Shell quits Russian oil in wake of controversial trade; UK will halt imports by year end

SHELL has announced it will stop buying Russian oil and gas following its contentious purchase of a cheap consignment of crude. The UK is also banning oil imports and will set up a taskforce to manage the transition.

Shell has said it will immediately stop buying Russian crude oil via the spot market and will not renew term contracts. On 28 February, following Russia’s invasion of Ukraine, Shell said it would exit is ventures in Russia, yet caused consternation on 4 March when it bought a heavily-discounted consignment of 725,000 bbl of Russian crude.

Announcing that the company will now stop buying Russian oil and gas, company CEO Ben van Beurden said: “We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel – despite being made with security of supplies at the forefront of our thinking – was not the right one and we are sorry.”

The Financial Times reports that Shell purchased the consignment at a US$28.50/bbl discount from oil trader Trafigura, which had been slowly reducing the price of the consignment to tempt a buyer. Around 70% of Russian oil is struggling to find a buyer as many companies are turning their backs on the country.

Shell was set to make a profit of around US$20m on the deal once the crude had been refined. Shell said it will donate the profits from the purchase, and any from its future use of Russian crude, to charity. Shell said it will work to disentangle its supply chains from Russian-sourced oil and gas as fast as possible but warned that “the physical location and availability of alternatives mean this could take weeks to complete and will lead to reduced throughput at some of our refineries.”

It added that its phased withdrawal from Russian petroleum products, pipeline gas and LNG is a complex challenge. It has offtake agreements for Russian supplies, including LNG from the Sakhalin-2 project in which it holds a 27.5% stake. Shell’s CEO said changes to new supplies and a transition to other forms of energy supply “highlight the dilemma between putting pressure on the Russian Government over its atrocities in Ukraine and ensuring stable, secure energy supplies across Europe.”

Shortly after its announcement, the UK and US Governments announced they would ban Russian energy imports. The UK said it will phase out oil Russian oil imports by the end of the year, and is establishing a Taskforce on Oil with companies to help them find alternative supplies. Russian oil imports account for about 8% of total UK demand. Natural gas from Russia makes up 4% of UK supply and the Government said it will explore options to reduce this further.

UK Prime Minister Boris Johnson said: “The UK will move away from dependence on Russian oil throughout this year, building on our severe package of international economic sanctions. Working with industry, we are confident that this can be achieved over the course of the year, providing enough time for companies to adjust and ensuring consumers are protected.”

The US has banned imports of Russian oil, LNG and coal. In 2021, it imported around 700,000 bbl/d of crude oil and refined petroleum products from Russia.

Russia’s invasion of Ukraine has pushed oil and gas prices to record highs and is putting pressure on industries which rely on oil, gas and petroleum as fuel and feedstocks for their operations.

Russia’s Deputy Prime Minister Alexander Novak has warned the country could push prices even higher by shutting off supplies to Europe. The EU relies on Russia for 45% of its natural gas, 20% of its oil and 45% of coal. Yesterday, the European Commission outlined plans to become independent of Russian fossil fuels before 2030.

Commission President Ursula von der Leyen said: “We simply cannot rely on a supplier who explicitly threatens us. We need to act now to mitigate the impact of rising energy prices, diversify our gas supply for next winter and accelerate the clean energy transition.”