Lindemann Law

Impacts of the EU’s 14th Sanctions Package on the Oil and Gas Sector

The oil and gas industries have been central to the economic strategies employed by major global powers in response to geopolitical conflicts, particularly the ongoing situation in Ukraine. The United States and European Union have implemented a series of sanctions aimed at curtailing Russia’s energy export capabilities, which significantly influence global energy markets.

On 24 June 2024, the European Union adopted its 14th package of sanctions, which affects critical sectors including energy, finance, and logistics. These new sanctions are expected to be incorporated into Swiss law shortly.

This analysis provides an in-depth look at the specific sanctions implemented, examines their implications for businesses both within and outside the EU, and outlines legal steps for compliance with challenging regulatory waters.

Energy Sector Restrictions

The EU has banned the use of its facilities for transhipping Russian liquefied natural gas (LNG) to third countries, specifically targeting reloading activities within the EU aimed at re-exporting Russian LNG. The sanctions also prohibit new investments and restrict the provision of goods, technology, and services for the completion of Russian LNG projects under construction, such as Arctic LNG 2 and Murmansk LNG.

Legal Strategies for Compliance and Resilience

✓  Companies should conduct thorough audits of their current and planned investments in Russian LNG projects. Immediate steps may include divesting or halting projects in compliance with the new sanctions.

✓  Ensure that all operational strategies are reviewed and aligned with the new bans on transhipment and re-export of Russian LNG from EU facilities. This includes revisiting logistics and contracts to eliminate prohibited activities.

✓  Stay informed on any updates from the European Commission that may offer mitigating measures or adjustments to the current sanctions.

Anti-Circumvention Measures

The EU is taking steps to prevent the circumvention of sanctions, requiring EU parent companies to ensure that their subsidiaries outside the EU do not engage in activities that could undermine the sanctions’ objectives. The anti-circumvention measures also require that EU operators selling battlefield goods to third countries implement due-diligence mechanisms to identify and assess the risk of re-exportation of such goods to Russia. Additionally, EU operators transferring industrial know-how for the production of battlefield goods to third countries are required to have certain contractual provisions to ensure that such know-how will not be used for goods intended to Russia.

Legal Strategies for Compliance and Resilience

✓  Strengthen controls over subsidiaries and affiliates, operating in third countries, to ensure that they do not engage in activities that could undermine EU sanctions.

✓  Establish or update existing due diligence processes to monitor and prevent indirect breaches through business activities related to the production and sale of military goods.

✓  Amend contracts to include clauses that prevent the transfer or misuse of industrial know-how for the production of goods intended for use in Russia.

Transport Sector Measures

New measures target specific vessels, prohibiting them from accessing EU ports or receiving services. Such designated vessels include, for example, vessels that transport LNG components or transship LNG. Additionally, the EU has expanded flight and road transport restrictions to include more entities with Russian ownership, effectively widening the scope of entities that must comply with stringent transport regulations.

Legal Strategies for Compliance and Resilience

✓  Audit all vessels and aircraft to ensure none are subject to the new port access bans and service restrictions.

✓  Reassess and adjust logistics routes and methods to comply with expanded EU transport restrictions involving Russian-owned entities.

✓  Ensure that systems are in place to provide all required information to national competent authorities regarding non-scheduled flights and transport operations.

Protection of EU Operators

The EU has introduced measures that allow businesses within the EU to claim compensation for damages caused by Russian companies as a result of the enforcement of sanctions. This also includes provisions to protect EU operators from legal and transactional interference by Russian entities.

Legal Strategies for Compliance and Resilience

✓  Prepare to utilize new EU provisions to claim compensation for damages caused by compliance with sanctions.

✓  Maintain detailed records of all operations that might be affected by sanctions to support claims or defend against accusations of non-compliance.

Previous EU sanctions concerning Oil

Implementing the EU Oil Ban

Earlier, the EU implemented a series of sanctions and price caps. In June 2022, the EU Council adopted a 6th package of sanctions, which included a ban on the purchase, import, or transfer of marine crude oil and certain petroleum products from Russia to EU countries starting 5 December 2022 for crude oil and 5 February 2023 for other petroleum products.

Temporary exemptions allowed imports through pipelines until alternatives were found. Specifically, Bulgaria and Croatia received temporary exemptions for importing Russian marine crude oil and vacuum gas oil, respectively. These sanctions have reduced Russia’s oil exports to the EU by about 90%.

Principle of the Oil Price Cap

The price cap introduced on 5 December 2022 sets maximum prices for Russian crude oil and derivatives sold to third countries:

  • $60 per barrel for crude oil
  • $45 per barrel for discounted petroleum products
  • $100 per barrel for premium petroleum products

Enforcement and Compliance

EU vessels are prohibited from transporting Russian oil to third countries unless the transactions comply with the price cap. Technical assistance, brokering and financial services for these shipments have also been banned.

LINDEMANNLAW’s Advisory Role

LINDEMANNLAW has a dedicated practice team of experts in the energy sector, including renewable energy, oil and gas and infrastructure investments. As the landscape of international sanctions becomes increasingly complex, particularly in the energy sector, LINDEMANNLAW is poised to offer strategic legal advice and compliance support.

Our services are tailored to the effective compliance with the regulatory framework:

  1. Regulatory Compliance.
    We guide clients through the specifics of compliance with U.S., EU and Swiss sanctions, helping businesses understand their obligations and the potential impacts on their operations.
  2. Investment and Operational Strategy.
    LINDEMANNLAW assists energy companies in restructuring their investments and adapting operational strategies to ensure compliance with the new sanctions regime while maintaining efficiency and profitability.
  3. Risk Management and Mitigation.
    We develop strategies to manage and mitigate the risks associated with sanctions, including the potential for indirect consequences and the challenges posed by enforcement loopholes such as ghost fleets.

At LINDEMANNLAW, we are equipped to provide timely, practical, and solution-oriented advice tailored to each aspect of these new measures. Our firm’s deep understanding of both Western and Russian legal systems uniquely positions us to support clients in managing both EU sanctions and potential Russian counter-sanctions effectively.

Whether you’re dealing with the immediate impacts of these sanctions or planning for long-term compliance, LINDEMANNLAW is here to assist. We prepare companies not only to meet current regulatory requirements but also to anticipate and adapt to potential future changes in the sanctions landscape.

Get in touch with us and let us help you turn these challenges into opportunities for growth and compliance.

Disclaimer:

The strategies and information provided herein are for general informational purposes only and do not constitute legal advice. Businesses should consult with a qualified attorney at LINDEMANNLAW for tailored legal advice specific to their individual circumstances and to ensure compliance with applicable laws and regulations.

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