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Finance & Economy

Russia plans $25-$30 billion oil-for-loans deal with China


Rosneft LogoRosneft is seeking to borrow up to $30 billion from China in exchange for possibly doubling oil supplies, making Beijing the largest consumer of Russian oil and further diverting supplies away from Europe.

Four industry sources familiar with the situation told Reuters that Rosneft was in talks with Chinese state firm CNPC about the borrowing, which would echo a $25 billion deal the two companies clinched last decade.

Rosneft said it was not currently in talks about obtaining a loan from China but declined to comment when asked whether it may enter in negotiations at a later date.

In the previous deal, Rosneft and Russian pipeline monopoly Transneft borrowed money to help Rosneft acquire the assets of nationalized oil producer YUKOS while agreeing to build a pipeline to supply China with 300,000 barrels per day for 15 years.

This time, Rosneft wants to borrow money as it is close to completing a $55 billion acquisition of rival TNK-BP to become the world’s largest listed oil producer.

Russia’s leading oil company, controlled by the Kremlin, is considering ultimately doubling supplies to China, sources said.

“It can be a combination of delivery options. The strategic line is to increase supplies to China,” one source familiar with the situation said.

“The reason why China is willing to lend is simple. They sit on over 3 trillion of dollars in reserves and are looking to diversify their investments,” he added, referring to China’s foreign exchange reserves of $3.3 trillion.

Rosneft and CNPC declined comment

The first loan-for-supply deal between the two companies connected directly for the first time the world’s largest energy producer and consumer.

It came after a number of energy disputes between Russia and its neighbors which cut gas and oil supplies to Europe several times, drawing criticism and calls from the European Union for diversification away from Russian energy resources.

Russian President Vladimir Putin retaliated by saying Moscow would divert more energy to Asia.

Since then Russia has been steadily increasing crude exports to Asia at the expense of deliveries to Europe with flows due to amount to around 15 percent of Russian oil exports this year via pipelines to China and to the Pacific coast.

Should deliveries to China double, the share of Russian exports to Asia will amount to over a fifth of overall exports by the world’s largest oil producer and the second largest exporter after Saudi Arabia.

‘Crazy Deficit’

Energy relations between Moscow and Beijing have been, however, complicated in the past by disputes over oil shipping tariffs along the existing pipeline.

They were ultimately resolved after Russia agreed to apply a discount on supplies. The head of Transneft, Nikolai Tokarev, said this week that deliveries to China would rise over time.

“We are neighbors and we need to develop ties, especially given that China has a crazy oil deficit,” he told business daily Kommersant.

Sources said it would take time before a final deal was reached and differences over various delivery options were resolved.

Finding the needed oil resources will also be challenging as Russia is several years away from a fresh increase in output in East Siberia, the region closest to China.

“They don’t know where they can source the oil and the route issue is a significant one,” one of the sources said.

The first source said discussions centered around doubling capacity of the existing pipeline to China by building a parallel link. Volumes could be also topped up with deliveries from the Pacific port of Kozmino.

“Building a parallel link is certainly not nearly as expensive as building the first one from scratch,” he said.

A second source said a second link might be an overly expensive option and Russia could opt to increase the throughput capacity of the existing pipeline by adding pumping stations.

A third industry source said China was ready to lend as long as Rosneft agreed to ship more oil via Kazakhstan’s existing pipeline to China, which would soon be short of volumes due to depletion of some Kazakh fields.

“These discussions are under way on a working level,” Russian Deputy Prime Minister Arkady Dvorkovich said on Wednesday when asked about possible deliveries though Kazakhstan.

However, Transneft fiercely opposes the plan as it would cut its transport earnings.

Whatever the approach, funding is a pressing issue for Rosneft.

It needs to borrow up to $40 billion to complete the TNK-BP acquisition. It has managed to cover its most immediate needs by lining up a syndicated loan as well as a $10 billion financing from traders Vitol and Glencore.

But it also needs dozens of billions of dollars to launch new huge fields in Russia’s Arctic and funds to finance a $25 billion refinery modernization program.

Source: Reuters – “Exclusive: Russia plans $25-$30 billion oil-for-loans deal with China”
 
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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

Discussion

6 thoughts on “Russia plans $25-$30 billion oil-for-loans deal with China

  1. Reblogged this on Oyia Brown.

    Like

    Posted by OyiaBrown | February 15, 2013, 12:36 am

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