Sinopec said Russia will interrupt projects, Beijing cautious with sanctions


Sources say the refinery has held up a potential $500 million investment in a gas chemical plant

Sources say the refinery has held up a potential $500 million investment in a gas chemical plant

China’s state-run Sinopec Group has suspended talks over a major petrochemical investment and gas marketing company in Russia, sources told Reuters, following a government call for caution as sanctions mount over Ukraine’s invasion.

The move by Asia’s largest oil refiner to put the brakes on a potentially half-billion-dollar investment in a gas-chemical plant and a venture to market Russian gas in China underscores the risks, even for Russia’s key diplomatic partner, from stronger-than-expected western investment – guided sanctions.

Beijing has repeatedly spoken out against the sanctions, insisting on maintaining normal economic and trade exchanges with Russia and refusing to condemn Moscow’s actions in Ukraine or call it an invasion.

But behind the scenes, the government has been wary of Chinese companies violating sanctions – urging companies to exercise caution with investments in Russia, its second-biggest oil supplier and third-biggest gas supplier.

Since Russia invaded a month ago, China’s three state-owned energy giants – Sinopec, China National Petroleum Corp. (CNPC) and China National Offshore Oil Corp. (CNOOC) – assessed the impact of the sanctions on its multi-billion dollar investments in Russia. Sources with direct knowledge of the matter said.

“Companies will strictly follow Beijing’s foreign policy in this crisis,” said an executive at a state-owned oil company. “There is absolutely no scope for companies to take initiatives in terms of new investments.”

The State Department this month convened officials from the three energy companies to review their business relationships with Russian partners and local firms, two sources with knowledge of the meeting said. One said the ministry had urged them not to take rash steps in buying Russian assets.

The companies have set up task forces on Russia-related matters and are working on contingency plans in the event of business disruptions and secondary sanctions, sources said.

The sources declined to be named given the sensitivity of the matter. Sinopec and the other companies declined to comment.

The ministry said China does not have to report to other parties “whether or not there are internal meetings.”

“China is a large, independent country. We have the right to conduct normal economic and trade cooperation in various fields with other countries around the world,” the faxed statement said.

US President Joe Biden said Thursday that China knows its economic future is tied to the West after warning Chinese leader Xi Jinping that Beijing may regret siding with Russia in Ukraine.

Global oil majors Shell and BP, as well as Norway’s Equinor, pledged to end their Russian operations shortly after the Russian invasion on February 24. Moscow says its “special operation” is aimed not at occupying territory but at destroying Ukraine’s military capabilities and capturing what it calls dangerous nationalists.

Calls on hold

Sinopec, formerly China Petroleum and Chemical Corp, has suspended talks of investing up to $500 million in the new gas chemical plant in Russia, one of the sources said.

The plan was to team up with Sibur, Russia’s largest petrochemical producer, for a project similar to the $10 billion Amur gas chemical complex in eastern Siberia, which is 40% owned by Sinopec and 60% owned by Sibur and is scheduled to go into operation in 2024.

“The companies wanted to replicate the Amur project by building another one and were in the midst of site selection,” the source said.

Sinopec paused after realizing that Sibur minority shareholder and board member Gennady Timchenko had been sanctioned by the West, the source said. The European Union and Britain last month imposed sanctions on Timchenko, a longtime ally of Russian President Vladimir Putin, and other billionaires linked to Putin.

Mr Timchenko’s spokesman declined to comment on the sanctions.

The Amur project itself is facing funding problems, two of the sources said, as sanctions threaten to stifle funding from key lenders including Russia’s state-controlled Sberbank and European credit agencies.

“It’s an existing investment. Sinopec is trying to overcome the funding difficulties,” said a Beijing-based industry leader with direct knowledge of the matter.

Sibur did not comment on the suspension of talks for the new chemical plant, but said it is continuing to work with Sinopec. Both companies continue to work together on the implementation of the Amur plant.

“Sinopec is actively involved in the construction management issues of the project, including equipment supplies, cooperation with suppliers and contractors. We also work together on project financing issues,” said Sibur Reuters by email.

Sinopec has also suspended talks on the gas marketing venture with Russian gas producer Novatek over concerns that Sberbank, one of Novatek’s shareholders, is on the latest US sanctions list, a source with direct knowledge of the matter said.

Mr. Timchenko resigned from Novatek’s board of directors on Monday in the wake of the sanctions. Novatek declined to comment.

Novatek, Russia’s largest independent gas producer, reached a tentative agreement with Sinopec and Gazprombank in 2019 to establish a joint venture to market liquefied natural gas to China and distribute natural gas in China.

Beyond Sinopec’s planned Amur plant, CNPC and CNOOC were among the latest investors in Russia’s natural gas sector, taking minority stakes in the major export project Arctic LNG 2 in 2019 and Yamal LNG in 2014.

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