14 March The impact of Russia/Ukraine conflict on the sector March 14, 2022 By AMPLA Admin General sanctions, Russia, Ukraine 0 The impact of the Russia/Ukraine conflict on the sector On February 24, Russia invaded Ukraine. Alongside the destruction and terror that’s been inflicted on the Ukrainian people, the conflict has also created great uncertainty in the global economy with flow on effects expected to be felt for years to come. Most western countries have imposed significant sanctions on trade with Russia, which includes a US ban on importing Russian oil. In addition, many Russian banks have been removed from the SWIFT global payment system which will impact the ability to make financial payments both within and out of Russia. This has a significant impact on the resources sector that is likely to continue in the short to medium term. The impact of the Russia/Ukraine conflict on the sector On February 24, Russia invaded Ukraine. Alongside the destruction and terror that’s been inflicted on the Ukrainian people, the conflict has also created great uncertainty in the global economy with flow on effects expected to be felt for years to come. Most western countries have imposed significant sanctions on trade with Russia, which includes a US ban on importing Russian oil. In addition, many Russian banks have been removed from the SWIFT global payment system which will impact the ability to make financial payments both within and out of Russia. This has a significant impact on the resources sector that is likely to continue in the short to medium term. The economic sanctions mean that supplies of Russian originated resources are now in doubt. Even if the shipments do arrive, buyers may not be able to purchase them due to financial restrictions. Purchasers need to check their force majeure clauses to ensure they’re covered or scramble to find alternative sources to purchase their materials. Some resources have seen prices increase along with demand. For example, the price of gold has risen as investors and central banks turn to the valuable commodity to diversify in the face of economic uncertainty. Russia’s central bank has also been purchasing gold to overcome financial instability. Other resources that are experiencing an increase in demand include nickel, iron ore, copper and coal that have reached record highs since the invasion. For example, Russian coal accounts for about 30% of European metallurgical coal imports and 70% of their thermal coal imports. Asian buyers are also exposed to Russian coal, contributing to the uncertainty in those markets. Uranium prices are also on the increase as Ukraine has the sixth largest reserve in the world, raising concerns about supply pressures in the near future. If Russia is successful in taking control of Ukrainian uranium reserves the potential impact on the global market could be significant, particularly as sanctions on Russian trade are tightened. The alumina and aluminium market are also at risk with UC Rusal halting shipments from its refinery near the port of Mykolaiv in Ukraine. The supply has since been transported to Rusal’s smelters in Russia. Rusal also owns refineries in Ireland that supply European smelters but these also could be redirected causing supply shortages in Europe. Even if they aren’t redirected, purchasers may be prevented from purchasing from Rusal due to trade sanctions. Sanctions on UC Rusal could also significantly impact the Queensland alumina refinery in Gladstone which is 20% owned by the Russian company. The refinery is one of the largest in Australia and it’s unclear whether it will be adversely affected by the sanctions. In addition, some countries have already halted significant projects. One of the most notable is Germany’s decision to halt certification of the new Nord Stream 2 natural gas pipeline which would’ve doubled their gas supply from Russia. Many businesses have also halted or started exiting operations in Russia including BP, Shell, major consulting firms and banks. While tragic, the conflict does create a potential opportunity for Australian producers. Vimy Resources has already completed a $17 million placement to complete the Mulga Rock bankable feasibility study and commence a drilling program at Alligator River, for example. For the global economy these price increases are likely to have an inflationary impact and adversely impact growth rates. We’ve already seen the pressure on global oil prices, but this is likely only the beginning of broader inflationary pressures. For many businesses, managing costs will come to the forefront while they continue to grapple with other issues putting pressure on expenses like decarbonisation. Finding new markets and suppliers is only part of the mitigation solution for businesses. The conflict also highlights the need to diversify energy supplies. However, it will take a much longer time to diversify and create clean energy sources, leaving industry to find ways to continue to power their businesses in the short-term. Related Articles How foreign investment changes may impact the mining and energy sector In early June 2020, the government announced a review of the foreign investment rules, expanding them to apply to all foreign investors in anything deemed a ‘sensitive national security business’. The changes are scheduled to come into effect on 1 January 2021. There are concerns that this will impact foreign investment in the mining and energy sectors, and in particular the critical minerals space. The impact of coronavirus on the energy and resources industry The last few weeks have seen the world face an unprecedented disruption with the novel coronavirus (COVID-19). First reported in China, we’re now seeing many countries shutting down for periods of time to try to contain the spread of the virus. Australia is facing a particularly difficult year given the bushfires that ravaged the country recently. Now with COVID-19 adding to the pain, the energy and resources industry is being impacted in several ways outlined below. What the Federal budget and election mean for the sector The Federal election has now been set for May 21st and follows the recent 2022/23 Federal Budget announcement and Opposition’s reply. The Liberal party’s budget positions the energy and resources sector for growth with $2.4 billion allocated to the industry, energy and emissions reduction portfolio. The budget included an investment of $1.3 billion to maintain energy security and reduce the pressure on prices while encouraging emissions reduction. The states boost the energy and resources sector This year will be remembered for the many challenges that it brought to both individuals and industry. As Australia starts to return to some normality, many states are looking to boost industry, increase jobs and innovate for the future. In this article, we look at various state initiatives designed to boost the energy and resources sector. Changes to the Fair Work Act may benefit the energy and resources sector The energy and resources sector is a significant contributor to the economy, and its impact is estimated to continue to grow over the next decade. The Australian Resources and Energy Group (AMMA) estimates that the sector will add over 24,000 new workers by 2026 to support 98 new and expansion projects worth over $83 billion. The roles available could double depending not the construction and flow-on work required. Western Australia and Queensland are expected to benefit the most from these initiatives. 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