Yuzno.com

payday loans

Sinopec Considering Pulling Out of Sakhalin III Project

China Petroleum and Chemical Corp. (Sinopec), the country's second largest oil and gas producer, is considering pulling out of its Russian Sakhalin III project with Rosneft due to the Russian side's sluggish approach to the signing of a formal exploration and development agreement, a source informed about the situation told Interfax today.

"The message that Sinopec is getting from Rosneft is that they do not want further cooperation in the block. This is most probably because the Russian government wants to keep the block's rich energy resources exclusively for state-owned companies, especially in the face of a bullish oil- and gas-led commodity market," the source, who wished to remain anonymous, said. 

"The prices Rosneft asked from Sinopec for the project were already very high, but they probably want them even higher still," the source added.

Sinopec and Rosneft, Russia's largest state oil company, signed an initial agreement to jointly develop the Veninsky block under the Sakhalin-III project in July 2005, during Chinese President Hu Jintao's official visit to Russia. Rosneft holds a 74.9% stake in the project and Sinopec the remainder.

Oil resources in the Veninsky block off the Sakhalin coast are estimated to be around 169.4 million tonnes, with gas reserves estimated to be 258.1 billion cubic metres. The Veninsky license zone is around 5,300 square kilometres in size, with depths ranging between 25 to 150 metres.

Sinopec's endeavors in the Russian block have not come smoothly. Stringent environmental regulations, cold weather and a shortage of deepwater operation vessels and other specialized services have repeatedly halted exploration activities in the block.

According to the source, stringent environmental protection requirements are sometimes used by Russia as a way to keep foreign investors out. Such tactics have been used against a Japanese company as well as Shell in relation to Sakhalin II, despite the huge amount of money that those companies had already put into their specific projects.

Due to the good political relationship between China and Russia, Sinopec is unlikely to receive the same treatment from the Russian side, but a lack of interest for further cooperation is still apparent, the source said. Sinopec had expected to secure a final contract soon after the initial agreement was signed.

China National Offshore Oil Corp. holds around 94% of China's domestic offshore oil and gas resources, and controls all of the best regions, as it was the first Chinese state-owned oil companies to ventured into the offshore sector.

Sinopec is currently developing one offshore block in the East China Sea in partnership with the China National Offshore Oil Corp. (CNOOC) [NYSE:CEO], as well as one block in the South China Sea and another in the Beibu Gulf. However, ownership of the regions in which these blocks are located is disputed by Japan, Vietnam and South Korea respectively, so it may prove difficult to turn the blocks into highly productive fields.

In other news, a top Chinese government official has confirmed for the first time yesterday that Chen Tonghai, former chairman of the China Petroleum & Chemical Corp. (Sinopec)., Asia's largest refiner, has been detained by the Chinese authorities and is now under investigation.

However, Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), didn't specify the nature of the investigation during a Communist Party congress panel discussion, saying only that investigation has not been completed, according to domestic Caijing magazine.

Chen abruptly resigned more than three months ago due to personal reasons, according to a June 22 announcement by Sinopec. On the same day, SASAC announced its decision that Su Shulin, former vice president of the China National Petroleum Corp., the country's top oil company, would succeed Chen as the new head of Sinopec Group. Later Su was elected as chairman of the listed arm as well.

The reshuffle of the listed arm of China's largest company by revenue has stirred speculation of graft and internal power struggle within China's leadership.

Chen reportedly stepped down because he seriously breached party discipline. Industry analysts also speculated that his case was linked to the downfall of Yu Zhifei, the former chief of the Shanghai International Formula One Race who was charged in May for alleged involvement in a huge graft scandal involving misuse of the city's pension fund. Sinopec has had wide publicity due to sponsorship of the event in China's financial hub.

A Sinopec source also linked Chen's downfall with the Qingdao refinery, whose total construction time is now predicted to be more than 39 months, at least nine months more than originally planned, as well as going significantly over budget.

The source also added that Chen was said to have closer ties with Jiang Zemin, China's former president, than its current president, Hu Jintao.

China kicked off its 17th national party congress yesterday, whose main task is to ratify the slate of leaders who will serve under Mr. Hu through 2012.

≡ Leave a Reply

Copyright © 2020 Yuzno.com | Yuzno.com is supported by WP + USB. Designed by milo.
| News RSS | Comments RSS.