Russia May Double China Oil Deliveries In Oil-For-Loans Deal: Report

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Russian oil firm Rosneft could double its oil supplies to China in exchange for a $30 billion loan from the China National Petroleum Corporation (CNPC), reported Reuters on Wednesday, in a deal that would make Beijing the world’s largest consumer of Russian oil.

The Kremlin-controlled Rosneft, the nation’s leading crude oil producer, is understood to be in need of hard cash ahead of its $55 billion acquisition of rival TNK-BP, claimed the report, and is said to need billions more in order to develop massive reserves in its Arctic regions and fund a planned $25 billion refinery modernization program.

Four industry sources told Reuters that that Rosneft was already in talks with the state-owned CNPC regarding the loan, with China ready to lend as long as Rosneft agreed to ship more oil via Kazakhstan's existing pipeline to China.

"The reason why China is willing to lend is simple. They sit on over 3 trillion of dollars in reserves and are looking to diversify their investments," said one source to Reuters.

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“[But] the route issue is a significant one," added another source, noting that Russian pipeline firm Transneft had previously been against additional delivery through the Kazakh pipeline as it would cut Transneft’s transport earnings.

Nevertheless, the deal, if it goes through, would see Asia import over a fifth of Russia’s oil exports. In turn, Rosneft’s acquisition of TNK-BP would also make it the world's largest listed oil producer.

The proposed deal will be in line with the Kremlin's stated policy of diversifying its market away from Europe and to Asia, added the Moscow Times. Late last year, Russian President Vladimir Putin ordered Gazprom, the country's leading natural gas firm, to build a 3,200km pipeline to Asia, in an attempt to reduce the nation’s reliance on exports to Europe and develop closer ties with Asian customers.

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Rosneft and CNPC however declined to comment on the speculation. The deal though is believed to mirror one agreed to nearly a decade ago, when both Rosneft and Transneft borrowed money to help Rosneft acquire the assets of nationalised oil producer YUKOS in exchange for a pipeline to supply China with 300,000 barrels per day for 15 years.