Beijing opposed "Rosneft" off the coast of Vietnam

Beijing publicly expressed its dissatisfaction with the actions of Rosneft on the Vietnamese shelf, in the waters of the South China Sea.
Origin source
On Thursday, May 17, the Chinese Ministry of Foreign Affairs very harshly commented on the information that Rosneft Vietnam B.V., a subsidiary of Rosneft, started drilling the Lan Do deposit in the South China Sea, located on the Vietnamese shelf, in a water area that Beijing considers its own. "No country, organization, company or individual has the right, without the permission of the Chinese government, to engage in exploration or development activities in the waters controlled by China. We demand from the parties concerned to show respect for the sovereignty of our state, "said Lu Kang, an official representative of the agency, at a regular briefing (TASS quotation).

Lu Kahn warned that such actions could adversely affect China's relations with countries that violate its rights. He also called on the parties to refrain from actions "that could affect bilateral relations, as well as peace and stability in the region."

A representative of Rosneft told RBC that the license areas on the shelf of the South China Sea, where work is being done, are located in the territorial waters of Vietnam. "The company conducts its business in strict compliance with license obligations and compliance with the legislation on subsoil use of the Republic of Vietnam," he said. The same was confirmed by the Vietnamese Ministry of Foreign Affairs. "Vietnamese oil and gas projects are on the territory completely under the control of the state and in accordance with international law," the ministry said on Thursday.

According to Russian President Dmitry Peskov, quoted by Interfax, Rosneft did not consult the Kremlin on the issue of drilling on the shelf of the South China Sea.

The site is inherited

"Rosneft" announced the start of drilling a production well at Lan Do on May 15. This is a site within block 06.1 with initial geological reserves of 23 billion cubic meters. m of gas. Rosneft Vietnam B.V. is the operator of the project with a share of 35%, 45% belongs to the Indian ONGC, another 20% - from PetroVietnam.

According to Wood Mackenzie, which leads Reuters, this site is located within the so-called nine-dot line, which covers about 80% of the water area of ​​the South China Sea and which China has considered its own since 1947, although the international community does not confirm its rights. Moreover, in 2016, the claim of Beijing recognized the Permanent Court of Arbitration in The Hague as illegal, but China stated that it was not going to implement this decision.

This is not the first well in the disputed water area, drilled with Russian participation. The Lan Do and Lan Tai gas fields at Block 06.1 were opened in the mid-1990s by the British BP with partners, then they transferred their rights to Russian TNK-BP, and in 2012, it began to produce gas at Lan Do. In 2013, Rosneft acquired TNK-BP, gaining a 35% stake in the Vietnamese project and operatorism. In 2016, after the successful drilling of two wells, Rosneft opened the third gas field - Phong Lan Dai (Wild Orchid) on the block. All this did not cause public discontent of Beijing.

Recently, China has been closely following the projects on the disputed territory, Reuters points out. Over the past year, due to the pressure of Beijing, Vietnam has already twice stopped drilling in the South China Sea at the large oil field Red Emperor, which is being developed by the Spanish Repsol along with the Arab Mubadala Petroleum and PetroVietnam, the BBC reported. According to the TV and radio company, the participants of this project as a result may lose $ 200 million of already invested investments. Repsol confirmed the suspension of the project in August 2017.

The interests of Rosneft in Vietnam

Rosneft Vietnam B.V. - the former TNK Vietnam, which Rosneft received by absorbing the Russian-British TNK-BP in 2013. Rosneft Vietnam B.V. owns stakes in two blocks - 06.1 (35%) with resources of 69 billion cubic meters. m and the neighboring 05.3 / 11 (100%) with resources of 28 billion cubic meters. m and 17.5 million tons of gas condensate, where geological prospecting is still in progress. According to Rosneft, gas produced at Block 06.1 provides production of 9% of Vietnam's electricity.

Another Rosneft subsidiary, Rosneft Pipeline, owns 32.67% of the Nam Kon Shon Pipeline project, which transports gas and condensate from the shelf blocks of the Nam Con Shawn Basin to Vietnamese power plants.

Change of position

"The project of the company on the shelf of the South China Sea has been implemented for 16 years, and so far no issues have been raised," the representative of Rosneft underscores, adding that she complies with "international legal norms".

The suspension of drilling in Vietnam, if it follows, will not be critical for Rosneft - in terms of investment this is a small project, says S & P analyst Alexander Gryaznov. Investments in Vietnamese projects "Rosneft" does not disclose. For Rosneft, the Vietnamese project is more strategic, its absence or presence in the portfolio does not affect the value of the shares of the parent company, agrees the analyst of Raiffeisenbank Andrei Polishchuk.

Beijing and Moscow are strategic partners, and with this level of contact they can agree on any, the most difficult issues, said President of the Russian-Chinese Analytical Center Sergei Sanakoev. Following the results of 2017, Russia for the second consecutive time became the largest oil supplier to China, sending nearly 60 million tons of raw materials to this country. According to Forbes, about half of this volume - 28.9 million tons for a total of $ 11 billion - was purchased by the long-standing partner of Rosneft, Chinese CNPC.

Against this background, the statement of the Ministry of Foreign Affairs of the People's Republic of China can be considered extraordinary: China has always refrained from public unflattering comments regarding Russia and Russian state companies, Sanakoev said. In 2016, when Rosneft opened a new field on the Vietnamese shelf, China may have expressed dissatisfaction, but on a diplomatic level and without noise, Sanakoyev admits. In his opinion, recently the situation in this sense has changed, including, perhaps, because in September 2017 the shareholders of Rosneft - Glencore and QIA - announced the sale of 14.2% of its shares to the Chinese private company CEFC, not agreeing with more significant Chinese state-owned companies (on May 4 this agreement was terminated, because CEFC was not able to attract funding, and its founder was detained on suspicion of fraud).

In addition, the reason may be a weak competence or insufficient expert level of Rosneft when working with China, Sanakoev said, emphasizing that the current relations between the two countries allow developing not only conflict-free, but also mutually beneficial cooperation. However, further aggravation of the current conflict, in his opinion, should not be expected.

This is not the first project of Rosneft, which faces geopolitical difficulties: in October 2017, the company agreed with the government of Kurdistan on the development of five oil and gas fields in the Kirkuk area. Just days after that, the deposits located on the disputed territory were under the jurisdiction of Iraq, which regained control of Kirkuk. Baghdad called the transaction illegal and called on Rosneft for a dialogue with the official government and British BP, which claimed these deposits earlier.