been hoping for a thaw in relations with the United States since President Donald Trump came to power but Washington has imposed new sanctions instead, including on some of Russia's richest people.
The new U.S. sanctions against Iran can have positive consequences for Turkey, Iranian diplomat told Anadolu Agency."This is the best opportunity for Turkish companies to increase their presence in Iran. They can use this benefit to conquer the part of market that was acquired by European and Chinese companies, " Seyed Hafez Mousavi, the commercial counselor for the Iranian embassy in Ankara, said.On Monday, the United States reimposed sanctions targeting Iran's energy and financial sectors along with its shipping industry. More than 700 individuals, entities, aircraft, and vessels were blacklisted, including 50 Iranian banks and their domestic and foreign subsidiaries.Facing new sanctions, Iranians vent anger at rich and powerfulWashington granted China, Greece, India, Turkey, Italy, Japan, South Korea and Taiwan a 180-day waiver for importing Iranian oil, which eased worries of supply reduction in the global markets after the sanctions went into effect.Mousavi asserted that Turkey and Iran can expand cooperation in sectors such as tourism and investment.In 2017, bilateral trade volume between Turkey and Iran totaled $10.7 billion, up nearly 11 percent year-on-year.In the first nine months of 2018 the trade volume was at $7.5 billion.Germany says US sanctions would strengthen radicals in IranTurkey mainly exports gold, steel profile, automotive supply products, fibreboard, land transportation vehicles to Iran while it purchases raw petroleum materials, natural gas, plastics in primary forms, metals other than iron and organic chemicals from Iran.‘Iran not worried about negative consequences of US sanctions’Mousavi said that sanctions will barely effect Iranian economy as its not totally linked to the international financial and monetary system.He added that the sanctions can be a good opportunity for Iran to decrease its dependency on oil revenues and to advance its non-oil production exports."We are going to implement policies to expand our non-oil production exports and enhance our production capacity," Mousavi said.Putin discusses US sanctions on Iran with his security councilMousavi stated that Iran gives priority to the target of boosting relations with neighbor countries, Middle East region and Commonwealth of Independent States.Highlighting that private sector plays an important role to achieve this goal, he said most of the companies located in surrounding region are not linked to the U.S. companies."So we are not worried about negative consequences of the U.S. sanctions," Mousavi asserted.On the trade in national currencies with Turkey, Russia and China, he said it is in the Iran's agenda.Russia's Lavrov says US sanctions against Iran are not legitimate"We had good negotiations on this issue. They expressed their readiness to use national currency to work with Iranian companies."Mousavi said using Turkish lira instead of U.S. dollars would also be welcomed by Iranian companies."Turkey is our main partner and neighbor, we prefer to use lira instead of dollar," he said.Mousavi stressed that Iran is also ready to use financial channel proposed by the six parties -- Britain, France, Germany, Russia, China and Iran -- remaining in the Iranian nuclear deal after U.S. withdrawal as an alternative payment method to break dominance of U.S. dollar in financial system."We can use this opportunity to expand our relation with the European countries," he said.Welcoming European officials’ statements about the U.S. sanctions, Mousavi pointed out that Iran can enhance its relation with Europe through boosting cooperation with small and medium-sized enterprises rather than large-sized companies."Our cooperation with Europe will not be suspended or stop just because the U.S. sanctions are reinstated," Mousavi said.
Turkey can benefit from US sanctions on Iran: Diplomat
Russian businesses are preparing for a new wave of sanctions expected in the coming weeks. The firms are trying to diversify away from dollar payments and tapping Asia for more of their financing and technology needs.
According to four industry sources, Surgutneftegaz asked buyers to be prepared to switch from dollar to euro payments in contracts, and insisted on buyers being effectively responsible for any losses arising from sanctions.
"They basically said - sanctions don't matter. Buyers have to find a way to pay, or to return purchased goods, or pay penalties," a source with a big trading house said.
Gazprom Neft has also asked buyers to use euros in payments and bear financial responsibility for contract breaches in the case of new sanctions, according to three sources.
Gazprom Neft refused to comment. Surgutneftegaz did not immediately respond to a Reuters request for comment.
An oil tanker and a Norwegian navy frigate collided off Norway's west coast on Thursday, injuring eight people and triggering the shutdown of a North Sea crude export terminal, Norway's largest gas processing plant and several offshore fields.The frigate, which recently took part in a major NATO military exercise, was aground, tilting on one side and slowly taking in water, live television pictures showed. The Norwegian military said it was attempting to save the ship."We are working on stabilising the vessel," Norwegian Navy Counter-Admiral Nils Andreas Stensoenes told a news conference, adding that the eight injured were all Navy crew. Some 137 crew were on board at the time of the accident."We are very glad that no lives got lost and that the injuries are not more serious than they are," he added.Police and the national Accident Investigation Board were investigating the accident, which took place at 0326 GMT.The Kollsnes gas plant, with a processing capacity of 144.5 million cubic metres per day, has also been shut, Equinor said. It was not clear when it would restart operations.The plant processes gas from the Troll, Kvitebjoern and Visund fields for Britain and the rest of Europe. Gas output from the Troll A platform had been shut, said Equinor.UK wholesale gas prices were up ahead of news of the incident and increased further afterwards. Gas for immediate delivery was up 6.2 percent at 66.50 pence per therm at 1136 GMT. Norway is a major supplier of gas to Britain so big outages can impact UK gas prices.Flows from Norway to Britain were down by 14-15 million cubic metres due to the Kollsnes outage."Norwegian outages due to the collision have prompted extra buying. The market was already quite bullish due to lower temperatures. It is also not clear how long they (the outages) will last," a British gas trader said.Output lossThere was no sign of a leak from the Sola TS oil tanker, although it would return to port for inspection, the Joint Rescue Coordination Centre for southern Norway told Reuters.The tanker had left Equinor's Sture oil shipment terminal with a cargo of crude, and the facility would be temporarily shut as a precaution, the company said.The Sture terminal receives oil via pipelines from North Sea fields, including Oseberg, Grane, Svalin, Edvard Grieg and Ivar Aasen, which in turn is exported to global markets on tankers.Oil output from the fields delivering to the Sture terminal was around 350,000 barrels per day in August, the latest data available from the Norwegian Petroleum Directorate showed.Oil consultancy Rystad Energy said it expected that some 365,000 bpd of oil production would be shut for five to seven days with two to three cargoes to be delayed from Sture, causing only a brief upwards impact on Brent prices."The risk of a prolonged shutdown and delayed resumption of operations is deemed to be low, although oil markets will face difficulty replacing Grane heavy oil blend during November," said Rystad Energy's head of analysis, Per Magnus Nysveen.The outage would likely reduce the daily average production of Oseberg Blend and Grane Blend in November by approximately 85,000 bpd, he said.The Sture terminal has a capacity to store one million cubic metres of crude oil and 60,000 cubic metres of liquefied petroleum gas in rock chambers.LPG mix and naphtha are also exported from the terminal via the Vestprosess pipeline to the Mongstad oil terminal.It was not clear for how long the Sture terminal would remain closed, said Equinor, adding that oil output from Oseberg and Grane, which the firm operates, was shut as a result.Oseberg is one of the crude streams underpinning the global Brent oil benchmark. Brent crude futures were down 21 cents at $71.86 a barrel by 1249 GMT.Output at Ivar Aasen also been shut, operator Aker BP told Reuters. Production at the Edvard Grieg field was also shut, a source with knowledge of its operations said.The Sola TS, an Aframax class vessel built in 2017, belongs to Tsakos Energy Navigation, the company's website says.
Norwegian oil, gas plants shut after tanker, frigate collide
"JUST LIKE IRAN"
Russia supplies over 10 percent of global oil, so drastic sanctions against it could lead to a steep spike in oil prices.
All global oil majors rely on Russia to feed their refineries, especially in Europe and Asia, and hence they cannot just walk away from annual contract negotiations if they are unhappy with terms.
Talks with both Gazprom Neft and Surgutneftegaz have been progressing slowly and painfully, according to trading sources.
Several Western buyers have managed to agreed compromises with Surgutneftegaz and Gazprom Neft, but others are still in tough talks with the producers, the sources said.
All Surgutneftegaz's contracts are bespoke and are negotiated individually in the Siberian town of Surgut by the firm's management and visiting Western trading bosses.
The sources declined to name companies that have already reached compromise deals.
In one such compromise, a large European buyer agreed to the use of euros in payments in exchange for Surgutneftegaz dropping its demand for penalties from buyers who fail to pay for cargoes.
"We have been arguing that if sanctions make it impossible to pay for an oil cargo, how on earth are we supposed to pay penalties," one trading source said.
"So we have agreed that the payment remains suspended for the entire duration of sanctions - just like it works with Iran," he added.