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Canada has staked its future on the oil sands. In November, Report on Business magazine together with Thomson Reuters examine what that means both at home and abroad. Read more from the issue at

Standing in the middle of a historic district of Moscow, the offices of Shtokman Development AG look massive, modern–and completely abandoned.

What was supposed to be the largest and most expensive gas project in the world–with enough reserves to supply the planet for a year–today employs just 30 people. In the highly interwoven global market for energy, the setback in the Shtokman field could ultimately spell good news for Canada's oil sands industry.

The remaining Shtokman employees are busy winding down what was once one of President Vladimir Putin's most cherished projects. Putin wanted the giant Arctic field to boost the Kremlin's energy dominance by supplying North America with gas.

"The North American shale killed us," says a former employee. Shtokman has already closed down offices in Paris and the Arctic port city of Murmansk, sacked most of the 700 employees and is writing down more than $1.5-billion in investments (all currency in U.S. dollars).

Putin cannot be pleased. He once said he wasn't sure whether Gazprom, which wanted to invest more than $50-billion in Shtokman together with French oil major Total SA and Norway's Statoil, was fast asleep when the North American shale revolution came.

The spectacular reversal of fortunes for Shtokman – the rise and fall all happened in just five years – serves as a powerful lesson of how quickly things can change for Russia.

Russian and foreign industry executives warn that the pace of change will likely quicken after Western sanctions imposed on Russia over the invasion of Ukraine have effectively cut off its access to Western financing and to the technology that made the North American shale boom a success.

"U.S. and EU sanctions on offshore and tight oil development in Russia might seem light at the first glance. They neither affect current production nor did they halt near-term exploration," Bank of America Merrill Lynch said in a report in August. "The longer-term effect on the Russian economy can be far larger," it said, adding that up to $1-trillion in investments and up to 7 per cent of Russia's planned 2020 oil production could be in danger.

Russia has the world's largest tight oil resources, according to U.S. government estimates, and their development could bring the country an additional GDP growth of $3.5-trillion by 2030 and create as many as 300,000 jobs.

But while shale has always been a long-term project for Russia, there are some areas where the pain from sanctions on the world's biggest exporter of gas and second-biggest seller of oil will be felt almost immediately.

Russia will have to abandon some other strategic gas projects because of a lack of funding, say industry insiders and bankers. No Russian company has raised money from the West since June, when tensions over Ukraine escalated. "Money will run out quickly and projects will have to be scrapped," says a Gazprom manager who asked not to be named.

Gazprom says it has not abandoned any projects and that it can also rely on help from the cash-rich government. The Kremlin oil major Rosneft has also asked for $40-billion in state help. Russia, after all, has the world's fourth-largest gold and foreign exchange reserves, of $460-billion. But ultimately, the government relies on Gazprom and Rosneft to pay into the treasury, not take money out. "Russia's financial system is not large enough to satisfy the capital needs of the country's largest oil and gas companies," Standard & Poor's said in August.

Insiders at Gazprom say projects that would be most at risk are two of the firm's gas liquefaction plants–one on the Pacific and the other on the Baltic Sea. They are due to cost at least $10-billion each and produce up to 10 million tonnes of supercooled gas a year.The suspension of those projects would open up European markets to North American gas. Many EU leaders are already keen to limit their dependence on Russian gas.

Rune Bjornson, senior vice-president of marketing and trading at Statoil, a competitor of Gazprom, says he believes Europe is capable of increasing imports of LNG and that about half of the continent's import capacity has remained idle in recent years simply because Asia was paying higher prices. But as Asian LNG prices are dropping amid slowing energy demand while global LNG supply is rising, Europe is becoming a competitive buyer.

Several European states have already sped up work to switch from Russian gas to LNG amid fears Moscow could cut off gas to Europe, as it did in 2006 and 2009 amid disputes with Ukraine.

The desire to shake off the Russian grip is particularly strong in Poland and the Baltic states, where memories of Soviet dominance are still fresh. Reuters' calculations show that Russia's share of Poland's market is set to drop from 90 per cent in 2009 to as little as 15 per cent later this decade, partially thanks to imports from North America.

It will no doubt take Europe several years to reduce its dependence on Russian gas. But what will also inevitably happen is that over time Europe will take a much more cautious approach to natural gas in general, knowing that many producers will struggle to compete with cheap Russian gas, according to Martin Bachmann, board member at German energy trader Wintershall, a large buyer of Russian gas.

Meanwhile, with limited Western funding options, the Kremlin will be forced to seek new loans from China and commit more and more oil as collateral. In September, Putin offered China's state oil firm CNPC a stake in the huge east Siberian field Vankor. It was a major about-turn, given the Kremlin's long resistance to allowing its powerful neighbour access to such large deposits.

Today, a fifth of Russian oil exports flow to Asia and the volumes are set to rise to over a third over the next decade.

All this uncertainty for both Europe and Russia augurs well for Canada. The prospects of leaving the struggling refineries in Italy and France at the mercy of supplies from politically volatile producers such as Libya or Iraq may well prompt EU politicians to finally endorse imports of Canadian oil.

"Consumers, including in Europe, will always look to diversify their supplies," says John Abbott, the head of downstream division at Royal Dutch Shell and previously the head of Shell's Canadian heavy oil business.

London-based Dmitry Zhdannikov is Reuters News' editor for oil for Europe, Middle East and Africa.