Rising tensions in Ukraine could mean a potential disruption of hydrocarbon deliveries bound for Europe, which in turn could mean big headaches for large energy companies invested in the exploration, production, processing and delivery of hydrocarbons in the country, according to Dimitra DeFotis, of Barron’s.
Oil-and-gas pipelines criss-cross Ukraine, Belarus, Kazakhstan and Russia, and Russia supplies a third of the European Union’s oil and natural gas, said Adams. The net result: expect collateral damage in related corporate bond spreads, said said senior investment grade bond analyst at Gimme Credit, Philip Adams.
BP and Chevron (CVX) rank among the biggest losers if Russia-Ukraine tension grows worse, with collateral damage in related corporate bond spreads, said Adams.
BP is the highest profile potential loser. It owns 19.75% of Russian energy giant Rosneft, which accounted a third of BP’s production in the fourth quarter. Sanctions that inhibit oil and gas flows to Europe, or banking/capital flows, would “hit Rosneft and BP early and hard.” An offset: there could be an uptick in demand for a pipeline 30% owned and operated by BP because it transports Azerbaijan oil through Georgia and Turkey to the Mediterranean — a southern route avoiding Georgia and Ukraine, said Adams.
Chevron pipeline investments could be stymied. It also signed a 50-year agreement to explore for and develop oil and gas in western Ukraine, involving up to $10 billion of investment. “A Russian takeover spikes that deal,” Adams said.
Oilfield services companies Halliburton, Baker Hughes, and Weatherford International all do business in Russia that could be prohibited if it is labeled a rogue nation.
According to Adams, US refiners that could export fuel, utility holding companies that could export liquefied natural gas, and related pipeline companies could see even more benefits, longer-term, from the North American fracking and horizontal drilling boom. But approval of theTransCanada TRP Keystone XL pipeline is a necessary piece of that equation.
Engineering and construction companies like Chicago Bridge & Iron and Foster Wheeler have contracted with Rosneft and ExxonMobil on a proposed $15 billion Russian liquefied-natural gas (LNG) project. But Russian gas giant Gazprom dominates.
