BEIJING: Russian energy companies signed a slew of deals with China yesterday, seeking to lock in sales to fund costly production and pipeline projects that will direct exports away from Europe to Asia.
The agreements, announced during a visit by Prime Minister Dmitry Medvedev to Beijing, brought Igor Sechin, CEO of state oil major Rosneft, closer to his goal of exporting more than one million barrels per day of oil to China.
Gas independent Novatek secured a long-term contract to supply liquefied natural gas, ahead of the lifting of state-controlled Gazprom’s export monopoly on LNG exports expected next year.
Gazprom, the world’s largest gas company, made modest progress towards supplying pipeline gas to China but — after years of talks — will fail to seal a deal before its Russian rivals can compete for exports.
Medvedev hailed Rosneft’s outline agreement to pump 200,000 barrels per day of crude oil over 10 years to China’s Sinopec Group, in a pre-paid deal valued at $85bn.
“That is a large sum of money for any country — even China,” the prime minister said. “It testifies to the fact that we have reached a higher and completely new level of cooperation.”
Speaking after the deals were signed, Chinese Premier Li Keqiang said: “Commercial cooperation is ... extremely important and must not be put off.”
The pivot to Asia by the world’s largest energy-producing nation has been hastened by Europe’s economic slump, while the shale energy revolution threatens to close off the export route to North America. “It has become very important for Russia to expedite entering the Asia-Pacific, especially the Chinese market,” said Feng Yujun, head of Russian studies at the China Institute of Contemporary International Relations.
“It risks losing more opportunities if it keeps dragging its feet.”
Analysts said the Rosneft-Sinopec deal, under which supplies are expected to flow from 2014, will increase the pressure on Sechin to develop new fields in Eastern Siberia to increase pipeline exports to China from the current 300,000bpd.
Already in June, Rosneft struck deals to treble long-term supplies to China to 922,000bpd, raising questions over whether it has the reserves and capital on hand to deliver.
A separate deal announced in Beijing said that Rosneft and China National Petroleum Corp — the main importer of its oil — had agreed on supplies to a planned oil refining joint venture in Tianjin.
“Sechin’s logic is very simple - he wants first of all to capture the consumer for the long term,” said Vitaly Kryukov, an energy analyst at IFD Kapital in Moscow. “Then he has to figure out how much oil he needs and where to find it.”
Since taking on heavy debts to buy Anglo-Russian oil venture TNK-BP in March for $55bn, Rosneft has shown greater willingness to allow China to own barrels in the ground instead of securing future supplies against loans.
Rosneft last week signed a deal with CNPC to create an exploration and production venture handily sited to feed in to Russia’s main eastern export artery, the Eastern Siberia-Pacific Ocean (ESPO) pipeline.
Reuters
