Russia’s war exposes business risks as Europe looks for alternative source for oil-

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Russia's war exposes business risks as Europe looks for alternative source for oil-


By PTI

LONDON: Car factories idled, beer stopped flowing, cargo ships dropped port calls, and energy companies cut their pipelines.

Russia’s invasion of Ukraine has thrown business plans into disarray and forced a growing number of the world’s best known brands, from Apple to Mercedes-Benz and BP, to pull out of a country that’s become a global outcast as companies seek to maintain their reputations and live up to corporate responsibility standards.

They’re also expressing concern about the plight of Ukrainians, showing how they want to be seen coming out on the right side of history.

Complicating companies’ push to flee is an order from Moscow temporarily restricting foreign investors from selling Russian assets.

Prime Minister Mikhail Mishustin said Tuesday that it would help investors make “a considered decision” rather than succumb to the political pressure of sanctions.

It’s not clear how that may affect corporate efforts to exit Russia.

Oil and gas companies, already feeling the heat from climate activists to invest in renewable energy, were among the companies that announced the most rapid and dramatic exits.

Energy firm BP said Sunday that it would abandon its $14 billion stake in Russian state-owned oil and gas company Rosneft.

The next day, Shell said it was leaving its joint venture with state-owned Gazprom and its involvement in the now-suspended Nord Stream 2 pipeline built to carry natural gas to Western Europe.

ExxonMobil said it will pull out of a key oil and gas project and halt any new investment in Russia.

All their chief executives said they were shocked and saddened by the increasingly bloody conflict.

Smaller energy firms have followed suit.

Companies in other industries, including automakers, signalled they’re staying out of the Russian market either out of concern for Ukraine or to comply with Western sanctions.

Toyota is halting production at its St. Petersburg plant that makes RAV4 and Camry models starting Friday because of supply chain disruptions, saying it was watching events “with great concern for the safety of the people of Ukraine.”

Mercedes-Benz suspended vehicle exports to Russia and manufacturing there.

Volkswagen Group, which also owns Porsche and Audi, did the same, saying it believes a “sustainable solution to the conflict can only be found on the basis of international law.

“Volvo Cars said it stopped deliveries because of “potential risks associated with trading material with Russia,” citing Western sanctions.

Ford suspended operations.

Harley-Davidson halted motorcycle shipments to Russia, saying its thoughts “continue for the safety of the people of Ukraine.”

Putin famously rode a three-wheeled Harley on a visit to Ukraine in 2010.

Others with more at stake in Russia might find it harder to navigate the crisis.

French automaker Renault, whose second-biggest market is Russia, said only that it’s temporarily suspending production at its Moscow plant through Saturday “due to some logistics issues,” without being more specific.

Danish brewery group Carlsberg said last week that it suspended production at two breweries in Ukraine and that it’s “following the situation with great concern” but didn’t comment on its extensive Russian operations, including St.

Petersburg-based Baltika Breweries, which exports worldwide.

Czech brewer Budvar, which counts Russia as one of its five major markets, halted beer deliveries to the country, saying business is not the top priority and that it’s looking for ways to help, including finding accommodations for Ukrainian refugees.

Ikea suspended Russian operations and paused Russian exports and imports, along with neighbouring ally Belarus.

The Swedish home furnishings giant said, “The war has had a huge human impact” and resulted “in serious disruptions to supply chain and trading conditions.”

Fast fashion brand H&M paused sales in Russian stores, expressing concern about the “tragic developments.”

Nike said on its Russian website it can’t guarantee deliveries.

The world’s biggest shipping company, A.

P. Moller-Maersk, will stop making Russian port calls.

Airplane makers Boeing and Airbus stopped supplying parts and service support for Russian carriers.

Boeing suspended major operations in Moscow and temporarily closed its Kyiv office.

Even Hollywood studios are delaying the release of new films in Russia, which isn’t a leading movie market but typically ranks in the top dozen countries for box office revenue.

Warner Bros., the Walt Disney Co. and Sony Pictures cited the “humanitarian crisis. Tech companies also headed for the door.”

Apple said it would stop selling its iPhone and other popular devices inside Russia, while computer maker Dell Technologies “suspended” sales in both Ukraine and Russia.

Google and TikTok blocked Russian state media channels from their platforms after a plea from the European Union.

Apple blocked RT News and Sputnik News downloads from its App Store outside Russia.

Some companies went beyond halting deliveries or operations.

Lego, Ford and Volkswagen Group said they would make millions of dollars in charitable donations to support Ukrainian refugees.

Europe is scrambling to reduce its dependence on Russia for energy and bracing for potential disruption to critical natural gas supplies as Russia’s war in Ukraine sends prices to new highs.

Natural gas prices hit a record Thursday for a second day in a row as restrictions on oil and gas were increasingly treated as a possibility on the eighth day of the war, whether through Western sanctions or Russian retaliation.

That could mean even more pain to people’s wallets: Energy prices have been high for months because of low supplies, driving up the cost of everything from utility bills to groceries as businesses pass along their costs to customers.

Traders were “factoring in the rising probability of sanctions on gas for each day the offensive continues,” said Kaushal Ramesh, senior analyst at Rystad Energy.

The price of gas is 10 times what it was at the start of 2021.

But it continues to flow through the major pipelines from Russia to Europe, including those through Ukraine, pipeline companies say.

To prepare for any cutoffs as the war intensifies and to reduce Russian reliance, countries are rounding up new supplies of liquefied natural gas, LNG, by ship.

They’re also speeding up plans for gas import terminals and pipelines that don’t depend on Russia and talking about allowing coal-fired power plants to keep spewing climate-changing emissions for longer if it means energy independence.

Yet many of the measures will take months or, in the case of new pipelines and terminals, years.

The long-term answer is rapidly building out renewable sources such as wind and solar.

But for now, Europe is reliant on gas to heat homes, generate electricity and supply industries like fertilizer producers.

Europe, which gets almost 40 per cent of its gas from Russia, is in a different situation than the US, which produces its own natural gas.

Still, EU Energy Commissioner Kadri Simson says Europe “has the tools” to handle any Russian retaliation this winter while conceding a total cutoff “would of course still be a challenge.”

Germany is spending 1.5 billion euros (USD 1.66 billion) to buy more LNG.

Chancellor Olaf Scholz on Sunday proposed building two LNG import terminals, days after blocking the already-completed Nord Stream 2 gas pipeline from Russia to Europe.

European Union countries are working on setting up a strategic gas reserve and establishing storage requirements.

Officials are urging countries to sign agreements to share gas in emergencies.

The EU’s executive commission is set to unveil steps next week that governments can take.

The Paris-based International Energy Agency said Thursday that Russian gas imports could be cut by one-third this year through steps including letting existing gas contracts with Russia expire, finding new supplies from partners such as Norway and Azerbaijan, imposing minimum storage requirements, maximizing use of remaining nuclear plants and offering cash support for vulnerable electricity customers.

Denmark has given the go-ahead for construction of a pipeline to bring Norwegian gas, another major source for Europe, to Poland after permission was suspended last year.

“We are really busy catching up with the lost months,” Søren Juul Larsen, chief project manager at Energinet.

“We have agreed with our contractors that they will deploy more machines and people for the task, so that we can set the pace and be finished as soon as possible.”

Energinet plans for the Baltic Pipe to partially launch October 1 and be fully operational January 1 with capacity of up to 10 billion cubic meters of gas a year.

Weaning Europe completely off Russian gas by next winter’s heating season, if that becomes necessary, would be possible but painful, involving extra costs and possibly forced conservation, according to analysts at the Bruegel research institute in Brussels.

Given record LNG shipments are already coming from places like the US, a total loss of Russian gas would leave Europe 10 per cent to 15 per cent short and facing potentially painful steps to reduce gas use, which would hit businesses first.

“If the EU is forced or willing to bear the cost, it should be possible to replace Russian gas already for next winter without economic activity being devastated, people freezing or electricity supply being disrupted,” they said.

So far, wide-ranging Western sanctions have spared gas and oil even as they targeted Russian banks and their ability to interact with Western financial systems.

Specific exemptions were included for energy transactions.

Officials say they’re trying to avoid hurting their own economies and consumers as they inflict pain in Russia.

But sanctions are indirectly hitting oil from Russia, the world’s No.3 oil producer that sells 25 per cent of Europe’s supply.

Some oil buyers in recent days have shunned Russian crude, fearing that if sanctions were applied to Russian energy, their purchased oil could be rendered unusable.

“Cargoes have already been rejected by European refiners in the market, because people are afraid sanctions might be coming, and so they don’t want to be caught with some cargo they can’t resell,” said Amy Myers Jaffe, research professor and managing director of the Climate Policy Lab at Tufts University.

An energy cutoff imposed by Russia was long regarded as unlikely, particularly with gas, because it would cost Russia its biggest customers in Europe and some USD 300 million in revenue a day.

Russian officials have underlined that they have no intention of cutting off oil and gas and have stressed their role as reliable suppliers.

Yet the conundrum remains: As Western countries cut off Russian banks off, Europe continues to support Russia’s government, and military, through energy purchases.

The US is “very open” to sanctioning Russia’s energy and gas industry but is measuring that against potential costs to Americans, White House press secretary Jen Psaki said.

“We’re considering it. It’s very much on the table, but we need to weigh what all of the impacts will be,” she said Wednesday on MSNBC.

“We’re not trying to hurt ourselves. We’re trying to hurt President Putin and the Russian economy.”

While Europe is vulnerable in the short term before it can build out renewables, it’s Russia that would lose long term from an embargo or cutoff.

A gas embargo would over several years lead to a slump of 2.9 per cent in Russian economic output and a 0.1 per cent gain for Germany, said trade expert Hendrik Mahlkow of the Kiel Institute for the World Economy.

Any Russian threat to halt supplies “would not be very credible,” Mahlkow said.



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