Russia Considers Letting Chinese Buy Controlling Stakes In Energy Fields

Russia has reversed its long-held opposition to selling foreign investors majority stakes in its strategic oil and gas fields, saying there would now be “no political obstacles” to allowing Chinese stockholders to hold more than 50 percent of the properties.

In the past, Moscow has formed alliances with some companies in the West to obtain the knowledge and technology it needs to tap sources of oil and gas that are difficult to reach using conventional drilling. Still, it was careful to maintain financial control all its energy fields, which make up the core of the Russian economy.

Now, though, Western cooperation has evaporated because of the sanctions imposed on Russia by the European Union, the United States and Canada over Moscow's role in the fighting in neighboring Ukraine. As a result, Deputy Prime Minister Arkady Dvorkovich said Feb. 27 that the Kremlin is open to deeper Chinese investment in its energy.

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“If there is a request from China [for a majority stake in a strategic energy field], we will seriously consider it,” Dvorkovich told the Krasnoyarsk Economic Forum in Siberia. He said the only exception would be fields on the Arctic continental shelf.

“We have a strategic partnership with China, and now decisions are made much faster than before,” Dvorkovich told the conference. He pointed to Moscow’s $400 billion deal with Beijing last year to supply China with 38 billion cubic meters of gas annually, and a subsequent deal for Russia to sell China up to 30 billion cubic meters in additional gas over 30 years.

“In particular, we have a gas contract [for China to buy Russian gas], a second one will be signed soon,” Dvorkovich said. “Now we know China better: Their motives and intentions are understood. There used to be a psychological barrier. Now it doesn’t exist anymore. We are interested in maximizing investments in new industries. China is an obvious investor for us.”

Europe, which receives nearly one-third of its gas from Russia, has been looking for alternative sources of energy, with some success. As a result, Russia is looking to shift its own reliance on European customers and has focused on the East, as the two gas deals with China illustrate.

Nevertheless, other Asian nations are wary of providing financing for Russian banks and other commercial enterprises because the Western sanctions have limited Russia’s access to Western capital.

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Dvorkovich’s comments evidently were encouraging to China’s oil sector. Until now, because of restrictions by the Kremlin, two leading Chinese energy companies, the Chinese National Petroleum Corp. (CNPC) and the Sinopec Group, have been forced to limit their investments to small projects involving developing energy fields.

“Putin is currently in a tough situation,” a leading official in China’s oil industry told Reuters on condition of anonymity. “We all know this. One of the ways to help him get out of the mess is trying to improve ties with China.” The official is knowledgeable about CNPC’s strategy and the energy cooperation between the two countries.

So far, this Chinese official said, Putin has made it “very difficult” for CNPC to work with Russian companies to develop energy fields. “We have tried numerous times before, to no avail,” this official said. “Now the situation has changed, the chance of doing that is higher.”

By Andy Tully of Oilprice.com

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