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Russia, China Agree to Build $5 Billion Oil Refinery

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Russian Deputy Prime Minister Igor Sechin
Russian Deputy Prime Minister Igor Sechin, seen here, said a feasibility study for the refinery in Tianjin will be ready in six months and construction will take two years, according to a statement posted on the government’s website. Photographer: Adam Berry/Bloomberg

Sept. 22 (Bloomberg) -- OAO Rosneft, Russia’s largest oil producer, and China National Petroleum Corp. agreed to build a $5 billion refinery in China, while the two countries may not complete talks on natural-gas supplies until next year.

A feasibility study for the refinery in Tianjin will be ready in six months and construction will take two years, Russian Deputy Prime Minister Igor Sechin said yesterday, according to a statement posted on the government’s website. Sechin led meetings in the Chinese port city ahead of a planned visit by President Dmitry Medvedev from Sept. 26 to Sept. 28.

Resource-rich Russia is expanding energy ties with China, designing pipelines to deliver oil and gas to the world’s biggest energy consumer. Chinese oil imports gained 48 percent last year and have almost doubled since 2005, according to customs data.

“China’s oil production is pretty much maxed out and it needs Russian oil,” said Laban Yu, an energy analyst at Macquarie Hong Kong Ltd. “In fact, it needs oil full stop and Russia is close and convenient. As part of agreements to supply oil, Russia wants to have stakes inside China in ventures like this” CNPC-Rosneft venture.

The refinery may have the capacity to process 13 million metric tons of crude a year (260,000 barrels a day), Rosneft said in an e-mailed statement. Rosneft expects the refinery to start operations in 2015, the Moscow-based oil producer said.

Russian Supplies

Russian companies will supply 70 percent of the crude to the facility at market prices, with the remaining 30 percent from Arab countries, Sechin said. The deputy prime minister, who is also Rosneft’s board chairman, attended a foundation-laying ceremony for the refinery yesterday.

China National’s listed unit PetroChina Co. rose 1 percent in Hong Kong trading to HK$8.76 at 11:37 a.m. local time. The benchmark Hang Seng index gained 0.9 percent. China Petroleum & Chemical Corp., the country’s second-biggest oil producer known as Sinopec, advanced 1.2 percent to HK$6.69.

Russia and China continued gas supply talks, planning to agree on the price for deliveries to the Asian nation in the first half of 2011 and start shipments in 2015, Sechin said. That matches the timeframe given by OAO Gazprom Deputy Chief Executive Officer Alexander Medvedev in June. Supply terms may be set during President Medvedev’s visit, the government’s statement said.

“Sales are falling in Europe, so the timing is right for Russia to develop a major new export market,” Tony Regan, a consultant at Tri-ZEN International in Singapore, said today in an interview with Bloomberg television. “It’s certainly not a done deal, but we are getting close to a deal.”

Gazprom had aimed to ship its first gas to China via pipeline in 2011. Pricing disagreements have stalled progress.

Coal to Liquids

China is willing to expand energy cooperation with Russia in areas such as oil, gas, coal, nuclear and power, the Xinhua News Agency reported yesterday, citing Vice Premier Wang Qishan.

Russia and China signed three energy cooperation documents for oil, coal and coal-to-liquids after the Sino-Russian energy negotiators’ meeting in Tianjin, Xinhua said.

Russia supplied at least 6 million tons of coal to China in the first six months of the year, compared with 9 million tons in the whole of 2009, Sechin said.

OAO Lukoil, Russia’s oil and gas company with the most assets overseas, may dodge OAO Gazprom’s monopoly on Russian natural gas exports by supplying China the fuel it produces in Uzbekistan in partnership with the central Asian nation’s state-owned producer.

Lukoil plans to sign a gas agreement with China National Petroleum during President Medvedev’s trip to China later this month, Lukoil Chief Executive Officer Vagit Alekperov told reporters in Sochi on Sept. 17.

To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editors responsible for this story: Claudia Carpenter at ccarpenter@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net.

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