September 11, 2007 / 10:36 AM / 11 years ago

Rosneft warns China over oil supply post 2010

MOSCOW (Reuters) - State-controlled Rosneft (ROSN.MM), Russia’s largest oil firm, said on Tuesday it will not renew its existing crude oil supply contract to China after 2010 unless China offers better terms.

Russia's biggest oil company Rosneft Chief Financial Officer Peter O'Brian speaks during the Reuters Russia Investment Summit in Moscow September 11, 2007. REUTERS/Sergei Karpukhin (RUSSIA)

The comment came as Russia, the world’s second-largest crude exporter, is building its first pipeline to China. Rosneft is due to deliver the bulk of crude via the 600,000 barrels per day link, which is due to come on stream at the end of 2008.

But Rosneft Chief Financial Officer Peter O’Brien told the Reuters Russian Investment Summit that the company may decide against sending crude via the route as other export options were more attractive.

“The current contract we have is really not competitive with other netback options. We will not extend it as such after 2010,” said O’Brien. Netback is a measure of profitability of crude oil exports.

“Any discussions about exports to China have to be done on the basis of them competing with other netback options,” he said.

O’Brien said the fact that Rosneft has recently acquired five major refineries at state-forced auctions of assets of bankrupt oil firm YUKOS will significantly change the firm’s oil flows as it can now refine more crude at home.

Rosneft produces around 2.2 million bpd and refines slightly less than 1 million bpd, making it Russia’s largest refiner.

    It sends the remaining barrels to Europe via major Black and Baltic Sea ports but also has an agreement with China to supply around 200,000 bpd of oil via rail.

    The deal is part of a broader agreement between the state-controlled firm and China, which lent Rosneft over $6 billion to help it buy assets of YUKOS in 2004 and took railway supplies as collateral.

    Industry sources have said Rosneft was looking to renegotiate the debt deal as it considered it to be very expensive, but O’Brien said the two issues should not be linked.

    “I would separate the loan and the off-take agreement. They are two separate items,” he said.

    But he said that the cost of refinancing for Rosneft has changed for the better in the past years and the firm will work with credit providers to cut the cost of debt servicing.

    “Our current supply agreement with CNPC expires in 2010, he said referring to the state-owned Chinese National Petroleum Company. “We will consider a competitive offer,” he said.

    Rosneft has to supply a total of 48 million tonnes of crude (352 million barrels) to China before the deal expires.

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