diumenge, 16 desembre 2018

France’s Total further invests in Russian Arctic despite sanctions

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Total CEO Patrick Pouyanné and Novatek Chairman of the Board Leonid Mikhelson signed a binding agreement in the presence of both countries’ presidents during the annual Saint Petersburg International Economic Forum. According to the deal struck Saturday, June 26,Total will acquire 10 percent of Novatek’s Arctic LNG 2 project worth $25.5 billion.

The liquefied natural gas (LNG) plant is expected to produce 19.8 million tons of LNG annually. This is more than the Yamal LNG plant where Novatek and Total already cooperate and which started production ahead of schedule at the end of 2017.

Economic sanctions against the Russian energy sector do not include LNG, which has allowed the French energy giant to safely increase its investments in the Russian Arctic. However, the company “is not risk adverse,” stated its CEO Patrick Pouyanné after signing the agreement.

Where Total sees opportunities, it is ready to take risks such as reinforcing its presence in Russia under the hostile atmosphere created by Western sanctions on investments and trade with Russia.

Total has been present in Russia for over two decades and as long as there are opportunities for successful business with Russian energy companies, the French giant will continue to invest, declared Patrick Pouyanné.

“We signed it because we saw the opportunity,” he said to the press in Saint Petersburg.

Indeed, the opportunity is not one to miss. This agreement also allows the French giant to increase its share in Arctic LNG 2 by another 5 percent and to acquire between 10 and 15 percent direct shares in any of Novatek’s future Arctic LNG project. This is a winning card in a country that strives to supply 30 percent of the world’s LNG by 2030, eventually overtaking Qatar, the current LNG export leader.

It is also a winning card for Novatek and Russia. Total’s continued investments in the Russian energy sector demonstrates Moscow’s ability to attract foreign financing in promising multi-billion dollar projects. This was not an easy task in the case of Arctic LNG where the obstacles are many.

The region’s remoteness and harsh climate conditions as well as Western sanctions restricting Russian companies’ access to foreign financing first seemed to make the development of the Russian Arctic resources impossible.

However, as history has shown Russians are incredibly resilient. Their capacity to adapt to any undesired situation and seize opportunities when better times arise is likely unequalled.

During the past four years of restrictions, Russian energy companies adapted. If Russia has to choose between “existence as an independent state or investments thrown as a bone […] then, of course, we choose the first option,” said the Russian President during the forum’s three-hour-panel held with the heads of France, Japan, China and the IMF.

Moscow first turned to its long term, bold ally: China. Chinese companies are keen on ignoring Western sanctions, something which helped develop both countries’ partnership. The Asian dragon is also set to become the world’s top energy consumer and thus represents an incredibly attractive market for all energy exporters, including Russia.

China’s growing interest for Russian gas and oil, and energy deals multiplying between the two giant neighbours meant there was something in the pipeline. European companies worried they would be left behind and thus tried to circumvent sanctions wherever possible to access cheap Russian gas.

Despite strong opposition within the EU, the five European energy companies involved in Nord Stream II have so far managed to go on with the pipeline’s construction.

Total took its share of the cake in the Russian Arctic before voracious China National Petroleum Corporation (CNPC) and Chinese Silk Road Fund could swallow it down.

Russia has greater ambitions. Total’s involvement in its Arctic projects will help Russia attract other big foreign investors.

“The entry of such a professional partner to Arctic LNG 2 already at an early stage confirms outstanding economic attractiveness and huge perspectives of LNG projects [in the Russian Arctic],” said Novatek Chairman of the Board Leonid Mikhelson.

Novatek has already signed strategic cooperation agreements and memoranda of understanding with China Development Bank, CNPC and Saudi Aramco for the development of Arctic LNG 2. Italian Saipem has also shown interest for the project.

The deal between Total and Novatek was struck in a particularly positive atmosphere at the 22nd Saint Petersburg International Economic Forum which gathered 143 countries. Not bad for a sanctioned country.

This year Russia has attracted more than $38 billion worth of investments. The biggest delegations were the USA, France and Japan. As panel moderator John Micklethwait noted the forum gathered “roughly a third of the world’s GDP.”

Micklethwait emphasized such a success was “a tribute to Mr Putin’s energy and power of persuasion [but also] a sign of Donald Trump’s unique ability to bring people together.”

President Putin spoke at length about Washington’s “unacceptable” sanctions policy “harming more and more countries and companies,” and threatening the current world order. He warned against restrictions and sanctions gradually replacing open markets and fair competition as “official trade policy tools.”

US sanctions have hit companies hard across the board, not just Russian companies.

In 2014, French bank BNP Paribas was forced to pay the biggest fine ever levied on a foreign bank by US authorities for violating Washington’s unilateral sanctions on Cuba, Iran and Sudan.

Deutsche Bank was also fined – several times – by the US for managing toxic mortgage assets, manipulating interest rates and letting Russian clients move huge amounts of money out of Russia.

Last summer Washington fined the Japanese Bank of Tokyo-Mitsubishi UFJ because one of its traders spoofed US futures markets.

On the one hand, the US is acting unilaterally and withdrawing from international agreements which necessitated years of tough negotiations. On the other hand, Russia is promoting multilateral dialogue and welcoming as many international players – partners – as possible to take part in “an economy of trust.”

Can Western powers such as the EU and Japan stop playing by Washington’s unilaterally set rules? Are they ready to prioritize their national interests, decide on their trade partners and ignore US sanctions? So far only Beijing has been bold enough to do it.

Diane Pallardy studied an MA in Politics and International Relations at the University of Kent, and MA in World Politics and Fossil Energy at the Higher School of Economics, in Moscow.

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