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Immediate US ban on Russian energy to have biggest impact on oil flows
08 March 2022
The US will immediately ban imports of Russian oil, LNG, and
coal in response to its war on Ukraine, President Joe Biden
announced 8 March, calling the flows the "main artery of Russia's
economy" while predicting the policy would further increase global
and US fuel prices.
Crude futures rallied on reports that a ban was imminent but
pulled back after the announcement. NYMEX front-month crude settled
at $123.70/b 8 March, up $4.30, while ICE front-month Brent settled
at $127.98/b, up $4.77.
The ban on new transactions for Russian energy imports takes
effect immediately, but the US will grant 45 days for companies to
wind down any existing contracts, a senior Biden administration
official said in a background call with reporters. The policy also
prohibits new US investment in Russia's energy sector, formalizing
steps private companies have already started taking in recent
days.
Traders and refiners voluntarily cut US imports of Russian crude
and products in the days after its Ukraine invasion.
The flows have fallen to roughly 200,000 b/d of Russian oil
products since January, with 65% of that fuel oil and 20% vacuum
gasoil, and 37,000 b/d of Russian crude, according to the latest
estimates by Anthony Starkey, analyst for trade flow and modeling
at S&P Global Commodity Insights.
The US imported 473,000 b/d of Russian refined products and
199,000 b/d of Russian crude in 2021, according to the Energy
Information Administration.
The ban drew reaction from numerous speakers at CERAWeek 2022 by
S&P Global, which is taking place 7-11 March in Houston, with
Helen Currie, chief economist for ConocoPhillips, calling it "the
right move politically."
Speakers noted that the US's move comes atop the "self
sanctions" that oil companies have been making for the last two
weeks that drew down the level of imports, and they said that
refiners that use Russian oil have probably already started to
revise their operations to reflect a different crude mix.
In December, the US refiners most reliant on imports of Russian
crude and feedstocks were Valero at 4.79 million barrels,
ExxonMobil at 2.98 million barrels, and Monroe Energy at 2.08
million barrels, according to monthly EIA data.
US supply response
The Biden administration consulted European allies and other
partners on the import ban but did not ask them to join, the
official said, given their own energy security considerations.
"Strong domestic energy production infrastructure" in the US and
lower reliance on Russian oil compared with Europe allowed the US
to impose the ban, the administration official said.
Noting the rise in global oil prices and growing pain at the
pump, the official conceded "there will be costs for standing up to
Putin, but we're doing all we can to mitigate those costs."
The administration official said price signals are giving US
drillers "every incentive" they need to increase supply.
"It's time for oil and gas companies to work with Wall Street to
unleash our productive capacity," the official said, adding that
investors also need to do their part by easing up on shareholder
returns and allowing companies to boost production.
"This is a time for Wall Street to step up, for oil and gas
companies to step up and invest in America's energy," the official
added.
For the world overall, the impact of bans and self-sanctions on
Russian crude could remove about 4 million b/d from the market in
the relative near term, said S&P Global Executive Director
Aaron Brady. For context, he estimates that the world, primarily
major oil producers in the Middle East, has about 3 million b/d of
available capacity.
The American Petroleum Institute noted: "The industry has
already taken significant and meaningful steps to unwind
relationships, both with respect to assets in Russia, as well as
imports of Russian crude oil and refined products. We share the
goal of reducing reliance on foreign energy sources and urge
policymakers to advance American energy leadership and expand
domestic production to counter Russia's influence in global energy
markets."
Limited coal, gas impact
The new US limits are not expected to have a major impact on
coal or LNG markets, as US import volumes are minimal.
The US Northeast has in the past imported rare cargoes of
Russian-origin LNG, driven by regional pipeline constraints and the
US Jones Act barring foreign ships from delivering cargoes between
US ports.
Trinidad was the only source of imported LNG in 2021, with the
US taking 21.4 Bcf, according to the Department of Energy.
The Interstate Natural Gas Association of America released a
statement in support of the ban. "Our member companies stand ready
to move forward on projects that are currently pending at FERC
which will ensure natural gas supply keeps up with the rising
demand by allowing natural gas to be to be safely moved from areas
of the country where it is produced to areas where it is needed for
heating homes, electric generation, and manufacturing," it
said.
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