Oil refiners set to gain

By Fu Chenghao | February 19, 2009, Thursday |

Print Edition

THE latest loans-for-oil deal between Beijing and Moscow could benefit Chinese oil companies as it offers cheap crude and potential partnership in Russia's upstream projects, analysts said.

Under the pact signed on Tuesday, China would lend US$25 billion to Russia, whose oil-based economy has been struggling amid depressed crude prices and declining production, in return for 20 years of oil supplies totaling 300 million tons.

Details on the credit facility and the price China will pay for the oil weren't disclosed.

Assuming an annual interest rate of 6 percent, state giants like PetroChina Co and Sinopec Corp could gain access to Russian oil at about US$22 a barrel, said Wang Aochao, research director of UOB-Kay Hian.

Crude was below US$35 a barrel in New York trading, off a record high of over US$147 in July.

The deal came at the right time as with the credit crunch, it has given the Chinese better bargaining powers in getting a stake in the long-term development of Russia's fabled Siberia oil reserves, said Gordon Kwan, head of China energy research at CLSA.

"We believe this is a positive long-term development for both PetroChina and Sinopec's northern refineries, particularly the former, as the deal will ensure stable crude supply to China's downstream infrastructure,'' Kwan said. It will also ''offer potential partnership in Russia's upstream oil/gas exploration projects to lift production and reserves."

Russia also agreed to build a branch from a new Siberian pipeline to the Chinese border to supply the crude. Plans to build the pipeline had been delayed as the countries couldn't agree on the price to transport crude to China's border.

"We believe Japan's recession has given China the negotiating upper hand to take the lead in building the Russian oil pipeline to PetroChina's Daqing field with more attractive terms from before," said Kwan.

Russia's state oil producer OAO Rosneft and pipeline operator OAO Transneft will get US$25 billion in loans, which would ease their severe refinancing needs.

Energy

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Oil refiners set to gain

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