US, Russia talk up cooperation despite sanctions

US energy secretary Rick Perry and Russian energy minister Alexander Novak pledged to work together to enhance the stability of global energy markets after meeting today in Moscow.

But in another example of the mix of confrontation and cooperation that has been a hallmark of the two countries' recent relationship, a senior US official also today pledged to step up sanctions on Russia, including possibly on its energy sector.

Perry acknowledged the frosty relations, with Washington accusing Moscow of having interfered in the US presidential election in 2016. But he told Novak that the countries, as top producers of natural gas and oil, have a joint responsibility to further international energy security and global stability.

"The future of our energy relations is predicated on successfully addressing our broader disagreements," Perry said. The bilateral energy dialogue will take place "within the guidelines and limitations of our current bilateral relations," he said.

Novak said that "it is in our common interest to supply affordable energy to the world based on market conditions" and pledged to support the "transparency of global energy markets." Russia and the US will have to work together to satisfy global energy demand, Novak said.

The US earlier this year overtook Russia as the top crude producer globally but remains a net importer. By contrast, Russia is a major exporter of crude and has been cooperating successfully with Opec in setting output levels. US efforts to cut off Iran's crude exports depend, in part, on the willingness of Russia and other Opec producers to step up output to make up for the lost supply.

But even as he pledged greater cooperation, Perry also reiterated the possibility of sanctions against Russian state-controlled Gazprom's planned 55bn m³/yr Nord Stream 2 gas pipeline to Germany.

And assistant secretary of state Manisha Singh at a congressional hearing in Washington today said new sanctions could be imposed if Moscow did not meet a 27 November deadline to provide assurances that it will not use chemical attacks to target critics of its government and allow observers to inspect potential chemical weapons sites.

"We are looking at the November deadline seriously," Singh said. "We plan to impose a very severe round of sanctions."

The US on 27 August implemented the first tranche of sanctions on Russia over the March nerve agent attack in Salisbury in the UK that targeted a former Russian spy. Moscow has denied any involvement in the UK nerve agent attack.

That first tranche touched the Russian oil sector only tangentially. But a second tranche of sanctions could involve a prohibition on US banks from lending to the Russian government and block state-controlled airline Aeroflot, and other Russian state-run carriers, from flying to the US.

It could also involve a prohibition on imports of crude and petroleum products from Russia into the US. The US imported 354,600 b/d from Russia in January-May — mostly refined products and slightly less than in the same period last year, according to the US Energy Information Administration.

Perry and Novak said they hope to re-launch an intergovernmental energy committee that met prior to 2014, when the US initially imposed sanctions on Russia's oil sector.

Perry told Novak that Moscow can no longer use energy exports as an "economic weapon" because of the growing US capacity to supply its allies with oil and gas. The US supports EU efforts to minimize "dependence on Russia as a single energy supplier, and look forward to increasing LNG exports to the region," Perry said.

But a senior Energy Department official, appearing before a Senate committee today, listed numerous hurdles for US LNG exporters trying to gain a share in European markets. Pipeline capacity constraints in Europe, along with opposition to new pipelines and a lack of gas storage facilities, have constrained the ability for US LNG to compete with pipeline alternatives, assistant energy secretary Steven Winberg said.

Novak warned Perry against imposing "artificial limits on suppliers, which can lead to unpredictable consequences for energy security." Russia, by contrast, is not taking any measures to limit US LNG exports to Europe, Novak said.