The Russian state oil company, Rosneft, intends to sign a major contract to supply China with more than $60 billion of crude oil, a deal that could signal a small shift away from Western Europe toward Asia.
Russia has been gradually opening its oil spigot to China in recent years. While the overall volume of Russia’s oil output has remained level, the country has decreased sales to recession-plagued Europe.
“Without any exaggeration a large-scale contract has been prepared by Rosneft,” said President Vladimir V. Putin said after a meeting on Thursday with China’s vice premier, Zhang Gaoli. Supplies to China are expected to reach “volumes of hundreds of millions of tons of oil, in total worth more than $60 billion” Mr. Putin said, though he provided no further details about the hefty contract.
Even a modest shift could have a significant effect on Europe, raising prices across the region. Russia is now the largest oil producer in the world, pumping about 10 million barrels a day, slightly more than Saudi Arabia.
Currently, Russia exports about a fifth of its oil output to Asia. It pipes oil directly to China after a trans-Siberian pipeline was completed in 2010 that overcame decades of tension along the long and remote border between Siberia and Manchuria.
Mr. Putin told Mr. Zhang that he hopes two Russian gas companies, Gazprom and Novatek, will similarly strike deals to export energy to China. Energy analysts said Rosneft has also been negotiating with Chinese companies to form joint ventures to drill in the Russian sector of the Arctic Ocean above eastern Siberia, after granting similar deals to Exxon Mobil, Eni of Italy and the Norwegian oil company Statoil to drill in the Kara Sea, an inlet on the western side of the long coastline.
The Rosneft deal would become the latest in a series of financial transactions between Russian energy companies and China.
Rosneft first took a loan of $6 billion from Chinese state banks as prepayment for oil exports in 2005. The company, in turn, used the money to finance its takeover of the largest production unit of Yukos oil company, after the imprisonment of the founder, Mikhail B. Khodorkovsky, an episode criticized by Western governments but not the Chinese.
In 2009, Chinese banks lent $25 billion to Rosneft and the state oil pipeline monopoly, Transneft, to complete the trans-Siberian pipeline, called the East Siberian-Pacific Ocean pipeline. Under the terms of the deal, the banks would be repaid with 2.5 billion barrels of oil exported to China over 20 years from 2010 until 2030.
Both sides have benefited. The volume of oil amounted to 4 percent of China’s oil demand over that period. On the Russian side, the loan helped stabilize Russia’s balance of payments crisis in the recession that began in 2008.
The latest Chinese deal will most likely allow the Russian government to delay a planned privatization of 19 percent of Rosneft’s shares, which faced political opposition. It also suggests closer financial ties with China, which could help Russia weather its current economic slump.
Article source: http://www.nytimes.com/2013/06/21/business/global/rosneft-to-send-60-billion-worth-of-oil-to-china.html?partner=rss&emc=rss