Rosneft Oil Co (OTCMKTS:RNFTF), a Russian state-owned oil company, is preparing a $60 billion contract to supply oil to China. President Vladimir Putin of Russia revealed the plan for the world’s largest oil producer’s output during an international economic forum in St. Petersburg, according to a report from Reuters.
“A large-scale contract, without any exaggeration, has been prepared by Rosneft. Supplies to China are expected in volumes of hundreds of millions of tons of oil, and in total worth over $60 billion,” said Putin to Vice Premier Zhang Gaoili of China.
Russia is currently exporting one fifth of its oil output to Asia, and it is increasing its oil supply in China, but it reduced delivery in Europe. Observers in the oil industry opined that even a slight shift away from Europe could bring a significant impact—oil prices could increase across the region.
President Putin also told Vice Premier Zhang that he had high hopes that Russian energy companies Gazprom OAO (ADR) OTCMKTS:OGZPY) and OAO Novatek (LON:NVTK) would be able to establish similar agreements or cooperation with China.
Rosneft to Strike Joint Ventures With Chinese Companies
Energy analysts said that Rosneft Oil Co (OTCMKTS:RNFTF) is also trying to strike joint ventures with Chinese companies to drill in the Russian sector of the Arctic Ocean above Siberia.
Last April, Rosneft Oil Co (OTCMKTS:RNFTF) and Exxon Mobil (NYSE:XOM) signed a partnership agreement. Under the agreement, Exxon will have the right to access Russia’s Arctic Reserve while Rosneft will be to access Exxon’s La Escalera Ranch project in the Delaware Basin in Texas.
According to Reuters, a source cited that the Russian state-owned oil company agreed to increase its oil supplies in China in March, which was part of the agreement described by President Putin.
Doubts Circle Russia’s Ability to Fulfill Targets
Igor Sechin, chief executive officer of Rosneft Oil Co (OTCMKTS:RNFTF) and a political ally of President Putin, said that the company’s oil delivery in China could be tripled. He also stated that the main source of oil output growth for China will be coming from Siberian fields over the next five years.
Emily Stromquist, an analyst at Eurasia Group, doubted the ability of the Russian state-owned oil company to fulfill its long-term supply targets. “The hike in crude exports signals an important, strategic shift east for Russia. While an adequate supply chain exists for delivering higher volumes to China over the next year, Rosneft’s ability to meet longer-term export targets is questionable and faces significant obstacles,” commented Stromquist in an e-mail to Bloomberg.
In 2010, Rosneft Oil Co (OTCMKTS:RNFTF) signed a joint venture (Vostok Petrochemicals) with China National Petroleum Corporation (CNPC) to construct an oil refinery in Tianjin, China to process 13 million tons of oil, and to develop a petrochemical refinery in the Far East.