Rosneft to possibly boost oil deliveries to China through Kozmino
MOSCOW. June 7. (Interfax) - Russia and China have preliminary agreed to possibly boost Russian oil deliveries to China, said a source close to Rosneft , which could be authorized by the state operator.
There is talk about sending oil to China through the port of Kozmino after raising its capacity to 30 million tonnes annually, which is slated to happen at the end of this year with the launch of the second phase of the Eastern Siberia-Pacific Ocean (ESPO) pipeline system. "An increase in volumes is possible by means of allocating special tanker supplies at Kozmino exclusively for China," the source said.
Oil prices will be formulated based on the prevailing quotes taking shape when crude is being sold with shipment from Kozmino, he added.
Oil deliveries to China will gradually grow as Rosneft expands production. As a result, of the 30 million tonnes transshipped through Kozmino, the share of exclusive Rosneft supplies for China could come to 10 million tonnes a year, the source said.
Meanwhile, a source close to the negotiations told Interfax that less than a week ago, Russia and China discussed different options for boosting Russian oil supplies to that country. The joint Russian-Chinese protocol compiled on the results of the Energy Dialogue contained several proposals, including raising oil flows to China through Russia via the Atasu-Alashankou Pipeline through Kazakhstan by 3 million tonnes. In this case, TNK-BP and Gazprom Neft could act as the suppliers. China also insisted on including an item on studying the expansion of the leadaway from ESPO to Skovorodino-Mohe from the current 15 million tonnes to 22-30 million tonnes. The third option involves constructing a new branch-off from ESPO to China near Kozmino with a capacity of up to 15 million tonnes.
"These items were included in the protocol as issues for research and analysis. The Russian side was not too thrilled about them. It would be difficult to implement them. Oil companies prefer to sell oil from Kozmino at tenders, since right now it's more beneficial than supplying oil to China under contracts," the source said.
However, after high-level meetings in Beijing, as well as a meeting between Rosneft's and Transneft's presidents and the head of China National Petroleum Corporation (CNPC), an agreement was struck to consider the possibility of implementing other ways to augment crude supplies to China.
Russia's priority is to develop the port of Kozmino and to bring its capacity to 30 million tonnes a year, which would make it possible to transform ESPO oil into a benchmark grade, to be used as a starting point for appraising crude on the Asia-Pacific market. ESPO oil has long been traded with a premium to benchmark Dubai crude at $4-$6 per barrel, the source said.
"It doesn't come as much of a surprise that this option of increasing oil supplies very much upsets the Chinese side," he said.
Rosneft representatives were unavailable for comment, and Transneft declined to comment on this information.
Earlier, a Transneft representative said that Russia is not planning to increase oil deliveries to China using the ESPO pipeline until 2017. All growth in Russian oil production will be shipped to the Far East, namely Kozmino, which is the ESPO's terminus, and to oil refineries in the region, he said.
Fifteen million tonnes of oil are shipped through the port of Kozmino each year. This May, the U.S. received the largest amount of tanker batches of oil - 500,000 tonnes, or 38% of the entire volume. Japan took second place, with 23% of all shipments, followed by Thailand, South Korea and China (8% each), the Philippines (5%) and Malaysia (2%). Japan was the primary recipient of ESPO oil in January-May, with 2 million tonnes.
Rosneft accounts for around 3 million tonnes of annual oil volumes at Kozmino. Last year, the company produced 122.5 million tonnes of crude, and it plans to produce 124 million tonnes this year.
Russia delivers 15 million tonnes of oil to China using the ESPO each year. Rosneft and Transneft signed the corresponding 20-year contracts in 2009, and supplies commenced on January 1, 2011. In exchange for long-term oil supplies, Rosneft secured a $15-billion loan from Chinese banks in 2009, and Transneft received $10 billion. Last year, disagreement over prices emerged between the counterparties, since CNPC believed it was purchasing Russian oil at inflated prices calculated on a formula based on the price at Kozmino. As a result, China was able to secure a discount of $1.5 per barrel.
The leaders of Russia and China have ordered that new oil and gas related proposals be put together by the time that the two countries' prime ministers meet in the fall.