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Rosneft’s $270 Billion Oil Deal Set to Make China Biggest Market

OAO Rosneft signed a $270 billion supply deal with China National Petroleum Corp., making the Asian nation Russia’s biggest market for oil.

State-run Rosneft, the biggest publicly traded oil producer by output, will get a $70 billion prepayment under the deal, and will supply about 360 million metric tons of crude to China over 25 years, President Vladimir Putin said today at the St. Petersburg International Economic Forum.

The deal, following a government accord in April, will redirect Russia’s oil away from Europe, where demand is stagnant, to the world’s second-biggest crude market after the U.S. Rosneft became the biggest producer by output after buying TNK-BP for $55 billion this year. Russia produced 518 million tons of oil last year, or almost 10.5 million barrels a day.

“You didn’t just come here to stroll through Petersburg,” Putin told a Chinese delegation with Deputy Prime Minister Zhang Gaoli yesterday, saying the deal would be “unprecedented.”

Rosneft Chief Executive Officer Igor Sechin signed the deal today at a ceremony overseen by Putin. The prepayment is more than Rosneft’s net debt, which surged to 1.78 trillion rubles ($54 billion) at the end of March, following the acquisition of TNK-BP.

Rosneft and China Development Bank completed documents for a long-term $2 billion loan under an accord signed March 2013 and secured by a 2009 crude oil supply contract, the Moscow-based company said today.

Trafigura, Orlen

Rosneft also signed oil supply deals today with trader Trafigura Beheer BV and PKN Orlen SA’s Czech refining unit. The Trafigura deal includes an advance payment of as much as $1.5 billion for 10.1 million tons of crude and oil products over five years.

Under the agreement with PKN Orlen, Rosneft will supply 8.28 million tons of crude to Unipetrol SA under a three-year contract through June 2016, with an estimated value of about $6.2 billion.

The agreement signed in April calls for Rosneft to deliver at least 37 million metric tons of oil a year, or 743,000 barrels a day, to CNPC starting in 2018. Rosneft agreed to increase oil flows to China through a spur from the East Siberia-Pacific Ocean pipeline by as much as 800,000 tons this year from an earlier planned 15 million tons.

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