Operations of Russia’s Sakhalin 1 oil project will continue to face disruption for ‘a few months’ as Western sanctions hit insurance coverage for vessels carrying crude, according to India stakeholder ONGC Videsh .
ONGC Videsh, the overseas investment arm of India’s leading oil explorer Oil and Natural Gas Corp., has a 20% stake in Sakhalin 1, which produces a Russian grade known as Sokol offshore Sakhalin Island in the Russian Far East.
In April, the Russian unit of Exxon Mobile Corp., which operated Sakhalin-1, declared a force majeure there after sanctions made it difficult to ship crude to customers.
“This temporary disruption is going to last for a few months due to which we have cut production from Sakhalin,” said Alok Gupta, managing director of ONGC Videsh, in a call with ONGC analysts on May 30. The transcript of the call has been posted on the CGSB website.
Exxon, which held a 30% stake, is pulling out of the project after announcing in March that it would cease all Russian operations following Moscow’s invasion of Ukraine.
Gupta said the companies were unable to transport oil from Sakhalin 1 due to the “high character” taken by the global Protection and Indemnity (P&I) club for ice-class ships, required to to ship oil to South Korea to sell mainly to North Asia. buyers.
Vessels are commercially required to have P&I insurance which covers liability claims including environmental damage and personal injury.
European and American insurers, which dominate the international maritime market, have reduced cover for Russian tankers, to avoid violating the sanctions imposed following Moscow’s invasion of Ukraine.
In April, Reuters reported that the ONGC was having difficulty transporting oil from the Sakhalin 1 project, due to insurance issues.
Most of the vessels capable of breaking through the ice belong to the Russian state company Sovcomflot (SCF), which is subject to sanctions.
Gupta hoped the situation at Sakhlin-1 would normalize over the “next two to three weeks as we discover alternative measures”. He did not specify alternative measures.
He said the CGSB transports an average of 22 shipments from Sokol in a year. “Every cargo that is not lifted costs us $55 million,” he said.
ONGC gets “correct” prices for oil sales from its two other Russian assets – Vankorneft and Imperial – supplied via pipelines to neighboring countries, he said, adding that maritime crude is sold at a discount.
(Reporting by Aftab Ahmed; editing by Susan Fenton)
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