The current US sanctions and foreign policy environment: Implications for global energy firms

Transcription

1 The current US sanctions and foreign policy environment: Implications for global energy firms Moderator Ginger Faulk Partner, Energy and Infrastructure Speakers Marla Tseng Counsel, International Trade Compliance Halliburton Pete Killen Senior Advisor Muse, Stancil & Co (US) LLP All Rights Reserved. This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent counsel before making any decisions or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between (US) LLP and the recipient. (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under. For a full description of the structure and a list of offices, please visit

2 Topics for discussion Sanctions Update on Iran, Russia and Venezuela impacting global energy firms US-China trading relationship: impacts on US energy sector Fireside chat with in-house counsel regarding compliance strategies The Bottom Line: The economic implications of these developments Q&A 2

3 US economic sanctions update: Iran, Russia and Venezuela

4 US sanctions basics Comprehensive Sanctions/Embargo s Iran, Cuba, North Korea, Syria Apply to US persons,* US exports/reexports Iran and Cuba sanctions also apply to overseas subsidiaries of US persons Sectoral Sanctions (SSIL) Russia (Energy, Finance, Defense), Venezuela Apply to US persons* Include Debt and Equity prohibitions + restrictions on unconventional Russian E&P projects Apply to entities 50% or more owned by an SSIL entity Targeted Sanctions Certain entities and individuals, e.g. government officials, oligarchs (SDNs) Asset freezes (blocking), travel bans Extend to entities 50% or more owned by an SDN * Secondary sanctions against Iran and Russia apply to all persons not only US 4

5 Iran Sanctions 2.0

6 All Secondary sanctions were re-imposed on Iran as of November 5 Petroleum-related secondary sanctions prohibit Dealing in Iranian oil in any way Investing in the development of Iran s petroleum resources Providing goods and services or technology in support of Iran oil sector Participating in oil JVs with Iran outside of Iran Transporting oil from Iran Providing insurance services for NIOC, NITC Transacting with Iran s port or shipping interests, including IRISL, South Shipping Line Conducting any business with the Central Bank of Iran or any other Iranian SDN Facilitating financial transactions on behalf of an Iranian SDN Temporary significant reduction exemptions issued to China India Italy Greece Japan South Korea Turkey 6

7 Iran compliance red flags for energy firms Upstream (E&P) contractors Diversion of US goods, services, technology or equipment to Iran or Iran JVs Dealings with SDNs or their subsidiaries Traders Commingling of fungible products (including from waiver countries) Dealings with SDNs or their subsidiaries Indirect facilitation of Iranian trades Shippers Reflagging of Iranian vessels, obscuring docking information, incomplete or false container prefixes, fake vessels SDN vessels Financial institutions Traditional risks: unnamed beneficiaries, forged documents, front companies, inconsistencies in shipping documents Emerging risks: virtual currencies, use of multiple exchange houses and multiple accounts - FinCEN Advisory Oct

8 Russia Sanctions: What s next?

9 Crimea Embargo Sectoral Sanctions Novichok Sanctions Secondary Sanctions (CAATSA) SDN/ Oligarch Sanctions Proposed legislation 9

10 Evolving US sanctions against the government of Venezuela

11 Sanctions against the government of Venezuela Blanket exceptions for SDN Designations US State Sponsors of Terrorism Iran North Korea Sudan (for now) Syria is Venezuela next? Prohibition on dealings in GOV digital currency (Petro) Prohibition on dealings in new equity and sale/pledging of GOV securities Prohibition on dealings in new debt and existing bonds and the purchase of GOV debt 11

12 US-China trade war impacts on US energy sector

13 Escalating tariff war 13

14 Impact of US and Chinese retaliatory tariffs on US oil and gas US crude exports to China plunge 14

15 Review of energy sector deals by CFIUS Primary concerns Government-controlled strategic acquisitions Access to critical technologies Proximity to government installations Government supply requirements Control over energy supplies Control over critical infrastructure Strategies for addressing CFIUS risks Select target to minimize the above Mitigation measures: Insulating technology from foreign owners Ceding governance and control 15

16 Fireside chat with in-house counsel

17 The energy sector economic implications of US foreign policy developments

18 IRAN CRUDE EXPORTS EXPECTED TO DECLINE BY 1.5 MMB/D Iran crude oil exports are expected to decline by ~1.5 MMb/d due to US imposed sanctions, versus peak export levels of 2.5 MMb/d in April Just prior to the US announcement that it was slapping sanctions back on Tehran effective November 5, 2018 Exports began to decline in advance of the sanctions date; South Korea for example stopped purchases in July Tanker tracking is already becoming more difficult as Tehran employs similar methods to hide export oil shipments, used in the previous round of sanctions, from 2012 to 2015 Chinese, Indian and some European buyers, notably Turkey, are still expected to lift close to 1 MMb/d of Iranian crude through the end of 2018 Assumes that exports to Japan, South Korea and most of Europe are essentially zero China is not expected to cut its Iranian oil purchases, especially with the escalating US-China trade war 180-day waivers have been granted to eight countries including China, India and Turkey Several other European nations that asked to be exempted did not get a waiver Thousand Barrels per Day Iran Crude Exports China India Europe Korea Japan Other Forecast Total Exports 18

19 NEAR-TERM IRAN SANCTIONS HAVE LITTLE IMPACT ON OIL PRICES In the near-term, reduced oil production from sanctions on Iran are likely to have little impact on oil prices Market oil supply increased in advance of the imposed sanctions on November 5, 2018 Oil prices have actually decreased Since May, when the US announced planned sanctions on Iran, the Vienna Agreement parties, plus Libya and Nigeria increased total oil production by a combined 1,600 kb/d US crude supply has also increased by 390 kb/d Both Saudi Arabia and Russia have indicated more supply is available if the market needs more oil Oil stocks built by 500 kb/d in both 2Q18 and 3Q18, leaving oil markets more than adequately supplied for now OPEC is meeting December 6, to likely curtail output somewhat, amid concerns for continued increase in oil supply and a slowdown in economic growth U.S. Dollars per Barrel Light Sweet Crude Prices North Sea Dated WTI 19

20 LONGER-TERM OIL PRICE IMPACT OF TRADE SANCTIONS In the near-term, despite supply impacts from sanctions, oil markets are sufficiently supplied with current downward pressure on prices In 2019, the IEA forecasts non-opec supply growth of 1.7 MMb/d, to exceed global oil demand growth of 1.4 MMb/d However, oil markets will be more vulnerable to supply disruptions with less available spare supply capacity Recent supply increases, from Saudi Arabia in particular, leaves spare OPEC capacity at an estimated 1.7 MMb/d, excluding Iran, or less than 2% of world oil demand which is now over 100 MMb/d Supply disruptions in Libya or a collapse of supply from Venezuela are real concerns Oil prices are likely to face upward pressure through 2019, particularly beginning in the second quarter as world oil demand increases and Venezuela production continues to deteriorate Iran s spare crude supply capacity may exceed Saudi Arabia s in 2019, if exports remain at around 1 MMb/d 20

21 US CRUDE EXPORT IMPACT FROM SANCTIONS ON CHINA The third round of US tariffs and Chinese counter-tariffs went into effect on September 24 The US tariffs now cover about half of imports from China. China has imposed tariffs on roughly 70% of total US imports Includes US refined products, plastics exports and now 10% on Liquefied Natural Gas (LNG) Although exempt from tariffs, China stopped purchasing US crude in August US crude exports to China averaged 380 kb/d in 2018 through July or 21% of total exports Total exports have since recovered to over 2,100 kb/d WTI crude price relative to international marker Brent has decreased to an average of - $9.30/b since August, versus an average of -$4.80/b the prior three months Thousand Barrels per Day U.S. Crude Exports versus WTI-Brent Spread 0 (2) (4) (6) (8) (10) (12) U.S. Dollars per Barrel China Canada Europe India / Korea / Taiwan Other Asia Other Total U.S. Exports WTI - Brent FOB Price 21

22 Questions? 22

23 Ginger Faulk Partner Sixth Street, NW, Suite 700 Washington, DC eversheds-sutherland.com 2018 (US) LLP All rights reserved.