Russian oil companies confident as Wen visits

PUBLISHED : Wednesday, 07 November, 2007, 12:00am
UPDATED : Wednesday, 07 November, 2007, 12:00am

Buoyed by rising global oil prices and increased market options, Russian oil companies say they are in a strong position to bargain with Premier Wen Jiabao, who is in Moscow to discuss plans for a pipeline to carry oil to energy-hungry China.

It was hoped that discussions during the premier's visit would break a deadlock over pipeline access and gas prices, said Michael Lelyveld, a senior analyst at PFC Energy.

Russia's suppliers are increasingly focusing on refining and value-added products, which provides them with options that are more profitable than exporting crude to China.

Rosneft, Russia's largest oil producer and a major crude supplier to China, said its sales options had expanded and as a result netbacks had improved, particularly with new refining capacity and domestic retail capabilities, said Peter O'Brien, the company's vice-president of finance and investments.

Rosneft is threatening not to renew deliveries to China after 2010 if it does not get a better offer. 'A competitive Chinese offer would compete with our portfolio of sales options,' Mr O'Brien said.

Unlike Europe, where oil is shipped or delivered through pipelines, China still gets all of its supplies from Russia via the country's rail network, run by state-owned Russian Railways.

Rail tariffs on oil meant the shipments were less profitable, China's ambassador to Russia, Liu Guchang, said last Wednesday in the run-up to Mr Wen's visit.

'The Russian government imposes high tariffs on the rail delivery method, so Rosneft loses a lot of profit to Russian Railways,' Mr Liu said.

Last year Russia's economy ministry reported that 54 per cent of all of the country's exports to China were crude oil products.

Oil being sent to Europe from Russia's Black Sea and Baltic Sea ports of Novorossiisk and Primorsk cost under US$60 a barrel last year, compared with Rosneft's price of US$62.136 per barrel to Manchuria, Mr Liu told Xinhua.

In July, Russian Railways lowered tariffs by 22 per cent. Rosneft, which had sought a 30 per cent reduction, was unmoved.

'We are a large and reliable customer, and that deserves a different approach,' Mr O'Brien said.

With oil prices nearing US$100 a barrel, Russia, which owns the world's eighth-largest known oil reserves, is demanding more from China, the world's No2 oil buyer.

However, Mr Lelyveld said high global oil prices would not affect Russia's bargaining position with China.

'In a world oil market, China can get its supplies elsewhere and has largely done so,' he said. 'Russian oil companies are reportedly realising higher prices for exports to Europe, but oil prices for China are a negotiable issue.'

No1 export

Last year, Russian exports to China totalled US$15.75 billion.

Of that amount, Russia's economy ministry says crude oil exports accounted for 54%

Russia's oil production between January and October this year rose 2.6 per cent to (in millions of tonnes) : 409.4