DEPARTMENTS • DRILLING AHEAD
Volatility besets global economy, oil
and gas markets amid Russia’s war
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6 BY LINDA HSIEH, EDITOR & PUBLISHER
If we were hoping that 2022 was going to
lead to more “normalcy” in the world and
more stability in the oil and gas markets,
well... it looks like that’s not going to hap-
pen. In the wake of Russia’s invasion of
Ukraine in late February, volatility reigns
again. As this issue of the magazine was going
to press in early March, many countries
had already announced multiple sanctions
against Russia. This included freezing
Russian assets and limiting the ability of
some Russian banks to operate as part of
the international financial system. Canada
has also banned the import of Russian oil.
Within the oil and gas industry, we
saw BP announcing on 27 February that it
would cut its ties with Rosneft, exiting its
19.75% shareholding in the state oil com-
pany. Equinor, Shell and ExxonMobil all
followed suit, announcing their intentions
to exit their own joint ventures in Russia.
“There will be lasting implications for
commodities, energy policy and the ener-
gy transition,” Wood Mackenzie said in an
analysis released on 25 February. It noted
that “the world’s dependence on Russia for
certain commodities cannot be overstated
– from gas, oil, iron, ore, aluminum, plati-
num group metals and zinc to copper, lead,
petrochemicals and fertilizers.”
On the other hand, Russia is also a
large consumer of oilfield services. Rystad
Energy estimates Russia was responsible
for approximately 9% of global service pur-
chases between 2015 to 2021. In the same
period, the country also accounted for $175
billion in wells, drilling and seismic activi-
ties, along with $88 billion in both subsea
and engineering, procurement, construc-
tion and installation (EPCI) purchases.
Further, delays and additional costs in
the travel of essential oil and gas work-
ers are likely unavoidable. Ukraine’s air
space is already closed, impacting all
flight routes that cross this space. Many
countries – including the entire European
Union (EU) – have also banned Russian
flights from their airspace.
“Hour by hour, further airlines are pull-
ing their flights from Russian territory,”
said Murray Burnett of Munro’s Travel,
a company that manages the movement
of oil and gas and marine workers. “The
logistics of arranging for a crew – which
can comprise dozens of workers all based
in different countries – to arrive for a crew
change at the same time is challenging at
the best of time.” Now, adding war on top
of existing COVID-19 restrictions will only
lead to additional risks and complications.
Impact on natural gas and oil
markets Russia’s invasion is doubtlessly adding
pressure to Europe’s gas market, which
was already going through its worst crisis
on record, according to WoodMac. The
firm’s analysis shows that Russian pipe-
line imports of natural gas account for
a very considerable 38% of EU demand.
Therefore, sanctions on that flow would
not be pragmatic, and “business as usual”
is still the most likely outcome.
However, even if the flow of Russian
gas is not halted, WoodMac believes this
conflict will push the EU to rethink the
role of natural gas in its decarbonization
strategy. “Higher gas prices make a stron-
ger case for renewables, as well as alterna-
tive gases such as bio-methane and green
hydrogen,” its analysis stated.
When it comes to oil, there have already
been slowdowns in Russian crude pur-
chases. WoodMac says it expects further
tightening in the supply and demand bal-
ance “until payment terms are clarified.”
However, they believe the recent upward
trend in oil prices (WTI had hit a high of
$112 at press time) is likely to ease up soon,
unless the world sees a real sustained
slowdown in Russia’s crude exports.
Volatility is no good for business, and
war is no good for the world. Here’s to hop-
ing for a more peaceful 2022. DC
Linda Hsieh can be reached at linda.hsieh
@iadc.org. M A R C H/A P R I L 202 2 • D R I L L I N G C O N T R AC T O R