Rosneft, China in US$270b oil deal as Russian firm shifts focus to Asia
Agreement will supply Beijing with an extra 300,000 barrels of crude oil per day
Russia's Rosneft agreed yesterday to double oil supplies to China, in a deal it valued at US$270 billion, as the Kremlin energy champion shifts its focus to Asia from saturated and crisis-hit European markets.
Rosneft 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 largest energy consumer.
"The estimated value of the deal is US$270 billion," Rosneft's boss Igor Sechin, a powerful ally of President Vladimir Putin, told reporters in what would be one of the biggest supply deals in the history of Russia, the world's top oil producer.
The speed of change in Russian export patterns has been dramatic, switching huge volumes from Europe to Asia 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 per cent 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 and significantly 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 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$55 billion cash-and-stock deal, the largest in Russian corporate history, and became the world's largest publicly listed oil firm.
Industry sources said Rosneft may secure up to US$30 billion in prepayment from China as part of the new deal.
That could even double, business daily Vedomosti said on yesterday.
On Thursday, Putin said Rosneft's deal with China would be worth US$60 billion. Vedomosti said Putin was referring to an advance payment that Rosneft would receive.
Analysts said the possible upfront payment from China would be a big positive for indebted Rosneft.
"If confirmed, this would be a transformational event for the company's balance sheet: Rosneft could even potentially be able to show a net cash position, though working capital would be negative. The prepayment could minimise financing risks for the leveraged state-controlled oil company," JP Morgan analysts said in a note.