Rosneft Plans $60 Billion Oil Supply Deal With China

From Bloomberg News

By Anna Shiryaevskaya, Jake Rudnitsky & Ilya Arkhipo

OAO Rosneft, the world’s biggest oil producer by output, plans to sign an “unprecedented” $60 billion contract to supply crude to China, according to Russian President Vladimir Putin.

China may become Russia’s biggest oil customer after signing the contract, following a government accord in April. Rosneft may sign that deal as well as a crude supply agreement with PKN Orlen SA’s Czech refining unit and liquefied natural gas accords with Japan’s Marubeni Corp. (8002) and Sakhalin Oil & Gas Development Co. at the St. Petersburg International Economic Forum this week, two people with knowledge of the plans said.

BP Plc, Exxon Mobil Corp. (XOM) and Eni SpA executives are in St. Petersburg during the annual forum, where Putin has courted foreign investors needed to develop resources in the world’s biggest oil and gas producing nation. Last year, Rosneft signed follow-up accords with Eni and Statoil ASA on planned Arctic projects, while OAO Gazprom, Russia’s natural gas export monopoly, failed the previous year to clinch a much-touted deal with China to build a pipeline and agree on supplies.

“You didn’t just come here to stroll through Petersburg,” Putin told a Chinese delegation including Deputy Prime Minister Zhang Gaoli. “An unprecedented contract with Rosneft has been prepared. Deliveries of hundreds of millions of tons of crude are expected.”

Not Unattainable

The agreement signed in April calls for Rosneft to deliver at least 37 million metric tons of oil a year, or 743,000 barrels a day, to China National Petroleum Corp. starting in 2018. Rosneft agreed to increase oil flows to China through a spur from the East Siberia-Pacific Ocean pipeline by as much as 800,000 tons this year from an earlier planned 15 million tons.

Raising exports to China to 50 million tons of oil a year “isn’t unattainable” for Rosneft, Chief Executive Officer Igor Sechin said earlier this year.

“The hike in crude exports signals an important, strategic shift east for Russia,” Eurasia Group analyst Emily Stromquist said today in a e-mailed note. “While an adequate supply chain exists for delivering higher volumes to China over the next year, Rosneft’s ability to meet longer-term export targets is questionable and faces significant obstacles.”

Under the agreement with PKN Orlen, Rosneft may supply as much as 8.28 million tons of crude to Unipetrol RPA under a three-year contract through June 2016, with an estimated value of about $6.1 billion, the people said, asking not to be identified because the information is confidential.

Czech Oil

Crude flows to the Czech Republic declined following a trade dispute with Russian suppliers in 2011, forcing Unipetrol to halt its Kralupy refinery last year for 10 days because of a shortage of crude.

An agreement with Exxon, which has a partnership with Rosneft to explore areas in Russia’s Arctic offshore and the Gulf of Mexico and develop reserves in Siberia, Texas and Canada, may also be signed, the people said.

Rosneft’s press service declined to comment, as did spokesmen from PKN Orlen, Marubeni and Sodeco.

“Rosneft, with its actions on the international arena, is underpinning its status as the world’s biggest oil company,” Lev Snykov, a partner at Greenwich Capital in Moscow, said by phone.

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