China will finance the development stage in exchange for access to Russian deposits and stable deliveries of oil and petrochemicals. The venture's authorized capital will be $10 million. Rosneft will control 51% in the company, and CNPC will hold the remaining 49%. CNPC became Rosneft's official partner in March 2006, when the two companies signed a memorandum to establish a venture.

Among other things, the new company will conduct geological and exploration work in Russia, develop mineral deposits and obtain licenses for the use of mineral resources.

The partners have clear goals. China will gain access to production licenses, which will enhance its potential as a buyer of hydrocarbons. In turn, Rosneft expects the Chinese company to fund the exploration of East Siberian deposits and is seeking a stake in Chinese refining facilities in exchange for deliveries of oil and petrochemicals to China.

Analysts believe today the Russian company's output exceeds its refining capacities almost tenfold. Refining its own reserves on Chinese equipment will enable it to capture part of China's fast growing petrochemicals market.

In this light, CNPC, China's largest state-owned oil and gas company, which plans to invest more than 180 billion yuans ($22.42 billion) in developing oil refining and petrochemical production, is clearly a good choice. By 2010, CNPC will own five oil refineries with an annual capacity of 10 million metric tons of oil, two aromatics plants, four facilities to produce mineral fertilizers and six large ethylene companies.

There are also plans to unfold a retail chain by 2010. Chinese oil companies are gradually getting closer to Russian mineral resources. The Vostok Energy project became another major step towards closer energy cooperation between the two countries after Sinopec, China's No. 2 oil company, and Rosneft bought Udmurtneft, a regional oil producer.

Though the venture has an ambitious program, it could look like an ordinary event but not today. The split between Russia and the European Union, the major buyer of Russian hydrocarbons, testifies to Europe's fundamental misunderstanding of or its unwillingness to understand Russian interests.

The generous offer Russian President Vladimir Putin recently made to Germany was followed by a joint statement by France and Germany, rejecting Russia's latest energy initiatives. The powerful European countries declared their intention to set up a bilateral energy alliance and called on Russia to ratify the EU's Energy Charter, which many Russian officials have repeatedly said will be unbeneficial to Russia.

Europe has made it clear that it wants to develop direct contacts with oil producing countries in Central Asia and the Caspian region, and with transit countries, primarily Ukraine, which will not bring Russia any commercial advantages, nor will it be justified politically or historically. The powerful pipeline network built by the Soviet Union is Russia's competitive advantage. Unfortunately, all Moscow's calls on Europe to consider energy security for consumers and producers has so far been in vain.

Putin's statement that Russia will soon supply up to 30% of its hydrocarbons to Asia alarmed Europe, which is facing a shortage of energy resources for its evolving demands. Russia's attempts to prove its responsibility and reliability as an energy security guarantor in Europe are met with mistrust or demands for unjustified concessions.

Russia is almost being ousted from Europe, and the East remains a viable alternative. Not accidentally, an agreement was signed on Sakhalin gas supplies to South Korea during a recent visit to Seoul by Russian Prime Minister Mikhail Fradkov. As a reaction to Europe's misunderstanding, the share of Asian consumers may exceed the president's forecast of 30%.

Dr. Igor Tomberg is a senior research fellow at the Center for Energy Studies, the Institute of World Economy and International Relations of the Russian Academy of Sciences.

Russia wants EU to provide energy purchase safeguards
Europe should offer purchase safeguards for Russia's energy if it wants Russian producers to guarantee steady deliveries, a deputy prime minister said Tuesday.

"We need some return safeguards that we will have adequate access to the European market," Alexander Zhukov said.

EU leaders, increasingly concerned about their energy security, are pushing for Russia to sign a legally binding energy charter which would compel the country to open up its vast reserves and pipelines to European companies and to provide safeguards for investors.

Europe, which imports a quarter of its oil and natural gas from Russia via Ukrainian pipelines, faced a brief disruption last winter when Moscow suspended deliveries to Ukraine to make Kiev agree to its new pricing terms.

President Vladimir Putin, who met with EU leaders at an informal summit in the Finnish town of Lahti last Friday, assured them that Russia is a reliable supplier, but refused to sign the charter in its current form.

"The leaders of Russia and the EU have reaffirmed that energy cooperation should rest on the mutual responsibility of producers and consumers of energy resources, and on the security of the vital energy infrastructure," he said.

earlier related report
Shell says no plans to sell stake in Sakhalin II project
St. Petersburg (RIA Novosti) Oct 24 - Shell does not intend to sell its stake in Sakhalin Energy, the operator of the Sakhalin II oil and gas project in Russia's Far East, the head of Shell Russia said Tuesday.

The Anglo-Dutch oil major has come under attack from Russian authorities over environmental violations on the country's largest island.

Christopher Finlayson said there were no changes in the timeframe for implementing the Sakhalin II project, and that the first delivery of liquefied natural gas was expected in the summer of 2008.

On September 18, the Natural Resources Ministry annulled its own 2003 Sakhalin Environmental Expert Review (SEER), which gave the project a positive evaluation, following action from prosecutors. However, it has yet not formally implemented its decision.

Yury Trutnev, Russia's natural resources minister, said earlier that the results of the investigation into violations of environmental laws will be made public on October 25, during his visit to Sakhalin.

Russia signed the Sakhalin II production-sharing agreement in 1994 with Sakhalin Energy, an investment company controlled by Royal Dutch Shell.

The Sakhalin II project comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant and an LNG export terminal. The two fields hold reserves totaling 150 million metric tons of oil, and 500 billion cubic meters of natural gas.

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