Russian oil firms will receive “considerable” loans from China in return for increased oil supplies, with the exact amount to be determined by individual projects, Russia’s senior energy official said on Tuesday.
Deputy Prime Minister Igor Sechin, who oversees the oil sector, said Russia planned to increase deliveries to China and that the falling oil price would not be critical for Russia this year. He was speaking to reporters after Russian oil pipeline monopoly Transneft and China National Petroleum Corp (CNPC) signed a deal for construction of a pipeline spur to link the two countries’ trunk pipelines. The deal was signed during the visit to Moscow of Chinese Premier Wen Jiabao. The spur, with capacity of 15 million tonnes of oil per year, will be out into operation no earlier than 2009. Its cost has been estimated at $800 million. The Kremlin is seeking to diversify its oil export routes away from the West and is targeting China as the main market for its East Siberian oil.
Industry sources said on Monday Beijing was in talks to lend Russian companies between $20 billion and $25 billion in export-backed loans, allowing Russian firms to sort out immediate financing needs during an acute liquidity squeeze and an oil price slump. Sechin said the sum would be “considerable” but stopped short of confirming a number. “Financing is required to realize major projects,” Sechin said. “The sum of the loans will be determined by the projects. It’s considerable.” He added: “It’s still early to speak of a credit agreement but work will be spread over production, refining, sales and transportation.”
Industry sources said on Monday a long-term oil supply deal between the two countries would give China access to 300 million tons of Russian oil over the next 20 years, accounting for 4% of its annual demand. Sechin did not comment on how much oil Russia might supply. The deputy prime minister said Russian and Chinese energy companies would submit a proposal for cooperation by Nov. 25. (Reuters)