National Post (National Edition)
Huge deal to see Rosneft double oil to China
ST PETERSBURG • Russia’s OAO Rosneft has agreed to a US$270billion deal to double oil supplies to China on Friday, as the Kremlin energy champion shifts its focus to Asia from saturated and crisis-hit European markets.
The deal, one of the biggest ever in the history of the global oil industry, will bring Rosneft US$60-billion to US$70-billion in upfront prepayment from China, which holds the world’s largest foreign-exchange reserves.
It will also allow Rosneft, the world’s biggest publicly listed oil firm, to steeply cut its heavy debts and develop new remote Arctic fields.
“The estimate of the sum of the contract in today’s market prices is absolutely unprecedented — US$270billion,” Russian president Vladimir Putin told an economic forum in Russia’s St. Petersburg after the deal was agreed.
The agreement highlights a growing partnership between China, the globe’s top energy consumer, and Russia, the largest oil producer, and comes despite previously uneasy relations between Rosneft and Beijing over energy pricing.
Rosneft boss Igor Sechin, a close ally of Mr. Putin, said his firm will supply China with 300,000 barrels per day over 25 years starting in the second half of the decade, on top of the 300,000 bpd it already ships to the world’s No. 2 oil consumer.
Mr. Putin later said total supplies could amount to as much as 900,000 bpd.
The speed of change in Russian export patterns has been dramatic — switching huge volumes from Europe in only five years.
Russia first started supplying China by railway and then by a new pipeline while opening a Pacific port, Kozmino, in 2009.
Together with supplies to Kozmino, it is already exporting around 750,000 barrels per day to Asia, or 17% of its overall exports of 4.4 million bpd.
Europe, by contrast, has lost out. A decline in deliveries in the past few years partially contributed to Russian Urals crude oil often trading at a premium to benchmark dated Brent.
Analysts have expressed doubts Rosneft could quickly boost supplies to China from depleted fields in West Siberia, the historic homeland of Soviet and Russian oil production.
A source familiar with the deal said the new agreement with China was timed to tie in with the launch of new streams of East Siberian crude to avoid big redirection of existing flows and allow time to expand export infrastructure.
Rosneft and oil pipeline monopoly Transneft have already secured US$25-billion from China in 2009 in upfront payments by pre-selling oil in order to accumulate cash to finance growth and new construction projects.
Rosneft’s debt burden has spiked this year after it acquired Anglo-Russian producer TNK-BP in a US$55billion cash-and-stock deal, the largest in Russian corporate history, and became the world’s largest publicly listed oil firm.
Industry sources say Rosneft may secure up to US$30-billion in prepayment from China as part of the new deal. On Friday, Mr. Putin said prepayments could amount to US$70billion.
Analysts said the possible upfront payment from China would be a big positive for indebted Rosneft.