Russia's oil major is seeking to borrow $25-30bn from China in exchange for oil, says sources.
Four separate industry sources have confirmed that the Kremlin-controlled oil company, Rosneft, has entered into discussions with China National Petroleum Company (CNPC) over a $25-30bn oil-for-loans deal which would double the amount of oil it supplies to China. The deal echoes a similar transaction over a decade ago where Rosneft and Transeft, a Russian pipeline company, agreed to supply China with 300,000 barrels of oil per day for 15 years.
Rosneft is turning to CNPC to help fund its $55bn acquisition of TNK-BP, which will make the company the world’s largest listed oil producer. Alongside the $40bn of loans it needs to complete the acquisition, the Russian giant will also need to source tens of billions of dollars to launch new fields in the Artic and a $25bn refinery modernisation program.
The proposed CNPC deal will link the world’s largest energy consumer with the largest energy producer, deepening Sino-Russian ties after pricing disputes have pushed the latter further away from European partnerships.
Chinese Vice Premier Wang Qishan met with Rosneft's Executive Chairman, Igor Sechin in February to pledge deeper energy cooperation between the two countries. Wang claimed energy was “an important part of the comprehensive strategic partnership” between Russia and China. Wang met with Sechin twice during his three-day visit, possibly to discuss the deal.
Nilolai Tokarev, head of Transeft, said he anticipated deliveries to increase over time, adding, “We are neighbours and we need to develop ties, especially given that China has a crazy oil deficit.” In the past, however, energy relations have between Moscow and Beijing have been strained by complex disputes over pricing tariffs.
Finding the right supply lines may also prove difficult as fields in East Siberia, the region closest to China, will not come online for several years. Russia may choose to ship more oil via Kazakhstan, double the capacity of the existing pipeline, or top-up volumes from the Pacific port of Kozmino.
Whichever option Rosneft chooses to meet its promises, cash will no doubt be a pressing issue.