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Monday 23 February 2009
China Eyes Upstream Oil Market in Russia
A partially floating interest rate was adopted in the latest oil loan deal between China and Russia. Further cooperation may be negotiated later this year.
A partially floating interest rate was adopted in the latest oil loan deal between China and Russia. Further cooperation may be negotiated later this year.
By staff reporter Chen Zhu, Caijing 23 February 2009
China and Russia recently inked the contract for a long-expected loans-for-oil deal, strengthening the energy partnership between the two counties. But China may continue its effort to obtain access to upstream markets in Russia.
Seven agreements were signed on February 17, ending four months of tortured negotiations. The package of agreements includes a pipeline construction project that connects Russian fields to Chinese consumers, long-term crude oil trading deals and a loan from Chinese banks to Russian oil firms.
Under the agreement, Chinese banks, led by China Development Bank, will offer US$ 15 billion in syndicated loans to Russia’s state-owned Rosneft and US$ 10 billion to Transneft, which has a monopoly on pipeline construction in Russia. In return, Russia agreed to supply 15 million metric tons of oil every year for the next 20 years from its new fields in eastern Siberia.
Caijing learned that the Import and Export Bank of China will also participate in the lending.
After months of long disputes, the two sides finally agreed to adopt a floating loan interest rate pegged to the London Interbank Offered Rate (Libor) using a special pricing mechanism to hedge against violent fluctuations. The oil supply will also be priced by a standard pricing mechanism linking to international oil prices.
According to the deal, the US$ 10 billion loan to Transneft will be used for first-phase construction of the company’s Siberian-Pacific pipeline and supporting facilities.
The US$ 15 billion loan to Rosneft will be applied to oil field development along the pipelines. According to the Russian media, part of the first batch of loans will be used to repay the company’s debts.
The latest deal will not impact the oil supply deal reached by China and Russia in early 2005, which will expire in 2010. If the two countries extend the 2005 contract, Russia’s oil supply to China will reach 20 million tons per year after 2010.
The deal is Russia’s first long-term oil deal with China that combines cooperation in oil loans, pipeline construction and oil supply. China also showed interest in further cooperating with Russia in upstream oil markets, including oil field exploration and exploitation.
In 2007, state-owned PetroChina set up a joint venture, Vostok Energy Ltd., with Rosneft, in which PetroChina holds 49 percent stake. The company won exploitation rights in two oil blocks in eastern Siberia.
Caijing learned that negotiation on upstream cooperation between China and Russia will be launched in the second half of this year.
China Eyes Upstream Oil Market in Russia
ReplyDeleteA partially floating interest rate was adopted in the latest oil loan deal between China and Russia. Further cooperation may be negotiated later this year.
By staff reporter Chen Zhu, Caijing
23 February 2009
China and Russia recently inked the contract for a long-expected loans-for-oil deal, strengthening the energy partnership between the two counties. But China may continue its effort to obtain access to upstream markets in Russia.
Seven agreements were signed on February 17, ending four months of tortured negotiations. The package of agreements includes a pipeline construction project that connects Russian fields to Chinese consumers, long-term crude oil trading deals and a loan from Chinese banks to Russian oil firms.
Under the agreement, Chinese banks, led by China Development Bank, will offer US$ 15 billion in syndicated loans to Russia’s state-owned Rosneft and US$ 10 billion to Transneft, which has a monopoly on pipeline construction in Russia. In return, Russia agreed to supply 15 million metric tons of oil every year for the next 20 years from its new fields in eastern Siberia.
Caijing learned that the Import and Export Bank of China will also participate in the lending.
After months of long disputes, the two sides finally agreed to adopt a floating loan interest rate pegged to the London Interbank Offered Rate (Libor) using a special pricing mechanism to hedge against violent fluctuations. The oil supply will also be priced by a standard pricing mechanism linking to international oil prices.
According to the deal, the US$ 10 billion loan to Transneft will be used for first-phase construction of the company’s Siberian-Pacific pipeline and supporting facilities.
The US$ 15 billion loan to Rosneft will be applied to oil field development along the pipelines. According to the Russian media, part of the first batch of loans will be used to repay the company’s debts.
The latest deal will not impact the oil supply deal reached by China and Russia in early 2005, which will expire in 2010. If the two countries extend the 2005 contract, Russia’s oil supply to China will reach 20 million tons per year after 2010.
The deal is Russia’s first long-term oil deal with China that combines cooperation in oil loans, pipeline construction and oil supply. China also showed interest in further cooperating with Russia in upstream oil markets, including oil field exploration and exploitation.
In 2007, state-owned PetroChina set up a joint venture, Vostok Energy Ltd., with Rosneft, in which PetroChina holds 49 percent stake. The company won exploitation rights in two oil blocks in eastern Siberia.
Caijing learned that negotiation on upstream cooperation between China and Russia will be launched in the second half of this year.