China is about to help create the largest listed oil producer on the planet, but it's not Chinese!
China National Petroleum Corporation (CNPC) has entered into talks with the Russian oil giant, Rosneft, over $25-30 billion of cash-for-oil loans, which the Russian company will use to complete its $55bn acquisition of its largest national rival, TNK-BP.
Of course it may not happen. Just over a decade ago, the two nations penned a similar deal. The price of a barrel in the year 2000 was only $20, compared to the $120 per barrel Brent average today!
With over $3 trillion in China's forex reserves and a desperate need to secure its energy future, China’s Vice Premier, Wang Qishan, visited the head of Rosneft Igor Sechin on two separate occasions last month, pledging to strengthen the “comprehensive strategic partnership of coordination between Russia and China” through energy co-operation.
China’s oil-for-loans strategy requires finesse. The China Development Bank, alongside the nation’s major oil companies - CNPC, Sinopec and CNOOC - have been pouring money into struggling and potentially unstable countries, such as Venezuela and South Sudan, for the best part of a decade. While these investments are likely to continue, the latest deal with Russia should hedge some of their risk.
So, what would be the impact of the CNPC/Rosneft deal? In 2011 Western Europe and the US accounted for 73% of Russian fuel oil exports. This deal may see Russia as much as double its current oil supply to China, making the Middle Kingdom the largest single destination for Russian oil. Already, at the London ICIS 2013 conference, Wood Mackenzie were predicting that, with Kozimino prices being at premium to Europe, Russia will start to restrict fuel oil shipments via the European pipeline, thus increasing fuel and lubricant prices into Europe. China’s gain may be Europe’s loss.
With Chinese vehicles production and consumption due to treble in coming years, the proposed agreement is critical for both parties. Equally with US forecast by some commentators to become a net exporter of energy the whole balance is changing.
What is clear is that complexity in lubricants recommendations and applications will continue, especially as the environmental and performance pressures become more intense.
OATS has now covered more than 80% of the Chinese car market and can offer web solutions in mandarin that will allow Lubricant marketers to address the real challenge of communicating with the fastest growth market of end users.
As always, if you require Chinese lubes data services, would like to comment on anything you have read in this Bulletin, or offer suggestions regarding future coverage, simply contact Diana at DShen@oats.co.uk. We look forward to hearing from you.
Sebastian Crawshaw
Chairman, OATS