Shell to stop Russian crude purchases, cut all Russian energy involvement

Shell on March 8 said it was stopping all spot purchases of Russian crude oil with immediate effect and would end all involvement in Russian hydrocarbons including crude, refined products, gas and LNG in response to the invasion of Ukraine.

It follows Shell's earlier announcement that it was exiting its stakes in upstream projects with Gazprom, including the Sakhalin 2 LNG facility and its financing of the Nord Stream 2 gas pipeline, and follows criticism of the company for buying a cargo of Russian crude. The UK government has been among those encouraging companies to cut Russian ties since the invasion began Feb. 24.

Shell warned the decision would lead to reduced throughput at some refineries as it adjusts its crude sourcing. None of its refineries are linked to Russia's Druzhba crude oil pipeline to Europe as the company sold its stake in Germany's Schwedt refinery, which is linked to the pipeline, last year. However, Russia accounted for some 29% of European crude imports in 2020, with the Urals sour grade being a mainstay of European refining.

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Shell said its spot purchases of Russian crude would end immediately, while ending its involvement in other hydrocarbon trades would take place in a "phased manner," and went on to apologize for its recent purchase of a Russian crude cargo.

In its statement, Shell announced its "intent to withdraw from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and liquefied natural gas (LNG) in a phased manner, aligned with new government guidance. As an immediate first step, the company will stop all spot purchases of Russian crude oil. It will also shut its service stations, aviation fuels and lubricants operations in Russia."

"In close consultation with governments, we are changing our crude oil supply chain to remove Russian volumes. We will do this as fast as possible, but 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," Shell said.

"We will start our phased withdrawal from Russian petroleum products, pipeline gas and LNG. This is a complex challenge. Changing this part of the energy system will require concerted action by governments, energy suppliers and customers, and a transition to other energy supplies will take much longer."

The move comes as numerous governments have been weighing the potential for curbs on Russian energy purchases, and encouraging companies to cut commercial links. UK business secretary Kwasi Kwarteng spoke with Shell CEO Ben van Beurden on Feb. 28, saying the company had been right to pull out of Sakhalin 2 and there was "now a strong moral imperative on British companies to isolate Russia."

However, Europe remains heavily dependent on Russian gas and European governments have balked at a direct ban on Russian energy supplies.

Shell has a contract with Gazprom for supplies to Germany of 1.2 Bcm/year continuing until 2031, according to Gazprom Export's website.

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Helping governments

Van Beurden alluded to "threats" by Russia to cut gas supplies to Europe via the Nord Stream 1 pipeline, and said Shell would try to help governments with the "incredibly difficult trade-offs" relating to energy thrown up by the crisis, going on to voice regret at the company's widely criticized Russian crude purchase.

"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," adding that profits from remaining Russian oil would be directed for aid and humanitarian purposes linked to Ukraine.

"Our actions to date have been guided by continuous discussions with governments about the need to disentangle society from Russian energy flows, while maintaining energy supplies. Threats today to stop pipeline flows to Europe further illustrate the difficult choices and potential consequences we face as we try to do this," he said.

"These societal challenges highlight the dilemma between putting pressure on the Russian government over its atrocities in Ukraine and ensuring stable, secure energy supplies across Europe," van Beurden said. "But ultimately it is for governments to decide on the incredibly difficult trade-offs that must be made during the war in Ukraine. We will continue to work with them to help manage the potential impacts on the security of energy supplies, particularly in Europe."