European companies should stop helping Russia develop oil and gas projects in the Arctic, European Commission believes

EU won't help Russia develop Arctic oil fields

European countries should not provide technology to Russia to develop oil and gas fields in the Arctic unless the Ukrainian crisis is resolved.

Withdrawing support in technology development could be, according to EU Commissioner Guenther Oettinger, a way for Europe to exert pressure on Russia, whose economy largely relies on the energy sector.

"If they don't try for peace in the east of Ukraine ... If they don't decisively try to do something to prevent escalation, then there is no reason for us to help promote the growth of their industry and develop new resources for gas and oil and therefore to put this equipment on the list of sanctions," Oettinger told a news conference on Wednesday.

"The Russians see offshore oil and gas in the Arctic, for example, as a good potential for the future. But this can only be developed by hardware and software from the West, by drills and ... equipment that their industry cannot supply," the Commissioner said.

Voices calling for stricter sanctions against Russia have intensified in the EU following the downing of a Malaysia Airlines passenger jet in eastern Ukraine. The aircraft carrying nearly 300 people is believed to have been shot down by pro-Russian separatists who were supplied with anti-aircraft missile systems by Moscow.

Russia’s company Novatek, the second biggest producer of gas in the country after Gazprom, could be directly affected by the decision as it works with French gas giant Total and China's CNPC on the development of its Arctic Yamal peninsula liquefied natural gas (LNG) export project.

"We are closely monitoring the situation and the sanctions imposed on our partner Novatek. We are analysing the possible impacts on our ongoing projects in Russia to maintain the current planning," a spokesman for Total said.

Novatek's Yamal LNG project, which plans to export 16.5 million tonnes of LNG a year, is so far in the Arctic North that it requires the use of specialised technology, often provided by western partners.

Analysts said sensitive energy technology could also include tight oil fracking technology and banning finance and advisory firms from working with targeted Russian energy projects.

"Most major Russian gas projects are working closely with several European banks and consultancies, so if we get targeted that would at least delay Russia's biggest projects in terms of due diligence and project finance completion," one advisory source said. "And delays cost a lot of money in this business."

This approach proved successful in the case of Iran who was forced to start negotiating its nuclear programme following strict international sanctions.

The EU Iran sanctions covered equipment and technology for the oil and gas industries and drilling and production platforms as well as energy imports.

This week, the European Commission has also introduced a plan to increase energy savings by 30 per cent by improving energy efficiency of buildings, cars and industry by 2030. The savings should enable Europe to reduce its heavy dependence on gas imports from Russia.

Proposals to reduce overall gas imports from Russia as part of the sanctions are unlikely to succeed as the proportion of Russian gas in the European energy mix is too high. Some EU member states are 100 per cent dependent on energy from Russia with Germany and Italy being Russia’s biggest buyers in terms of volume. About one third of Europe’s energy supplies come from Russia and banning or restricting the imports would likely trigger further economic difficulties on the continent which is still recovering from recession.

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