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, the chief executive of oil major Rosneft, closer to his goal of exporting more than 1 million barrels per day (bpd) of oil to China.
Gas independent Novatek secured a long-term contract to supply liquefied natural gas (LNG), ahead of the lifting of state-controlled Gazprom’s 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 it 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 a day of crude oil over 10 years to China’s Sinopec Group, in a pre-paid deal valued at $85 billion (R835bn).
“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 co-operation.”
The pivot towards Asia by the 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, of the China Institute of Contemporary International Relations. “It risks losing more opportunities if it keeps dragging its feet.”
Analysts said the deal with Sinopec, under which supplies are expected to flow from next year, would increase the pressure on Rosneft to develop new fields in eastern Siberia to raise pipeline exports to China from 300 000 barrels a day now.
In June, Rosneft struck deals to treble long-term supplies to China to 922 000 barrels a day.
A separate deal announced in Beijing said that Rosneft and China National Petroleum Corporation (CNPC), the country’s main importer of 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 signed a deal with CNPC last week 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.
Sechin has also buried the hatchet with Nikolai Tokarev, the head of oil pipeline monopoly Transneft, with the two agreeing to expand the capacity of a pipeline spur from the ESPO line that runs to China.
The ESPO trunk line runs to the Pacific port of Kozmino and is expected to handle around 400 000 barrels a day of oil this year, rising to 600 000 barrels a day next year. Some of that oil goes to China.
“China is likely to overtake the US [as an oil importer], and Russia has to stake its claim in China,” said Andrey Polishchuk, an analyst at Raiffeisenbank in Moscow. – Reuters