Russia is now using its energy resources as a weapon to get back at countries imposing sanctions in protest of Russia’s invasion of Ukraine.
On Wednesday (April 27), Russia’s energy giant Gazprom halted gas supplies to Bulgaria and Poland as the two countries ignored Moscow’s demand to make payments in Russian rubles rather than euros or dollars.
Russia is one of the world’s largest suppliers of oil and gas and European countries are heavily dependent on Russia for their energy needs. According to the International Energy Agency (IEA), natural gas from Russia accounted for 45% of imports and nearly 40% of the European Union’s gas demand in 2021.
Should TotalEnergies be Concerned?
On Wednesday, France-based oil and gas company TotalEnergies SE (NYSE: TTE) disclosed a $4.1 billion impairment charge recorded in Q122, which primarily reflected the impact of sanctions against Russia on Arctic LNG 2, a liquefied natural gas development project in the Russian Arctic. The company had already announced in March that it would no longer record proven reserves for Arctic LNG 2 and will not invest any capital into this project in Russia.
After being accused of “complicity in war crimes,” TotalEnergies announced last month that it will not enter into or renew contracts to purchase Russian oil and petroleum products and will put a halt to these purchases by the end of this year “at the latest.” The company stated that it intends to source gasoil from Saudi Arabia and crude from Poland instead.
However, TotalEnergies admitted that it would be difficult to stop Russian gas imports in the next two to three years “without impacting the continent’s energy supply.”
Russia’s decision to halt gas supplies to Poland and Bulgaria is a matter of concern for TotalEnergies and other energy companies as Russia has threatened to suspend supplies to additional countries if its condition for payments to be made in rubles is not met.
Wall Street’s Take
Earlier this month, Jefferies analyst Giacomo Romeo downgraded TotalEnergies to a Hold from a Buy and lowered his price target to EUR 50 from EUR 57. The analyst sees further declines in the share price over the medium term due to Russia and French political risk.
Overall, the Street is sidelined on TotalEnergies, with a Hold consensus rating based on one Buy and four Holds. The average TotalEnergies price target of $72.50 implies 50.28% upside potential from current levels. Shares (trading on NYSE) are down 2.5% year-to-date.
Conclusion
The tensions between Russia and other European countries will continue to exert pressure on energy companies, including TotalEnergies, and disrupt their operations. This will not only have a significant financial impact, as observed in the first-quarter results, but is also expected to hurt TotalEnergies’ share price.
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