Russia’s decision to give China a share of prized Arctic exploration licenses as part of a “breakthrough” deal signals how the world’s largest oil and gas producer and the biggest energy consumer are redrawing the global energy map.
Under agreements signed during President Xi Jinping’s first state trip abroad, China may double oil imports from state-run OAO Rosneft (ROSN) to more than 620,000 barrels a day, challenging Germany as the biggest buyer of Russian crude. The two also plan to sign an agreement this year to build a pipeline to ship Russian gas to China.
In return, China National Petroleum Corp. will join with Rosneft in exploring three offshore Arctic areas for oil, the first such deal Russia has signed with an Asian company. The ocean north of Russia is considered one of the world’s largest unexplored oil provinces, and Exxon Mobil Corp. (XOM), Italy’s Eni SpA (ENI) and Norway’s Statoil ASA (STL) have already agreed to help finance drilling.
“China is emerging as the most important buyer of Russian oil and gas, helping Russian companies diverge from European exports,” said Tony Regan, an energy consultant with Tri-Zen International Inc. in Singapore, which counts Royal Dutch Shell Plc and OAO Lukoil as clients. “It’s also a huge catalyst for Russian companies to develop their oil and gas fields.”
Rosneft, the biggest traded oil producer by output, will borrow $2 billion from China Development Bank Corp., backed by 25 years of oil supplies, under accords signed March 22 in the Kremlin. OAO Gazprom said it plans to conclude a 30-year gas-supply contract to China by the end of the year.
“We didn’t come here and waste our time,” Xi said through a Russian translator at the Kremlin ceremony, and called the accords a “breakthrough.”
Rosneft will boost oil supplies to China by 800,000 metric tons this year, Chief Executive Officer Igor Sechin said after signing an agreement with CNPC counterpart Zhou Jiping.
Annual exports may later climb to as much as 31 million tons, or 620,000 barrels a day, from 15 million tons, he said. Rosneft raising China exports to 50 million tons of oil a year “isn’t unattainable,” Sechin said in an interview broadcast on national television channel Rossiya 24.
Rosneft rose 2.3 percent to 243.3 rubles as of 4:06 p.m. in Moscow, the biggest gain since Feb. 13. CNPC’s listed unit, PetroChina Co., dropped 1 percent in Hong Kong.
Germany was the biggest customer of Russian crude in 2011, buying about 700,000 barrels a day, according to the U.S. Energy Information Administration. China ranked fourth behind the Netherlands and Poland.
The deal with CNPC to drill in three areas of the Pechora and Barents Seas is another example of the growing clout of China’s biggest oil company, which was also offered eight onshore blocks in Russia.
Earlier this month, CNPC agreed to buy a $4.2 billion stake in gas fields off Mozambique from Eni, a deal that will make it a partner in the world’s second-largest gas export terminal.
“CNPC is becoming a prime player outside China and they’re likely to get more aggressive in acquiring oil and gas assets around the world,” said Sonia Song, a Hong Kong-based analyst at Nomura Holdings Inc.
CNPC’s PetroChina (857) will raise overseas output to 60 percent of its total in the next eight years.
The explorer and refiner plans to invest at least $60 billion this decade in energy assets stretching from the Middle East and Central Asia to the Americas and Asia-Pacific, Vice President Sun Longde said March 21 after the company reported a 13 percent drop in net income last year. The drive overseas is to help counter losses at home from state price controls on gas and other fuels.
Gazprom, Russia’s natural-gas export monopoly, signed a memorandum with CNPC on building a pipeline along the so-called eastern route with shipments of 38 billion cubic meters a year, starting in 2018, CEO Alexei Miller told reporters in the Kremlin. Gas deliveries may rise to 60 billion cubic meters.
The deal, which has been under discussion for more than 10 years, may include advance payments from China, Miller said. Gazprom and CNPC plan to set legally binding terms for supplies in June and sign a deal by the end of this year, he said.
“Diversifying export markets has long been on the agenda” for Gazprom, Oswald Clint, an analyst at Sanford C. Bernstein & Co., said in a note for clients. If pricing can be decided, this could “mark the beginning of one of the largest supply agreements in a decade.”
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