SINGAPORE (Reuters) - Top oil producer Russia is aiming to eventually triple exports to China to some 1 million barrels per day (bpd), seeking to secure market share and billions of dollars in pre-payments.
Long-term supply deals signed last year with China National Petroleum Corp (CNPC) will bring Russia’s state oil company Rosneft (ROSN.MM) much needed cash to ease its heavy debt burden and finance development of untapped reserves in East Siberia to honour supply commitments to China.
Rosneft faces repayments in 2014 and 2015 of $15.9 billion and $16.2 billion, respectively, after it borrowed $31 billion for the takeover of rival TNK-BP - a deal that made it the world’s biggest publicly listed oil firm.
Yet, as Russia ships more crude to China under long-term contracts, there may be less crude available for other buyers.
- Rosneft began shipping crude to China for the first time in 2010 via a spur off the Eastern Siberia-Pacific Ocean (ESPO) oil pipeline running from Skovorodino to Mohe on the Chinese border. Under a $25 billion loan-for-oil deal, Rosneft committed to supplying 300,000 barrels per day (bpd) of crude to China for the next 20 years.
- In June last year, Rosneft and CNPC agreed to double oil flows to China to 600,000 bpd by 2018 as part of a $270 billion, 25-year deal, with partial pre-payments.
- Rosneft started on January 1 this year to send 140,000 bpd of crude oil to CNPC via a pipeline from Kazakhstan to China under a five-year agreement. Rosneft also starts this year to send an additional 40,000 bpd in deliveries to CNPC via the spur off the ESPO pipeline.
- To honour new supply commitments to China, Russia will expand the capacity of the Skovorodino-Mohe spur to 400,000 bpd from 2015 and to 600,000 bpd in 2018.
- In October last year, Rosneft signed a memorandum with China’s top refiner Sinopec Corp (0386.HK)(600028.SS) to supply 200,000 bpd per year for 10 years, starting this year, in a deal that is partly pre-paid and valued at $85 billion. The deal is still under negotiation.
- Rosneft last year also pledged to supply 182,000 bpd to the planned Tianjin refinery in northern China, a joint investment with CNPC. No target date has been set for the launch of the refinery, but analysts suggest 2020 as a possible start data. The refinery will be supplied with crude shipped by tanker from Kozmino, the end-point of the ESPO pipeline, according to information on Rosneft’s website.
- Russia began in late 2009 to ship its new ESPO Blend to Asian markets. The oil is send via the 4,800-kilometer ESPO pipeline to Kozmino, where is its shipped on tanker to Asia and U.S. spot buyers.
- Exports at Kozmino were planned to increase from 300,000 bpd in 2010 to 600,000 bpd in 2014. However, with Russia’s new long-term supply commitments to China, exports at Kozmino will stand at about 440,000-460,000 bpd this year, up from 420,000 bpd in 2013.
- Russia has set no official forecast for future exports at Kozmino. While total shipments to Kozmino are likely to rise, volumes available for Asian spot buyers are expected to fall.
Compiled by Jacob Gronholt-Pedersen; Editing by Tom Hogue