OAO Rosneft is seeking to borrow up to $30-billion (U.S.) from China in exchange for possibly doubling oil supplies, making Beijing the largest consumer of Russian oil and further diverting supplies away from Europe.
Four industry sources familiar with the situation told Reuters that Rosneft was in talks with Chinese state firm CNPC about the borrowing, which would echo a $25-billion deal the two companies clinched last decade.
Back then, Rosneft and Russian pipeline monopoly Transneft borrowed money to help Rosneft acquire the assets of nationalized oil producer YUKOS while agreeing to build a pipeline to supply China with 300,000 barrels per day for 15 years.
This time, Rosneft wants to borrow money as it is close to completing a $55-billion acquisition of rival TNK-BP to become the world's largest listed oil producer.
Russia's leading oil company, controlled by the Kremlin, is considering ultimately doubling supplies to China, sources said.
"It can be a combination of delivery options. The strategic line is to increase supplies to China," one source familiar with the situation said.
"The reason why China is willing to lend is simple. They sit on over three trillion of dollars in reserves and are looking to diversify their investments," he added, referring to China's foreign exchange reserves of $3.3-trillion.
Rosneft and CNPC declined comment.
The first loan-for-supply deal between the two companies connected directly for the first time the world's largest energy producer and consumer.
It came after a number of energy disputes between Russia and its neighbours which cut gas and oil supplies to Europe several times, drawing criticism and calls from the European Union for diversification away from Russian energy resources.
Russian President Vladimir Putin retaliated by saying Moscow would divert more energy to Asia.
Since then Russia has been steadily increasing crude exports to Asia at the expense of deliveries to Europe with flows due to amount to around 15 per cent of Russian oil exports this year via pipelines to China and to the Pacific coast.
Should deliveries to China double, the share of Russian exports to Asia will amount to over a fifth of overall exports by the world's largest oil producer and the second largest exporter after Saudi Arabia.
Energy relations between Moscow and Beijing have been, however, complicated in the past by disputes over oil shipping tariffs along the existing pipeline.
They were ultimately resolved after Russia agreed to apply a discount on supplies. The head of Transneft, Nikolai Tokarev, said this week that deliveries to China would rise over time.
"We are neighbours and we need to develop ties, especially given that China has a crazy oil deficit," he told business daily Kommersant.
Sources said it would take time before a final deal was reached and differences over various delivery options were resolved.
Finding the needed oil resources will also be challenging as Russia is several years away from a fresh increase in output in East Siberia, the region closest to China.
"They don't know where they can source the oil and the route issue is a significant one," one of the sources said.
The first source said discussions centred around doubling capacity of the existing pipeline to China by building a parallel link. Volumes could be also topped up with deliveries from the Pacific port of Kozmino.
"Building a parallel link is certainly not nearly as expensive as building the first one from scratch," he said.
A second source said a second link might be an overly expensive option and Russia could opt to increase the throughput capacity of the existing pipeline by adding pumping stations.
A third industry source said China was ready to lend as long as Rosneft agreed to ship more oil via Kazakhstan's existing pipeline to China, which would soon be short of volumes due to depletion of some Kazakh fields.
"These discussions are under way on a working level," Russian Deputy Prime Minister Arkady Dvorkovich said on Wednesday when asked about possible deliveries though Kazakhstan.
However, Transneft fiercely opposes the plan as it would cut its transport earnings.
Whatever the approach, funding is a pressing issue for Rosneft.
It needs to borrow up to $40-billion to complete the TNK-BP acquisition. It has managed to cover its most immediate needs by lining up a syndicated loan as well as a $10-billion financing from traders Vitol and Glencore.
But it also needs dozens of billions of dollars to launch new huge fields in Russia's Arctic and funds to finance a $25-billion refinery modernization program.