Sinopec said to pause Russia projects, Beijing wary of sanctions

Sources say the refinery has halted a potential $500 million investment in a gas-chemical plant

Sources say the refinery has halted a potential $500 million investment in a gas-chemical plant

China’s state-run Sinopec Group has suspended talks for a major petrochemical investment and a gas marketing venture in Russia, sources told Reuters.

Asia’s largest oil refinery’s move to curb a potentially half-billion dollar investment in a gas-chemical plant and a venture to market Russian gas in China highlights the risks even for Russia’s top diplomatic partner , of unexpectedly severe Western-led sanctions.

Beijing has repeatedly objected to the sanctions, insisted that it maintain normal economic and trade exchanges with Russia, and has refused to condemn Moscow’s actions in Ukraine or call it an invasion.

But behind the scenes, the government is wary of Chinese companies violating sanctions — urging companies to be cautious about investing in Russia, the second-largest oil supplier and third-largest gas supplier. .

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

“Companies will strictly follow Beijing’s foreign policy in this crisis,” said a director of a state oil company. “There is absolutely no room for companies to take initiatives in the field of new investments.”

The foreign ministry this month called on officials from the three energy companies to review their business ties with Russian partners and local operations, two sources with knowledge of the meeting said. One said the ministry urged them not to take any hasty steps to buy Russian assets.

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

The sources asked not to be named, given the sensitivity of the case. Sinopec and the other companies declined to comment.

The ministry said it is not necessary for China to report to other parties “whether or not there are internal meetings”.

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

US President Joe Biden said on Thursday that China knows its economic future is tied to the West after warning Chinese leader Xi Jinping that Beijing could regret Russia’s invasion of Ukraine.

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

Calls on hold

Sinopec, formally China Petroleum and Chemical Corp, has suspended talks to invest up to $500 million in Russia’s new gas-chemical plant, one of the sources said.

The plan was to partner with Sibur, Russia’s largest petrochemical producer, on a project similar to the $10 billion Amur Gas Chemical Complex in Eastern Siberia, 40% owned by Sinopec and 60% by Sibur, which will be online by 2024. will come.

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

Sinopec paused for a moment 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 with ties to Putin.

Timchenko’s spokesman declined to comment on sanctions.

The Amur project itself faces funding challenges, two of the sources said, as sanctions threaten to choke 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 financing difficulties,” said a Beijing-based industry manager with direct knowledge of the matter.

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

“Sinopec actively participates in the construction management issues of the project, including equipment supply, working with suppliers and contractors. We are also collaborating on the project financing issues,” Sibur said. Reuters by email.

Sinopec has also suspended talks over 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, signed a preliminary deal in 2019 with Sinopec and Gazprombank to create a joint venture that will trade liquefied natural gas to China and distribute natural gas in China.

In addition to Sinopec’s planned Amur plant, CNPC and CNOOC were among the newest investors in the Russian 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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