The United States is pumping sanctions – WWN No. 43 (7488) of 03/15/2023

The package of US sanctions introduced at the end of February, as it turned out, includes a ban on the supply of all gas turbines and spare parts to the Russian Federation and could lead to problems for key Russian export projects. Although all the largest turbine manufacturers have already left the Russian Federation, in some cases, shipments of spare parts from the United States still went on after the outbreak of hostilities in Ukraine, Kommersant’s interlocutors say. Important components were supplied, in particular, for the Ladoga turbine, which Gazprom collects under license from Baker Hughes and uses it, among other things, at Power of Siberia and Turkish Stream.

Sources of Kommersant in the Russian fuel and energy complex drew attention to the fact that, as part of the latest round of US sanctions, the Bureau of Industry and Security of the Country (BIS) has strengthened export control measures regarding the supply of gas turbines of all sizes to the Russian Federation and Belarus. This follows from the explanations published on the agency’s website on February 27. Turbines with a capacity of less than 5 MW and a cost of $5,000 and a capacity of more than 5 MW, costing $750, as well as a large number of critical parts for them, are now classified as luxury goods.

The new rules provide for a ban on the export, re-export, direct or indirect sale or supply of gas turbines from the United States to any person located in the Russian Federation. “In the case of a petition for such transactions with goods, BIS will apply a refusal policy, that is, with rare exceptions that will be assessed in terms of usefulness for the Russian Federation, a negative response to a petition for permission to export or sell from the territory of the United States is presumed,”— explains Ekaterina Makeeva, partner and head of the sanctions practice at A-PRO JSB.

One of Kommersant’s sources does not believe that the expansion of export controls applies to industrial gas turbines: “However, this creates some uncertainty regarding the interpretation of sanctions.”

After the outbreak of hostilities in Ukraine, neither the EU nor the United States until the last moment introduced an official ban on the supply of gas turbines to the Russian Federation. But the world’s largest machine builders, including the German Siemens and the American Baker Hughes, announced their withdrawal from the Russian Federation or the suspension of their activities. Thus, Baker Hughes, on its own initiative, stopped servicing the Yamal LNG projects of NOVATEK and Sakhalin-2 of Gazprom, and also shipped only part of the gas turbines for the Arctic LNG-2 project of NOVATEK under construction. NOVATEK did not answer “Kommersant”.

But, according to a number of Kommersant’s interlocutors among machine builders, until the last moment, point deliveries of spare parts and gas turbines to the Russian Federation from the United States were still carried out. At the same time, supplies from the EU have completely stopped. For example, at the end of June 2022, the Russian government, as an exception, allowed NOVATEK to replace exhausted Titan-250-30000S gas turbine engines with a capacity of 22.5 MW at the Cryogas-Vysotsk LNG plant: two new engines were imported into the Russian Federation, and two old ones were exported to the USA (the export of gas turbines outside the Russian Federation is now prohibited).

Russian companies are actively looking for new suppliers in China and Iran, as well as buying up gas turbines and spare parts for them in the secondary market, but it is still difficult to work with suppliers alternative to Europe and the United States, Kommersant’s interlocutors note.

The cessation of supplies of critical units may create difficulties for the production and service of GPA-32 “Ladoga” of Gazprom, installed at the compressor stations of the Bovanenkovo-Ukhta and Power of Siberia gas pipelines, the head compressor station of the Turkish Stream “Russkaya”, on the Amur GPP and the Sakhalin-2 LNG project. These machines are produced under license from Baker Hughes and have not been fully localized, Kommersant’s interlocutors remind. Gazprom declined to comment.

The lack of own technologies for the production of gas turbines in the Russian Federation has repeatedly led to major international scandals, ranging from the resupply of Siemens Energy turbines to the Crimea, ending with the non-return to the Russian Federation of one of the turbines of a German manufacturer for the Portovaya compressor station, which pumped gas into Nord Stream to its undermining.

After the situation with the Crimean turbines, the Russian authorities announced the need to establish the production of their own gas turbines of medium and high power. In January, the Rostec UEC announced the production of the first serial GTD-110M turbine, the previous model of this machine fell apart during testing at the end of 2017. In December 2022, Alexey Mordashov’s Silmash announced the completion of assembly and testing of the GTE-170 head turbine, announcing plans to produce up to eight such machines a year from 2025.

As for the electric power industry, most of the new power units built under the program of capacity supply agreements (CDA) launched during the reform of RAO UES of Russia in 2008 use foreign gas turbine equipment. The departure of foreign companies from the Russian market has also complicated their service, generating companies are forced to save their resources. Russian thermal power plants mainly operate on steam power technology without gas turbines, recalls independent analyst Yuri Melnikov. But power units based on American turbines at individual stations – from RusHydro’s Yuzhno-Sakhalinskaya CHPP-1 to Unipro’s Surgutskaya GRES-2 – may face additional problems, he said.

The recipients of the new bans and restrictions are US persons, but BIS may restrict access to the US market to those foreign persons who violate the rules of US export trade, said Artem Kasumyan, a lawyer at the Delcredere Bar Association. For buyers or carriers from third countries, in case of circumvention of established sanctions, there is a risk of secondary sanctions, Ekaterina Makeeva also reminds. The violation in this case must affect some element of the US (or EU) “sanctions network” – for example, exporting a product with a sanctions code containing a significant share of American intellectual rights or production (usually 25%). Recently, she recalls, the Department of Justice, the Ministry of Industry and the US Department of Commerce published joint recommendations on combating the circumvention of sanctions, where among the signs of suspicious operation, in particular, the direction of goods through China, Armenia, Turkey, Uzbekistan and other countries geographically close to Russia is mentioned.

Tatyana Dyatel