UDM shows China is backing Russian energy industry

A ship carrying one of Sinopec's modules for a project in Russia is about to leave a port in China. PROVIDED TO CHINA DAILY

The world's largest refiner, China Petroleum & Chemical Corp, also known as Sinopec, and Russia's Rosneft Oil said they will deepen cooperation to stengthen their joint venture Udmurtia Petroleum Corp.

The joint venture, simply known as UDM, was bought out by the two oil and gas giants in August 2006. Rosneft took a 51 percent stake in UDM and Sinopec 49 percent.

UDM is in Udmurtia, a Denmark-sized republic within the Volga Federal District in western Russia.

UDM has increased production by 7.7 percent and its reserves are up 9.5 percent since it was kicked off 11 years ago.

The average annual profit has been more than $450 million with annual net cash flow exceeding $400 million. By the end of 2015, the cumulative net profit reached $4.58 billion, it said.

UDM discovered two new oil fields totaling 800,000 metric tons of reserves in Udmurtia this year.

Wang Jun, general manager of Sinopec's Russian unit, said China's Belt and Road Initiative provides a wonderful opportunity for cooperation with Russia in the oil and gas sector, and Chinese companies should seize it to make new breakthroughs.

Russia has abundant energy resources, and Chinese oil and gas companies can provide the necessary technology for exploration and development, he said.

Chinese companies should look at Russia as a key strategic region, considering its political stability and low risk to resources, Wang said.

Analysts said China has always viewed Russia as its top-priority partner for investment cooperation and is ready to take an active part in the development of Russia's Far East region.

According to Li Li, energy research director at ICIS China, a consulting company that provides analysis of China's energy market, China and Russia have forged a variety of oil and gas ventures and investments in recent years, including the Yamal LNG project located in the Arctic region of Russia and Sinopec's purchase of a 10 percent share in Sibur, Russia's largest gas processing and petrochemicals company.

The Yamal project, the world's first integrated project for polar natural gas exploration, development, liquefaction and transportation, is expected to begin operations this year, and much of Yamal's output will be supplied to China and other Asian countries.

"China is a top buyer of Russia's abundant oil and gas resources, as well as a strategic partner of international cooperation for joint exploration," said Li.

"In addition, China's financial support from institutions like the China Development Bank also deepens bilateral cooperation."