Russia will sharply boost oil supply to China, making Beijing its top customer, in a package of deals to be signed this week, industry sources said on Wednesday.
Russia’s top crude producer OAO Rosneft will increase exports to China by some 34 million tonnes to around 50 million tonnes (1 million barrels per day) by 2018, the sources told Reuters.
The deal could be signed later this week during a visit to Moscow by China’s new president, Xi Jinping, as a part of a broader agreement which may include more arms deliveries and long-discussed gas supply.
The oil agreement may also involve loans up to $30-billion for Rosneft, which is in a process of acquiring Anglo-Russian oil company TNK-BP for $55-billion.
A Rosneft spokesman declined comment.
“No one expected that Rosneft would venture for such a massive oil supply increase to China,” a source said, adding that thanks to possible cheap money from China, Rosneft may refinance the loans it amassed from Western banks for the TNK-BP deal.
The source said that on Thursday, Russian President Vladimir Putin was expected to chair a meeting attended by Igor Sechin, his long-standing ally and Rosneft’s president, as well as newly-appointed Central Bank head Elvira Nabiullina and Federal Customs Service officials, to discuss the deal.
Russia has been steadily increasing crude exports to Asia at the expense of Europe with flows due to amount to around 15 per cent of its oil exports this year via pipelines to China and to the Pacific coast.
Putin has urged domestic companies to forge closer ties with Asia as demand for energy in Europe, Russia’s largest oil and gas market, has been sluggish due to the financial crisis there.
China and Russia have found renewed common grounds in international politics and share similar views on global issues such as Syria.
The sources said Rosneft plans to increase oil supplies via the East Siberia-Pacific Ocean (ESPO) pipeline by 1 million tonnes this year already, by a further 2 million tonnes next year and by a further 5 million tonnes from 2015 to 2017.
Starting from 2018, the ESPO would ship 30 million tonnes in total, double the current volumes.
Rosneft also wants to ship 7 million tonnes to China via the Pacific port of Kozmino this year and increase it to 9 million tonnes in 2014.
And the sources say that Rosneft was also considering shipments via Kazakhstan to China to the tune of up to 10 million tonnes a year starting from Jan. 1 2014.
Rosneft is no stranger to loans-for-oil deal with China. In 2008 together with state oil pipeline operator Transneft it secured a $25-billion deal to finance construction ESPO, which now supplies China and other Asian customers with crude.
Russia, the world’s biggest oil producer, and China appear to be natural partners when it comes to trade in raw materials, but they have failed so far to seal a gas supply deal over nearly two decades, largely because Moscow will not cut its price to levels within reach of Chinese end-users, who are highly sensitive to input cost inflation.
“It will be very difficult to agree a gas deal by itself,” a source said adding that the price issue was still live.
According to Interfax news agency, Russian Deputy Energy Minister Yury Sentyurin said that the ministry is preparing an inter-government agreement on increasing oil supplies to China. He declined to give details.Report Typo/Error