CNPC and Rosneft in historic oil pipeline delivery deal

A long-term oil delivery agreement worth an estimated US$ 270 billion has been negotiated between China and Russia. The oil is set to be delivered to China via pipelines over the next 25 years.

According to Chinese state-run media, the deal will see 365 million t of oil delivered to China starting this Summer.

Rosneft President and Chairman of the Management Board Igor Sechin and Chairman of China National Petroleum Corporation (CNPC) Zhou Jiping inked the deal during the Saint Petersburg International Economic Forum. The signature ceremony was led by Russian President Vladimir Putin and Zhang Gaoli, First Vice Premier of the People's Republic of China. The contracts mark a further important step in the energy and economic relations between both companies and their respective countries.

Further details

The existing Eastern Siberia-Pacific Ocean (ESPO) oil pipeline is marked as the likely delivery route. The 4857 km oil pipeline, which pumps oil directly into the Chinese region of Mohe in Heilongjiang Province was commissioned starting in 2009, and began transporting oil in 2011.

During his recent visit to Russia last week, Vice-Premier Zhang Gaoli said that China was keen to work together with Russia to maximise the potential for bilateral economic co-operation. A move welcomed by Russia according to analysts.

Russia has been looking for new energy export markets because of dwindling demand in Europe, said Liao Na, Vice-President of energy consultancy ICIS C1 Energy.

"The seller and the buyer both have strong willingness to reach the deal provided the price was comfortable for each of them. It is a good timing, considering current international oil prices," she said, noting that most institutions and commodity consultancies do not anticipate any dramatic oil price variations.

History of energy transactions

In 2009, the two countries reached a framework agreement in which Russia would deliver around 70 billion m³/yr of natural gas to China for 30 years starting from 2014.

In June 2013, Rosneft and China Development Bank finalised contractual documentation for a long-term credit line in the framework of facility agreement signed between the parties in March 2013. The facility agreement was signed by Rosneft President and Chairman of the Management Board Igor Sechin and President of China Development Bank Zheng Zhijie as part of the visit of Xi Jinping, President of the People’s Republic of China, to Russia.

The loan is secured by current contract for crude oil supplies inked between Rosneft and CNPC in 2009.

The loan amounts to US$ 2 billion with a redemption deadline in May 2029 and will be taken by end of June 2013.

Continued co-operation

According to data from ICIS C1 Energy, China, the world's largest energy consumer, consumed 145 billion m³/yr of natural gas last year and will import 78.5 billion m³/yr of natural gas in 2014.

Liao added that the two countries also have potential for co-operation in non-traditional energy sectors, as well as coal supplies.

As part of the deal, Rosneft is scheduled to open a refinery in Tianjinin in co-operation with a Chinese company in the second half of the year.

Edited from various sources by Cecilia Rehn.

Read the article online at: https://www.worldpipelines.com/business-news/25062013/cnpc_and_rosneft_in_historic_oil_pipeline_delivery_deal_355/