Sinopec throttles back on Russian energy sector . . .
On March 25, Chinese state-owned oil and gas giant Sinopec paused negotiations with Russian petrochemical company Sibur on the development of a US$500-million petrochemical and gas marketing project in Russia. Sinopec has also placed on hold its proposed natural gas marketing venture with Novatek, a major Russian liquefied natural gas (LNG) company. These projects would have followed the expansion of Chinese companies in the Russian energy sector, such as CNOOC’s and CNPC’s investment in Arctic LNG 2 in 2019 and Sinopec’s joint venture with Sibur to build the Amur Gas Chemical Complex in 2020. Observing the exit of Western oil companies, such as Shell and BP, from Russia over the past few weeks, it is not surprising that Chinese companies are considering putting on hold their investment plans in the Russian energy sector.
The role of Western sanctions . . .
Existing analysis suggests that Sinopec’s decision to halt negotiations is linked to the growing sensitivity of Chinese firms to Western sanctions on Russia. While some Chinese firms, such as Huawei and Xiaomi, have stopped shipments of their products to Russia in compliance with Western sanctions, it is unlikely that China will stop importing energy from Russia as it is essential to China’s national energy security. Although Western sanctions are less likely to impact China’s existing projects in Russia and its reliance on Russian oil and natural gas supply, projects that were being negotiated between Chinese oil majors and Russian energy companies before the Russian invasion of Ukraine may be shelved or indefinitely postponed.
Global energy supply chains already impacted . . .
The economic and political situation in Russia creates a business risk for Chinese energy companies, which leads to uncertainties in regional and global energy markets. The Oxford Institute for Energy Studies predicts that as Western sanctions on the Russian energy industry tighten, more oil and gas companies will exit Russia’s energy sector. Even if Chinese companies remain in Russia, the stalled deals may impact future energy supply leading to an increase in energy prices. The Canadian oil and gas sector has the potential to help alleviate the global energy shortage to some degree by ramping up its capacity and launching LNG projects. However, Canada’s ability to do so is currently limited by climate change commitments, natural resource capacity, and infrastructure constraints.