Turns out, surprise surprise, that the loss of production at Sakhalin-1 was pure sabotage on the part of Exxon and seems to have had nothing to do with precious US know-how on arctic drilling as reported by Western media stooges. They just refused to ship oil via Sovcomflot tankers and then cut production.
And... Exxon are gone.
As Kommersant found out, the immediate reason for stopping production at Sakhalin-1 was the refusal of the project operator, the American Exxon, to ship oil via Sovcomflot tankers, after they lost coverage from Western insurers as a result of sanctions. Sovcomflot attracted a Russian insurer, but Exxon was not satisfied with this, although shipments from the Sakhalin-2 project continued in a completely similar situation. As a result, in October, the Russian authorities transferred project management from Exxon to Rosneft.
Kommersant has learned more about the impact of Western sanctions on the Sakhalin-1 project, which is being developed by a consortium of American ExxonMobil, Indian ONGC, Japanese Sodeco and Rosneft under a production-sharing agreement. The project operator Exxon (30% share), which decided in March to withdraw from the Russian Federation due to the fighting in Ukraine, announced at the end of April force majeure at Sakhalin-1, as a result of which production began to decline and in May completely stopped.
According to Kommersant's sources, the problem arose due to Exxon's refusal to continue shipping oil to Sovcomflot tankers, which was sanctioned at the end of March. As a result, their ships lost insurance from the International Group of Mutual Insurance Clubs (International Group of P&I Clubs).
In June, the head of Sovcomflot, Igor Tonkovidov, announced that the problem would be solved by attracting Russian insurers. So, according to Kommersant's interlocutors, Sovcomflot received insurance for its tankers from the Russian Ingosstrakh. However, Exxon insisted on mandatory P&I insurance and refused to resume shipments. As a result, production at the project stopped in May due to an overflow of oil tanks in the port of De Castries, from where it is shipped to the world market. Exxon and Sovcomflot did not respond to a request from Kommersant. Rosneft forwarded questions to the Ministry of Energy and Exxon.
P&I is insurance of broad, uncertain risks that some insurers usually do not cover, explains Anton Demchenko, partner of the Delcredere Bar association, for example, shipowner's liability after a collision, environmental pollution. According to him, the insurance coverage of mutual insurance clubs is a condition for admission to many international ports. However, the lawyer clarifies that Russian carriers that were sanctioned have carried out significant measures that should solve the insurance problem.
At the same time, the Sakhalin-2 project, which also uses the services of Sovcomflot as the main carrier of LNG and oil, did not reduce production and shipments. On September 29, Andrey Okhotkin, Commercial Director of Sakhalin Energy (project operator), announced the company's readiness to help Sakhalin-1 with oil sales: "We know the markets. We have the same carrier with Sakhalin-1 — Sovcomflot. The vessels are known to us, the operations are known."
In October, Russian President Vladimir Putin signed a decree on the intention to transfer the project property to a new Russian legal entity — Sakhalin-1 LLC, a similar scheme for changing the operator in May was used in Sakhalin-2. Instead of Exxon, management of Sakhalin-1 was transferred to Rosneft, which owns 20% of the project.
After the creation of an LLC, foreign shareholders of the project must notify the Russian Federation within a month of their readiness to remain in it, otherwise their share will be sold by the Russian authorities. Kommersant's interlocutors in the industry believe that Exxon will not hold on to Sakhalin-1 ,and its share may eventually go to Rosneft. Exxon itself estimated losses in connection with the loss of its stake in Sakhalin-1 at $3.4 billion.
Sakhalin-1's production plan for this year was 8.9 million tons of oil. According to the Ministry of Energy, as a result of this situation, production may fall to 4.2 million tons against 11 million tons in 2021. Such a forecast suggests that production will still be restarted this year: in August, the project's shareholder, ONGC, reported expectations for a recovery in shipments in October, but so far they have not started.
An additional problem is that due to the lack of oil production, Sakhalin-1 does not produce associated gas, which is usually used to supply consumers in Sakhalin, as well as the Khabarovsk Territory via the Okha—Komsomolsk gas pipeline. Currently, the Sakhalin-2 project transfers the missing volumes of gas to Russian consumers.
However, Andrey Okhotkin said on September 29 that in November—December, even together with supplies from Gazprom's Kirinskoye field (Sakhalin-3), there may not be enough gas. He also noted that the situation may lead to a decrease in LNG production at Sakhalin-2, which, given the current global LNG prices, would be extremely unprofitable. The Sakhalin authorities, according to Kommersant's interlocutors, estimate the lost local budget revenues from the Sakhalin-1 shutdown at 38 billion rubles in 2022.