OAO Rosneft may have to turn to competitors to buy natural gas and state aid to help honor a $50 billion contract it won away from OAO Novatek three years ago, according to two people with knowledge of the matter.
Rosneft may supplement its own output with fuel purchases when the contract with power utility OAO Inter RAO UES starts next year, the people said, asking not to be identified because the information isn’t public.
In 2016, the state-controlled company may even turn to Novatek for fuel, according to one person. Rosneft will fulfill its obligations, its press service said.
Rosneft, which pumps about 40 percent of Russia’s oil and 9 percent of its natural gas, asked for state aid last year after the U.S. curbed its access to borrowing, citing President Vladimir Putin’s involvement in the conflict in Ukraine. After signing the contract in 2012, Rosneft said it would supply the fuel from its own fields amid plans to triple output by 2020.
The government is deciding on funding for Rosneft to expand its Rospan gas unit in West Siberia, according to a draft document, obtained by Bloomberg. The Economy Ministry plans to recommend the project as one of five recipients of about 300 billion rubles ($6 billion) from the National Wellbeing Fund, one person said.
Rosneft has no alternative to developing Rospan to fill long-term orders, and a failure to supply contracted volumes to Inter RAO may expose Rosneft to the risk of penalties, according to the Economy Ministry document. Rosneft head Igor Sechin is also chairman of state-controlled Inter RAO.
Rosneft will develop Rospan irrespective of state aid, while its request for the funding was “in part” motivated by the limits on international financing, its press service said by e-mail.
With more than 2 trillion cubic meters of gas reserves, Rosneft has been seeking to replace Novatek as Russia’s second-largest producer of the fuel and to break Gazprom’s monopoly on pipeline exports.
Russia’s most indebted company, Rosneft may get more than $2.5 billion in revenue from gas supplies to Inter RAO next year, according to estimates by UBS Group AG.
Inter RAO agreed to buy as much as 875 billion cubic meters of fuel from Rosneft in 2016-2040, with 32 billion to be delivered next year from about 6 billion planned this year. The volumes in 2016 are more than half of Rosneft’s gas output now. The total accord might be worth at least 2.5 trillion rubles, the Kommersant newspaper reported in November 2012.
“Rosneft’s margin could be close to zero on supplies to Inter RAO due to the third-party purchases,” said Alexander Kornilov, an oil and gas analyst at Alfa Bank in Moscow. “The main thing for Rosneft was to gain a foothold in the market and that should bring dividends in the future.”
The company declined to disclose its natural-gas output and sales plan for the coming year or comment on talks with other fuel suppliers. Rosneft sells both its own and third-party gas as traders do, its press office said. Inter RAO is sure Rosneft will meet its obligations in full, Anton Nazarov, the power company’s spokesman, said by e-mail.
Rosneft needs 18 to 24 months to boost output at Rospan -- with or without state aid -- because it has to build a plant to process condensate, said Maxim Moshkov, an energy analyst from UBS in Moscow. The company plans to produce 5.6 billion cubic meters of gas at the project by next year, increasing the output to a maximum 18 billion by 2018, according to its website.
Gazprom has had no offers from Rosneft linked to the Inter RAO contract, its press office said. Novatek declined to comment. The Economy Ministry didn’t immediately comment.