EU eyes ban on Arctic oil and gas
The European Commission (EC) has called for a ban on the purchase of oil and gas produced in the Arctic, a move that could cost Russia trillions of dollars in future oil and gas revenues. But experts question whether the ban is implementable.
Unveiling a new Arctic strategy on October 13, the EC said that even though the EU already gets a considerable share of its oil and gas supplies from Arctic fields in Russia and Norway, the bloc "is committed to ensuring that oil, coal and gas stay in the ground, including in the Arctic regions."
"To this end, the Commission shall work with partners towards a multilateral legal obligation not to allow any further hydrocarbon reserve development in the Arctic or contiguous regions, nor to purchase such hydrocarbons if they were to be produced," the EC said.
Such a ban would need to be cleared by the European Council and the European Parliament. The EC's larger ambition is to get all members of the Arctic Council, which includes Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the US to take similar action.
The council's current chair, Russia, would be hit hardest by the proposed ban. Russian producers are developing increasingly remote fields in the Arctic to offset production decline at mature basins further south. Russia accounts for 75% of Arctic oil and gas reserves, while the Arctic contributes 40% of its national reserves.
Russian president Vladimir Putin downplayed the negative impact the ban might have on October 13, suggesting that Russian producers may instead benefit from the move.
"If such decisions lead to a certain price volatility, [Russia's economy] wouldn't suffer that much," he said at Russian Energy Week in Moscow. "That's because we will reduce production, but will get the prices we wanted."
Affected projects would include Novatek's various liquefaction projects on the Yamal and Gydan peninsulas, Rosneft's Vostok Oil venture in northern Krasnoyarsk and various gas fields owned by Gazprom located within the Arctic Circle that already pump gas to Europe, including the giant Bovanenkovo field on Yamal.
Oil and gas development in Norway's Barents Sea would also be affected. The country's newly-appointed centre-left government has expressed opposition to the ban, declaring on October 13 that "the oil and gas sector will be developed, not dismantled."
"This was a lofty ambition list which will struggle to be realised, if at all," Dr Elizabeth Buchanan, an expert on Arctic geopolitics at Deakin University in Australia, commented.
Others noted that Moscow perceived the EU's Arctic strategy as an encroachment into its internal affairs.
"The EU's new Arctic strategy doesn't seem to be well-received in Russia, " Dr Maria Shagina at the University of Zurich said. "Moscow sees the EU's goals to tackle climate change by ending oil and gas exploration as an encroachment in its domestic affairs."
While three EU states are members of the Arctic council, the bloc itself is not, although it does have observer status.
Despite the ban's sweeping implications, analysts at BCS Global Markets said they did not view the news as negative for oil and gas share prices in Russia, as it would be impossible to implement in the near future.
"However, if this development expands, we believe that oil and gas shares might see some pressure from institutional investors' approach to their stock investment decisions on the back of the ongoing increase in climate-related practices," they said in a research note.