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One Of The World’s Biggest Oil Projects Is A Total Fiasco


WHEN it was discovered in 2000, the Kashagan oilfield in Kazakhstan’s waters in the northern Caspian Sea was the world’s biggest oil find in three decades. By now it was supposed to be pumping out 1.2m barrels a day (mbd), enough to meet Spain’s entire consumption.

But the project, whose name sounds unfortunately like “cash all gone”, went spectacularly awry. A year ago, when the first trickle of crude briefly flowed, it was already eight years behind schedule. Having cost $43 billion, it was $30 billion over budget. And production lasted only a few weeks before leaks of poisonous gas forced its suspension. Earlier this month a government minister admitted it would not restart until at least 2016.

Undeterred by the Kashagan fiasco, this week the government said it would approve a plan to expand the onshore Tengiz oilfield, another huge budget-buster. Tengiz was first expected to cost $23 billion but the government said this week that the bill had risen to $40 billion.

Each of the two oilfields is owned by a different consortium of foreign firms and the state oil company, KazMunaiGaz. In Kashagan’s case they include Exxon, Shell, Total and ENI. In part the project’s setbacks are due to unexpected technical problems. Corrosive and poisonous hydrogen sulphide gas, pumped up from the seabed along with the oil, has eaten through pipes bringing it onshore.

KashaganREUTERS/Leon NealA general view shows the Bolashak oil plant on the Kashagan offshore oil field near Atyrau in Kazakhstan June 30, 2013.

It may cost another $5 billion to fix the problem. But insiders say privately that with so many companies involved, the project has lacked clear leadership and suffered from government meddling.

Investors of all kinds worry about “the declining predictability of Kazakhstan’s regulatory and legal environment”, says Mariyam Zhumadil of Halyk Finance, an investment bank in the commercial capital, Almaty.

In 2010 the government filed a $1.2 billion tax claim against the consortium that operates another field, Karachaganak, while making noises about breaches of environmental rules, not long after expressing an interest in buying a stake in the field. Later the consortium gave it 10% in return for it agreeing to expand the field.

Likewise, at Kashagan, environmental officials have fined the field’s operators $737m for burning off the poisonous gas, which the consortium argues was an emergency measure. Ms Zhumadil reckons the fine is a “tool for future negotiations, perhaps to strengthen the national oil company’s presence in the project.”

This may not be the best way to encourage foreign firms to pump in the tens of billions of dollars more that are still needed to develop Kazakhstan’s oilfields.


Total oil CEO Christophe de Margerie killed in Moscow plane crash

Christophe de Margerie, the chief executive of Total Oil, in a 2008 file photograph.

Head of oil giant and three crew died when private jet hit snowplough during takeoff, say Russian sources

The chief executive of the French oil company Total, Christophe de Margerie, was killed when a private jet collided with a snow plough at Moscow’s Vnukovo international airport on Monday night.

“Tonight a plane crashed when it collided with a snow-clearing machine,” said airport spokeswoman Elena Krylova. “Three crew members and a passenger died. I can confirm that the passenger was Total’s head De Margerie.”

A car drives out of the Vnukovo-3 Business Aviation Center at Moscow's Vnukovo airport October 21, 2014. REUTERS-Maxim Shemetov

The oil company said in a statement: “Total confirms with deep regret and great sadness that chairman and CEO Christophe de Margerie died just after 10pm (Paris time) on October 20 in a private plane crash at Vnukovo airport in Moscow, following a collision with a snow removal machine.”

The collision occurred just before midnight as the Dassault Falcon business jet attempted to take off bound for Paris.

De Margerie, 63, was on a list of attendees at a Russian government meeting on foreign investment in Gorki, near Moscow, on Monday. Hours before his death he had met the Russian prime minister, Dmitry Medvedev, at his country residence outside Moscow to discuss foreign investment in Russia, the Vedomosti business daily reported.

A car drives past a sign reading 'Vnukovo-3 Business Aviation Center', near Moscow's Vnukovo airport October 21, 2014. REUTERS-Maxim Shemetov

The Vnukovo airport said in a statement that the Falcon Dassault business aviation jet crashed as it prepared to take off for Paris with one passenger and three crew on board. “During run-up at 11.57pm there was a collision with the airport’s snow plough. As a result of the crash the passenger and all the crew members died.”

The airport said that visibility was at 350 metres at the time of the accident. Moscow saw its first snowfall of the winter on Monday. A fire broke out after the crash and was extinguished by airport firefighters.


Moscow transport investigators said they had opened a criminal probe into breaches of aviation safety rules causing multiple deaths through negligence. French authorities would be invited to take part. The plane’s black boxes had been removed for examination.

The airport was closed temporarily to clear up the scene of the accident but resumed normal operations at 1.30am.

With his distinctive bushy moustache and outspoken manner he was one of the most recognisable figures among the world’s top oil executives.

De Margerie, a graduate of the Ecole Superieure de Commerce in Paris, became chief executive officer of Total in February 2007, taking on the additional role of chairman in May 2010, after previously running its exploration and production division.

De Margerie said in July that he should be judged based on new projects launched under his watch, such as a string of African fields, and that Total would seek a successor from within the company rather than an outsider.

Philippe Boisseau, head of Total’s new energy division, and Patrick Pouyanne, who was tasked with reducing the group’s exposure to unprofitable European refining sectors, have long been seen as potential heirs.

A staunch defender of Russia and its energy policies amid the conflict in Ukraine, De Margerie told Reuters in a July interview that Europe should stop thinking about cutting its dependence on Russian gas and focus instead on making those deliveries safer.

IOL pic oct21 RUSSIA-TOTAL-CEO_1021_11

He said tensions between the west and Russia were pushing Moscow closer to China, as illustrated by a $400bn deal to supply Beijing with gas that was clinched in May.

“Are we going to build a new Berlin Wall?” he said. “Russia is a partner and we shouldn’t waste time protecting ourselves from a neighbour … What we are looking to do is not to be too dependent on any country, no matter which. Not from Russia, which has saved us on numerous occasions.”

Total is one of the major oil companies most exposed to Russia, where its output will double to represent more than a tenth of its global portfolio by 2020.

Total is one of the top foreign investors in Russia but its future there grew cloudy after the 17 July downing of a Malaysian passenger airliner over Ukrainian territory held by pro-Russian rebels. The disaster worsened the oil-rich country’s relations with the west and raised the threat of deeper sanctions.

Total said in September that sanctions would not stop it working on the Yamal project, a $27bn joint venture investment to tap vast natural gas reserves in north-west Siberia that aims to double Russia’s stake in the fast-growing market for liquefied natural gas.

De Margerie said then that Europe could not live without Russian gas, adding that there was no reason to do so.

Total is the fourth largest by market value of the western world’s top oil companies behind Exxon, Royal Dutch Shell and Chevron. Russia accounted for about 9% of Total’s oil and gas output in 2013.

The oil company had forecast in April that Russia would become its biggest source of oil and gas by 2020 due to its partnership with the Russian energy company Novatek and the Yamal project.

Total SA is France’s second-biggest listed company with a market value of €102bn.

Like other big oil companies Total has been under pressure from shareholders to cut costs and raise dividends as rising costs in the industry and weaker oil prices squeeze profitability.

De Margerie was the son of diplomats and business leaders, and the grandson of Pierre Taittinger, founder of Taittinger champagne and the luxury goods dynasty.

“His death is a big loss for the global oil/gas industry,” said Gordon Kwan, head of Asia-Pacific oil and gas research at the financial company Nomura.

Total CEO’s Falcon 50 plane crash site in Vnukovo Airport

View image on Twitter

Video footage of the Moscow plane crash that killed Total CEO Christophe de Margerie has emerged. The aircraft attempted a takeoff from Vnukovo around midnight, failing and crashing into a snowplow.

The video shows emergency workers sawing away at the fuselage, which appears to have split in half, following the collision and resulting crash. Debris is strewn around amid the overnight commotion.

Investigators are at the scene examining evidence, taking fuel samples and talking to staffers.

Two main theories as to the cause are being considered at this time – an air traffic control error and the actions of the snowplow driver.

It has been determined at this time that “the driver of the snowplow was under the influence of alcohol,”spokesman of Russia’s Investigative Committee Vladimir Markin told the reporters on Tuesday.

It has also been revealed that the taxiing shortly before the crash was being coordinated by a traffic control intern, RIA Novosti was told by a source inside Vnukovo. The official spokesman for the airport has declined to comment.

The sensitivity of the matter has led to Investigative Committee head Aleksandr Bastrykin to hold a meeting with airport personnel and the investigative group, which was now joined by representatives from the International Aviation Committee as well.

Russian President Vladimir Putin has expressed his condolences over the Total CEO’s death. TASS cited his spokesman as saying that “Vladimir Putin has long known de Margerie and had a close working relationship with him.”

“The president highly appreciated de Mergerie’s business skills, his continued commitment to the development of not only bilateral Russian-French relations but also on multifaceted levels,” Peskov also said.

The small business jet was taxiing on the runway around midnight when it collided with the snowplow. The driver of the vehicle has been hospitalized and is reportedly “in serious condition.”

The CEO of France’s oil and gas giant Total was the only passenger in the jet, while three crewmembers who were also French citizens perished as well.

Putin Oil Deals With Exxon, Shell Imperiled by Sanctions

The U.S. and European Union are poised to halt billions of dollars in oil exploration in Russia by the world’s largest energy companies in sanctions that would cut deeper than previously disclosed.

The new sanctions over Ukraine would prohibit U.S. and European cooperation in searching Russia’s Arctic, deep seas or shale formations for crude, according to three U.S. officials who spoke on condition of anonymity because the measures haven’t been made public. If implemented, they would affect companies from Dallas to London, including Exxon Mobil Corp. (XOM) and BP Plc. (BP/)

EU ambassadors met today and will resume deliberations tomorrow in Brussels on whether to trigger added sanctions or wait longer to see if a cease-fire holds between Ukraine and pro-Russian separatists and if Russia backs moves toward a longer-term agreement.

Once the EU implemented the new ban on sharing energy technology and services, the U.S. would follow suit with a similar package, including barring the export of U.S. gear and expertise for the specialized exploration that the Russians are unequipped to pursue on their own, the U.S. officials said.

EU governments agreed on these oil-related sanctions on Sept. 8 as part of a wider package of measures intended to hobble Russia’s finance, defense and energy industries, pending evaluation of the cease-fire declared in Ukraine last week, according to two European officials who also spoke on condition that they not be named.

Future Impact

The added sanctions wouldn’t interfere with drilling and production from conventional land-based wells and those along the shallow edges of inland seas, some of which have been pumping crude for decades.

The sanctions target reserves that wouldn’t begin providing crude to global energy markets for five to 10 years.

The move would go beyond previously reported proposals to widen curbs on technologies for the oil industry by banning such cooperation, levying a heavy toll on Russia’s $425 billion-a-year petroleum industry.

No companies outside the U.S. and Europe have the specialized techniques for extracting crude from deep-sea fields and shale formations.

‘Big Deal’

“If true that new sanctions were to ban technology and services for Arctic, deep-sea and shale exploration, that would be a very big deal,” Jason Bordoff, former energy adviser to President Barack Obamaand founding director of the Center on Global Energy Policy atColumbia University in New York, said today in an e-mail.

“It would significantly curtail Russia’s future oil production capacity, although it is important to note that it would require close collaboration between Europe and the United States to be effective.”

While the U.S. doesn’t intend to allow exemptions for existing contracts that would be affected, the American officials said they weren’t certain whether the EU would provide more leeway.

The stakes are high for Russian President Vladimir Putin because of his government’s dependence on the energy industry to drive economic growth, with a growing reliance on U.S. and European technology and services to exploit fields that pump one of every eight barrels of crude produced worldwide every day.

Since Russia’s annexation of Ukraine’s Crimea peninsula six months ago, the U.S. and EU have imposed steadily more painful sanctions on Putin’s inner circle of politicians and billionaires as well as on banks, energy and defense companies close to the Kremlin in an effort to force Putin to abandon efforts to divide and destabilize Ukraine.

Economic Hammer

The U.S. and EU wield a massive economic hammer: Combined, the allies account for 39 percent of the globe’s economic output, compared with Russia’s 3 percent.

While the economic penalties taken before this week have been significant — including limiting Russian banks’ and energy companies’ ability to raise debt financing — a ban affecting key types of oil exploration would go a significant step further toward choking Russia’s future economic growth.

U.S. and EU explorers operating in Russia would be barred under the new decrees from bringing in experts and rig crews crucial to unlocking billions of barrels of crude locked in offshore Arctic or Siberian shale fields, according to the government officials.

In the Arctic, drill bits that can cost thousands of dollars apiece need to be replaced constantly and some of the world’s best-trained engineers, geophysicists and geologists must be flown in when needed to troubleshoot problems as they arise.


The ban on cooperation would close gaps in previous rounds of sanctions that left room for a unit of Bermuda-based Seadrill Ltd. (SDRL) to sail the West Alpha floating rig into Russian waters in late July on behalf of Irving, Texas-based Exxon Mobil and Moscow’s state-controlled OAO Rosneft. (ROSN)

The arrival of the rig, as well as the signing of six new Seadrill contracts with Rosneft on July 29, just as the last round of sanctions was imposed, angered U.S. and European officials who said the moves flew in the face of the intention behind the economic restrictions: to freeze Arctic exploration by Russia.

Some of the costliest, most complex drilling forays ever attempted in Russia may be in limbo, including a $700 million well that Exxon and Rosneft began to drill last month in the Kara Sea.

Tillerson’s Stance

For Exxon, Russia represents its biggest exploration prospect outside its home country. Exxon owns drilling rights across 11.4 million acres of Russian land and seafloor, an area twice the size of Massachusetts.

Exxon’s $411.3 billion market valuation makes it the world’s largest energy company; its annual sales exceed the economic output of all except 28 nations.

Exxon, which has partnered with Rosneft on Russian oilfields for more than a decade, expanded its relationship with the Moscow-based company in 2011 by signing a $3.2 billion exploration pact.

Chairman and Chief Executive Officer Rex Tillerson expressed doubts in May that sanctions on Russia would prove effective.

In June, he appeared on stage alongside Rosneft CEO Igor Sechin, a former Soviet spy who is under personal sanctions barring him from traveling to the U.S., at the World Petroleum Congress in Moscow.

‘Reliable Partner’

Putin called Exxon “an old and reliable partner” during a ceremony last month marking the start of drilling at an offshore Arctic prospect called Universitetskaya that may hold 9 billion barrels of crude.

At current market prices, that would be a $894 billion bonanza.

“We are assessing the situation,” Alan Jeffers, an Exxon spokesman, said yesterday in a telephone interview when asked about the prospect of further sanctions. “We always follow the law.”

Other vulnerable international operators include Royal Dutch Shell Plc (RDSA), the world’s second-largest energy company by market value.

Multiple investments by The Hague-based company in Russia include ventures to use advanced reservoir-management techniques to revive and increase crude output from Soviet-era fields and to explore some of the nation’s vast, untapped shale formations.

“We are continuing to review the latest sanctions to assess the potential impacts on our business, and engaging with the respective authorities to gain further clarity,” Kayla Macke, a Shell spokeswoman, said in an e-mail. “We are taking action to ensure we comply with all applicable sanctions or related measures. We’re keeping the situation under close review.”

Total, Statoil

BP’s 19.75 percent ownership stake in Rosneft is the biggest foreign direct investment in Russia.

“We will look at any new sanctions and we will of course comply with all applicable sanctions,” Toby Odone, a spokesman for BP, said by phone.

In addition to Shell and BP, Russia’s deals with marquee Europeanoil companies includes Paris-based Total SA (FP) and Stavanger, Norway-based Statoil ASA. (STL) Total relies on Russian wells for almost 10 percent of its global output. A spokeswoman for Total declined to comment.

“This is something we’re monitoring closely,” Statoil Chief Financial Officer Torgrim Reitan said in an interview in Oslo today. “Our positions in Russia have a very long time horizon.”

Last month, Statoil CEO Helge Lund said at a conference in Stavanger, Norway, the existing sanctions regime would delay some of the company’s planned joint-venture projects with Rosneft.

Statoil, which is 67 percent owned by the Norwegian government, was bracing for longer approval processes for exporting equipment and services to Russia, Lund said at the time.

Russian crisis already taking toll on western businesses

An armed pro-Russian separatists gestures as he blocks the way to the crash site of Malaysia Airlines Flight MH17, near the village of Grabove, in the region of Donetsk on July 20, 2014. The missile system used to shoot down a Malaysian airliner was handed to pro-Russian separatists in Ukraine by Moscow, the top US diplomat said Sunday. Outraged world leaders have demanded Russia's immediate cooperation in a prompt and independent probe into the shooting down on July 17 of flight MH17 with 298 people on board. AFP PHOTO/ BULENT KILICBULENT KILIC/AFP/Getty Images
A pro-Russian fighter blocks access to the MH17 crash site in eastern Ukraine

Companies across the eurozone warned that the crisis in Russia and Ukraine is already taking its toll on business, as stringent sanctions imposed on Moscow sent ripples through European boardrooms.

The warnings came as the European Union published its toughest sanctions against Russia since the end of the cold war, targeting Russia’s energy, financial and defence sectors.

Shares in Adidas, the world’s second-largest sportswear group, dropped 15 per cent after the company issued a profit warning and said it would accelerate the closure of stores in Russia because of increasing risks to consumer spending in the region. Volkswagen, Europe’s biggest carmaker by sales, reported an 8 per cent decline in sales in Russia in the first half of the year, compared to the same period a year earlier.

Joe Kaeser, chief executive of Siemens, warned geopolitical tensions including those in Ukraine posed “serious risks” for Europe’s growth this year and next.

Metro, the eurozone’s second-largest retailer, said events in Russia were creating risks for the group as it revealed sales had declined sharply in Ukraine. The German group said that a planned listing of part of its Russian arm was on hold until the situation improved, citing uncertainty in the region and the fall in the value of the Russian rouble.

Royal Dutch Shell’s chief executive Ben van Beurden said that along with other western oil majors he was assessing the impact of tightening sanctions on Russia’s energy sector imposed by the US and EU. “It’s a bit early to say how it will play out, what the consequences might be and how we will react,” he said. The oil company last month suspended operations in the Yuzivska field of eastern Ukraine amid mounting clashes between separatist and government forces.

Erste Group, the third-largest lender in emerging Europe, warned the turmoil could impact banks in eastern Europe. “I can’t exclude any nasty surprises in the region due to political decisions or developments,” said Erste chief executive Andreas Treichl. “If the crisis accelerates of course we will have to revise our forecast for all over Europe in 2015 and 2016.”

The German machinery association, VDMA, lowered its forecast for growth in the industry this year as it said the Russian situation was starting to affect bilateral trade and weigh on demand in important sales markets.

French oil major Total said on Wednesday it had frozen its purchases of shares in Russia’s second-largest natural gas producer, Novatek, on the day that flight MH17 was shot down over Ukraine. BP, which owns a fifth of Russian energy company Rosneft, said earlier this week that its profits could be hit by the crisis.

US companies have also been affected. Visa and MasterCard are facing the prospect of tighter restrictions on the way international credit card companies can operate in the country as the government considers its own national payments system in response to earlier US sanctions.

Last week, Visa cut its fourth-quarter sales guidance, partially because of lower than expected cross-border transactions in Russia and Ukraine. Bank of America has almost halved its exposure to Russia this year to $3.9bn.

S&P Dow Jones Indices announced a reviewing of Russian securities in its indices, as some licensees may have to divest holdings of companies facing US or European sanctions.

ExxonMobil, which is developing a large liquefied natural gas export facility at Sakhalin in Russia’s far east, said it was awaiting further details to understand the effect of sanctions designed in part to prevent the transfer of new technology to Russia’s oil and gas industry.

David Rosenthal, vice-president of investor relations, declined to say whether the Sakhalin operation was financed through ExxonMobil resources already in Russia or was reliant on financing from outside. The distinction could make a difference to the company’s ability to continue with the investment under the sanctions

In the City of London, bankers warned it was not feasible for Russian companies to list on the London Stock Exchange until a de-escalation of the crisis.

“Until there is some clarity and some sort of positive news that shows mutual understanding, I don’t think any Russian companies will be able to come to market,” said a Russian equity capital markets specialist at a major investment bank.

Two other big Russian IPOs in London – for privately owned Russian oil company Bashneft and Detsky Mir, Russia’s largest retailer of children’s goods – would also struggle to come to market in the current environment, bankers said.


Energy Companies Rethinking Russia After New Sanctions

London — The downing of Malaysia Airlines Flight 17 over eastern Ukraine — and the tougher round of sanctions against Russia that followed — is prompting some big multinational energy companies to take a fresh look at the ramifications of the crisis.

For months, American and European energy players have continued to sign deals with Russia, maintaining a posture that business was proceeding as usual. But top industry executives are now starting to acknowledge that the escalating tensions could sharply hurt Western oil and gas giants with major investments in Russia, as well as the service companies that are key technology suppliers.

Vladimir Putin and deputy prime minister Dmitry Rogozin, left

“We are in the heat of a very emotional stage,” Robert W. Dudley, BP’s chief executive, told reporters on Tuesday. The company warned that further economic sanctions could harm BP’s income, production and reputation.

France’s oil giant, Total, which had been among the most committed to Russia, said that since the plane disaster it had stopped regularly adding to its stake in its Russian partner Novatek, a gas producer that was placed under sanctions by the United States this month. Total’s chief financial officer, Patrick de La Chevardière, also indicated on Wednesday that the company was considering how the sanctions might affect other projects like a multibillion-dollar natural gas facility it is building with Novatek.

The industry’s tenor has changed as Western governments directly target Russia’s economic prospects, notably its energy industry. After months of settling for measures that seemed largely symbolic, the United States and the European Union on Tuesday agreed on a new round of sanctions that appear as if they may have real teeth.

“The companies are facing the harsh reality that the United States and the European Union have united on sanctions in a way that two weeks ago would have been inconceivable,” said John Lough, a Russia analyst at Chatham House, a London-based research organization.

In a previous round of sanctions, the United States placed some financial restrictions on Russian energy companies like Rosneft and Novatek. The latest sanctions go further, however, as they try to curb the export of highly specialized equipment needed to develop Russia’s new energy frontiers, including the Arctic and shale rock formations in West Siberia.

Companies like Total and Royal Dutch Shell have poured money into Russia in recent years. And a drilling rig to be operated by Exxon Mobil and Rosneft is being transported to Russian Arctic waters.

But Western oil and gas executives, along with their teams of lawyers, are now pondering the impact of the sanctions. It is uncertain what types of equipment or software they may be prohibited from bringing to Russia. “Technology is a very hard thing to define,” said Mr. Dudley of BP. “So we will have to read it very carefully.”

Mr. Dudley also said that it was unclear whether BP would be allowed to proceed with a joint venture on shale oil with Rosneft; the companies reached a preliminary agreement over the deal this year. Exxon Mobil, Shell and Total also have shale ventures in the country.

As the companies assess the murky situation, Russia’s energy future remains in limbo.

Russia rivals Saudi Arabia as the world’s leading oil producer, and it was second in natural gas production last year to the resurgent United States. But Russia’s traditional oil fields in West Siberia, which have sustained the country’s output for decades, are in decline.

To avoid further drops in production, Russia’s industry, which is not yet fully modernized, needs access to the Western technology that has transformed the global oil business in recent decades, allowing oil companies to push into ocean waters more than a mile deep, or produce oil from shale rock. That technology is the main reason Russia has sought help from the global oil majors like Exxon Mobil, which is producing oil off Sakhalin Island in eastern Russia.

Oil rigs

“If the new sanctions stay in place for an extended period of months or years they will have an impact on Russia’s ability to grow or even maintain oil production, ” said Richard Mallinson, an analyst at Energy Aspects, a research firm based in London.

Perhaps Russia’s greatest short-term hope for increasing production is to extract oil from shale rock. Russia is considered to have huge, albeit unproven, potential.

But the latest Western actions target shale gas. Any efforts to make the most of these shale formations would be slowed if the sanctions block service companies like Halliburton from bringing technologies including hydraulic fracturing and horizontal drilling that have changed the energy industry in the United States.

The processes are mostly highly adapted versions of practices that have been around for decades, like hydraulic fracturing, or the pumping of water and other liquids down wells at high pressure to break oil and gas free from the surrounding rock. Some analysts say the shale technologies may be hard to block through sanctions because they are essentially adaptations of decades-old techniques.

Pro-Russian rebels ride on a tank flying Russia's flag, on a road east of Donetsk, Monday

Arctic and deepwater drilling equipment may be easier to restrict, analysts say. The European Union plans to prohibit not only the sale but also the transfer of specially adapted drilling rigs and machinery to Russia, according to an official who briefed reporters on the details of the sanctions.

The official estimated that Russia relied on the European Union for 30 to 60 percent of these technologies. While they represent just 150 million euros in annual sales, they are crucial for projects worth billions.

Russian flag with President Putin's face

The European Union is walking a fine line. Heavily dependent on Russian energy, particularly gas, the European Union wants to use the sanctions to target big future projects in shale and in the Arctic without hurting existing production and disrupting global markets. The gas sector will be excluded, which could lead to complications because in many cases oil and gas are produced with much of the same equipment and from the same locations.

Over the last 10 to 15 years, Western companies have become increasingly enmeshed in Russia with the blessing of their governments. Unlike Saudi Arabia, which largely prohibits foreign participation in oil and gas exploration and production, Russia has welcomed Western investment. Without production from Russia, the oil export market would be even more dominated by the Saudis and other OPEC producers.

City of London and Gherkin

Among the Western players, BP may have the most to lose in Russia. In the second quarter of 2014, BP’s stake of almost 20 percent in Rosneft produced nearly one-third of the company’s oil and gas production and nearly 20 percent of its profits. Total has an 18 percent stake in Novatek.

Exxon Mobil has also plunged into Russia. It has a joint venture with Rosneft to drill in the Kara Sea in the Russian Arctic, which some oil executives think could be a frozen Gulf of Mexico in terms of the oil it holds. The rig operated by the two companies, now sailing toward the Kara Sea from Norway, is expected to drill the first well for the joint venture this summer.

“We are assessing the impact of the sanctions, said Alan T. Jeffers, an Exxon spokesman.

France hits out at dollar dominance in international transactions

France’s political and business establishment has hit out against the hegemony of the dollar in international transactions after US authorities fined BNP Paribas $9bn for helping countries avoid sanctions.

Michel Sapin, the French finance minister, called for a “rebalancing” of the currencies used for global payments , saying the BNP Paribas case should “make us realise the necessity of using a variety of currencies”.

He said, in an interview with the Financial Times on the sidelines of a weekend economics conference: “We [Europeans] are selling to ourselves in dollars, for instance when we sell planes. Is that necessary? I don’t think so. I think a rebalancing is possible and necessary, not just regarding the euro but also for the big currencies of the emerging countries , which account for more and more of global trade.”

Christophe de Margerie, the chief executive of Total, France’s biggest company by market capitalisation, said he saw no reason for oil purchases to be made in dollars, even if the benchmark price in dollars was likely to remain.

“The price of a barrel of oil is quoted in dollars,” he said. “A refinery can take that price and using the euro-dollar exchange rate on any given day, agree to make the payment in euros.”

One chief executive of a CAC 40 industrial group said he supported Mr Sapin’s push.

“Companies like ours are in a bind because we sell a lot in dollars but we do not always want to deal with all the US rules and regulations,” he said.

The uproar over the BNP fine at the usually sedate Cercle des Economistes conference in Aix-en-Provence highlighted what has become yet another friction point in transatlantic relations.

French officials lobbied heavily on behalf of the country’s largest bank and argued that BNP broke no European rules, prompting a debate about whether it had been the victim of US judicial over-reach.

Mr Sapin said he would raise the need for a weightier alternative to the dollar with fellow eurozone finance ministers when they meet in Brussels on Monday, although he declined to go into detail about what practical steps might emerge.

More than half of cross-border loans and deposits are transacted in dollars and in the last global survey of the $5tn a day foreign exchange market, the dollar was on one side of 87 per cent of all trades. Despite efforts to diversify, many central banks say that they still see no real alternative to the safety and liquidity of the US Treasury market, and hold more than 60 per cent of their reserves in dollars.

A senior French official cast doubt on the government’s ability to stimulate the further use of the euro in international trade: “In the end it is hard to know what they can really do. The market really decides these things.”

Mr Sapin on Sunday reiterated comments made last week that the French government was willing to sell some of the €100bn of corporate shareholdings, taking more of an “active management” over its stakes.

He declined to comment on the scale or pace of the sales but said the money would be used “for reducing the debt, for helping to finance our economy, the energy transition and housing”.

When asked about the possible return to politics of former French president Nicolas Sarkozy, Mr Sapin said: “That’s his business, that’s his choice and that of his friends. What is clear to me though is that Nicolas Sarkozy has really not changed.”

His comments followed Mr Sarkozy’s detention last week for questioning by an anti-corruption court, which prompted the former UMP leader to make a formal televised riposte.