Rosneft Aims to Expand Oil-Trading Business With New Crude Deals

  • Russian company’s downstream head seeks international supply
  • Trading unit needs more crude as refining assets expand

Rosneft PJSC will expand its oil-trading operations and seek more prepaid supply deals as the Russian energy giant moves to feed its growing network of international refineries.

After sanctions imposed by the U.S. against state-controlled Rosneft foiled its bid to acquire Morgan Stanley’s oil-trading business in 2014, the company is now aiming to grow its unit that buys and sells crude organically, Didier Casimiro, Rosneft’s vice president of downstream, said in an interview in London. The company will secure additional volumes by paying producers upfront -- such as the deal signed this week with the Kurdish region of Iraq -- while also maintaining tight partnerships with independent trading houses.

“As you expand the asset base internationally, it is quite important to have a system in trading,” Casimiro said. “You are always wondering whether there is more value in the chain,” which for Rosneft now stretches from Russian oil fields to refineries in Europe and India.

Unlike fellow major oil producers Royal Dutch Shell Plc, BP Plc and Total SA -- all of which pump less crude than Rosneft -- Russia’s largest producer depends on partnerships with trading houses to handle the bulk of its seaborne crude exports. Traders including Singapore-based Trafigura Group and Switzerland’s Glencore Plc have short-term off-take deals, for which any financing is constrained by sanctions to a term of less than 30 days. At the same time, Rosneft is competing with those partners to win deals with other producers to feed its own trading arm.

Trader’s Choice

Ultimately, Rosneft wants to be in a position where it has myriad choices for each cargo of crude -- selling by pipeline or sea, blending or refining -- which is known in the trade as optionality.

“We’re a producer with a deep understanding of optionality,” said Casimiro.

Rosneft unveiled a pair of pre-payment deals with international producers this week as the global oil and gas industry gathered in London for International Petroleum Week. It agreed to buy crude from Libya’s National Oil Corp. and invest in exploration and production in the North African country, covering a one-year term and could be extended, Casimiro said. The company also said it secured a three-year contract to buy Kurdish crude and study exploration and production opportunities in the region.

Rosneft is expanding its ownership of international refining assets, meaning the company has a growing need for different types of crude beyond the Russian Urals grade that comprises most of its output.

Asian Presence

Last year it bought a 49 percent stake in Essar Oil Ltd., including the 20 million-ton-a-year Vadinar refinery in India and a 2,700-site retail service station network in the world’s second most populous country. Its Geneva-based unit, Rosneft Trading SA, recently struck a deal with Egyptian General Petroleum Corp. for crude to supply Vadinar, Casimiro said.

Crude from a long-term supply deal with Venezuela’s state oil producer is also likely to supply the Indian refinery, Casimiro said. Rosneft provided Petroleos de Venezuela SA with about $1.5 billion in advance payments for crude supplies last year, according to a statement on the Russian company’s website. The transactions were part of a $2 billion supply deal signed in 2014 for more than 1.6 million tons of crude and 7.5 million tons of oil products over five years.

Rosneft is making other moves to carve a place for itself in Asian markets. It is considering building a 15 million-ton refining and petrochemical complex in Tuban, Indonesia with local partner Pertamina Persero PT.

In Germany, Rosneft owns shares in three refineries that account for more than 12 percent of the country’s refining capacity with annual throughput of 12.5 million tons, according to the company’s website. Its Swiss trading unit already procures some of the crude needed to supply those plants and in 2018 may take over the marketing of its share of the refined products, a job currently done by its partner BP, Casimiro said.

Still, there is little doubt sanctions have inhibited Rosneft’s ambitions. The company said last year it would shed its holding of about 12 percent in Italian refiner Saras SpA after sanctions fouled hopes of increasing the stake as well as plans to form a trading joint venture.

Casimiro noted that a pair of existing pre-payment deals worth a combined $10 billion to supply crude to Glencore and Vitol Group signed in 2013 are set to expire next year. If current sanctions against Rosneft remain in place, the deals would have to be restructured before they could be renewed, he said.

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