Asia, rather than Europe, is becoming a key export market for Rosneft. From July to September the state-run company exported more oil to the East than to the West.
The information comes from Rosneft’s ISFR report for Q3, published November 6. The company had exported 15.7 mln tons of oil to Asia (48% of the total export) and 13.1 mln tons to Europe (40%). Since the start of the year Rosneft has supplied 43.1 mln tons to Asia and 41 mln tons to Europe.
Up until Q2 this year Europe was Rosneft’s largest international customer. Until recently, the company was sending over 60% of its produce there. Even last year the gap between the supplies to the West and to the East was huge, such supplies reaching 65.3 and 47.7 mln tons respectively.
China is the key consumer of Russian oil in the Asian region. “Partnership with China is a conscious strategic choice for us”, said Rosneft CEO Igor Sechin in September, “Rosneft is sending a third of its exports to PRC”. Last year Rosneft supplied about 40 mln tons to China. “This year we might supply up to 50 mln tons”, Sechin said.
Rosneft representative did not comment on reasons behind its European sales decline and the rise in its sales to Asia.
Initially the Chinese market was tapped into by Mikhail Khodorkovsky’s YUKOS, says Dmitry Marinchenko, an oil and gas director at Fitch. Yet, after YUKOS’ largest extraction asset, Yuganskneftegaz (with a production volume of 66.5 mln tons a year) came under Rosneft’s ownership, the company continued to lobby the construction of a VSTO (East Siberia – Pacific Ocean) pipeline, Marinchenko says.
The first train of the pipeline was commissioned in 2009. Back then Rosneft was regularly requesting prepayments from China for its oil supplies.
It was precisely after Rosneft purchased Yuganskneftegaz that the company started turning east. In 2004 China lended USD 6 billion to the state company to purchase Yuganskneftegaz, in exchange for 48.8 mln tons of oil to be supplied in 2005 – 2010.
CNPC, China National Petroleum Corporation, is the main purchaser of Rosneft’s products. The companies operate under three long-term contracts. The first one was signed back in 2009 and provides for the shipping of 15 mln tons of oil a year in 2011- 2030 via a branch off VSTO pipeline. In the summer of 2013 another contract was signed for another 325 mln tons to be supplied over 25 years.
The third contract was also signed in 2013, a five year agreement for 35 mln tons, which was extended in 2017 for another five years and 56 mln tons.
According to an AKRA analyst Vasily Tanurkov, VSTO can be expanded (and such expansion is on plan), as can be the throughput of the Far Eastern terminals. “Currently the two existing VSTO branch-offs to China can supply a total of 30 mln tons of oil per year, plus another 10 mln via Kazakhstan,” he says. Another 23 mln tons passed through Kozmino terminal in 2017.”
In the recent years Rosneft has been increasing extraction in the country’s eastern regions. This includes projects in which Chinese and Indian companies have their shares, adds Alexander Kornilov, an Atona analyst. “At the same time Europe is stagnating because of the slowing economic growth and the transition to a service economy”, he points out. “Hence the drop in [oil] consumption”. The EU countries are increasingly opting for renewable energy sources, they are phasing out engine fuels in favor of electric cars, the expert says. “The boom in cooperation with China is in part due to Chinese companies’ participation in certain extraction projects”, Tanurkov believes, “It is quite logical that the Chinese step up purchases from the companies they have shares in. China is a large and fairly rapidly growing market, unlike Europe. It is therefore attractive to any oil extraction company; besides, Rosneft now owns many new oil fields in Krasnoyarsk region from where it is reasonable easy to export to China”, Tanurkov says.
Rosneft is boosting its oil deliveries to China according to its long-term prepaid agreements, Marinchenko says. With Europe, most of the contracts are short-term. “We cannot say that one of these markets is significantly more profitable than the other”, Marinchenko suggests, “But supplies to China are more lucrative in terms of being insured against future hypothetical risks”.
Meanwhile, Europe is still buying more petroleum products from Rosneft than Asia – 12.3 mln tons versus 4.6 mln, according to Rosneft report.