MOSCOW (MRC) -- Rosneft PJSC, the state-run crude producer that has helped turn Russia into the top oil supplier to China, aims to secure its hold by winning more clients and establishing new delivery routes amid increasing competition and stretched infrastructure, reported Bloomberg.
"We continue our work to strengthen our presence in China’s market," Chief Executive Officer Igor Sechin said in comments sent to Bloomberg over the weekend while visiting Beijing with a Russian government delegation. "We are striving to expand our pool of clients - we have run successful tests of railway deliveries to Chinese buyers, including smaller refineries."
During Vladimir Putin’s China visit, Russian and Chinese companies and regulators signed more than 30 pacts and Rosneft agreed on a one-year deal to send as much as 2.4 million tons (48,000 barrels of crude a day) to state-owned China National Chemical Corp. Russia’s largest oil producer also offered 20 percent of its major East Siberian Verkhnechonsk unit to Beijing Enterprises Group Co., with a binding deal expected not later than the fourth quarter.
Russia overtook Saudi Arabia to become the top oil exporter to China for three straight months, most recently in May, lifted by Rosneft’s two long-term supply deals with China National Petroleum Corp. May shipments of Russian crude to China increased 34 percent from a year earlier to 5.25 million metric tons, aided by spot deliveries to smaller private refineries, also known as teapots.
The Russian oil giant sees tougher competition in China "not least due to infrastructure constraints," Sechin said. "We have forecast a fiercer battle for clients in the key markets, including China."
China’s crude purchases in May dropped to a four-month low as congestion at one of the nation’s largest ports from "unprecedented" tanker traffic curbed purchases from teapot refineries, a new, hungry breed of oil buyers. The refineries, which started to receive oil import rights last summer, have led the growth in China’s oil consumption.
The teapot refineries favor Russian blends, which account for roughly a fifth of their imports, according to estimates of Beijing-based SIA Energy consultancy. In April, Saudi Arabia, which earlier delivered oil to China only under long-term deals, began competing with Russia for teapot deliveries, as it agreed on its first-ever spot sale to an independent Chinese refinery.
Rosneft will increase its combined oil and gas production this year amid intensified drilling and plans to maintain "this trend" next year, Sechin said.
Rosneft is committed to deepening relations with China as it is strengthening ties with India, another key growth oil market in Asia, Sechin said.
"Our work with Chinese partners, as well as Indian or any other, is a normal diversification of our activities, a natural business process," Sechin replied to a question about a perceived delay in finalizing upstream contracts with China amid successful deals with India. "Reaching agreements with anybody is tough."
Rosneft continues negotiations to sell as much as 49 percent of its Russkoye and Yurubcheno-Tokhomskoye fields to Sinopec with a binding agreement “hopefully” by early September, Sechin told reporters in Beijing on Saturday. The companies signed a framework deal in September last year, with China’s request for tax breaks for the projects a key point in negotiations.
Rosneft is developing a "multifaceted" strategy for cooperation with China, Sechin said. "We adapt it to the market volatility, which allows us to compete successfully with other players in the region, including Saudi Arabia."
We remind that, as MRC wrote previously, in December 2015, Rosneft and Sinopec signed a Memorandum of Understanding regarding cooperation in gas and petroleum chemicals projects to be developed in East Siberia. The memorandum envisions a detailed pre-feasibility and concept design study for a joint venture that would include the conversion of natural gas and its liquid fractions to ethylene and propylene with integrated downstream production.
Rosneft became Russia's largest publicly traded oil company in March 2013 after the USD55 billion takeover of TNK-BP, which was Russia’s third-largest oil producer at the time.
MRC