(Bloomberg) -- Rosneft PJSC, the state-run crude producer that has helped turn Russia into the top oil supplier to China, aims to secure its hold by reaching out to new clients and establishing new delivery routes amid toughening competition and stretched infrastructure.
"We continue our work to strengthen our presence in China’s market," Chief Executive Officer Igor Sechin said in comments sent to Bloomberg over the weekend while visiting Beijing with a Russian government delegation. "We are striving to expand our pool of clients -- we have run successful tests of railway deliveries to Chinese buyers, including smaller refineries."
During Vladimir Putin’s China visit, Russian and Chinese companies and regulators signed more than 30 pacts and Rosneft agreed on a one-year deal to send as much as 2.4 million tons (48,000 barrels of crude a day) to state-owned China National Chemical Corp. Russia’s largest oil producer also offered 20 percent of its major East Siberian Verkhnechonsk unit to Beijing Enterprises Group Co., with a binding deal expected not later than the fourth quarter.
Russia overtook Saudi Arabia to become the top oil exporter to China for three straight months, most recently in May, lifted by Rosneft’s two long-term supply deals with China National Petroleum Corp. May shipments of Russian crude to China increased 34 percent from a year earlier to 5.25 million metric tons, aided by spot deliveries to smaller private refineries, also known as teapots.
The Russian oil giant sees tougher competition in China "not least due to infrastructure constraints,” Sechin said. "We have forecast a fiercer battle for clients in the key markets, including China."
China’s crude purchases in May dropped to a four-month low as congestion at one of the nation’s largest ports from "unprecedented" tanker traffic curbed purchases from teapot refineries, a new, hungry breed of oil buyers. The refineries, which started to receive oil import rights last summer, have led the growth in China’s oil consumption.
The teapot refineries favor Russian blends, which account for roughly a fifth of their imports, according to estimates of Beijing-based SIA Energy consultancy. In April, Saudi Arabia, which earlier delivered oil to China only under long-term deals, began competing with Russia for teapot deliveries, as it agreed on its first-ever spot sale to an independent Chinese refinery.
Rosneft is committed to deepening relations with China as it is strengthening ties with India, another key growth oil market in Asia, Sechin said.
"Our work with Chinese partners, as well as Indian or any other, is a normal diversification of our activities, a natural business process," Sechin replied to a question about a perceived delay in finalizing upstream contracts with China amid successful deals with India. "Reaching agreements with anybody is tough."
Rosneft continues negotiations to sell as much as 49 percent of its Russkoye and Yurubcheno-Tokhomskoye fields to Sinopec with a binding agreement “hopefully” by early September, Sechin told reporters in Beijing on Saturday. The companies signed a framework deal in September last year, with China’s request for tax breaks for the projects a key point in negotiations.
Meanwhile, India, the new "star performer" in the global oil market, on June 17 raised to 38.9 percent its holding in Vankor, one of the largest Russian oil fields to go into production in the past quarter century. India aims to expand its Vankor stake to almost a half and is considering acquiring a stake in Rosneft, as the Kremlin is seeking to sell to investors 19.5 percent of the Russian oil giant to raise at least $11 billion.
Rosneft is developing a "multifaceted" strategy for cooperation with China, Sechin said. "We adapt it to the market volatility, which allows us to compete successfully with other players in the region, including Saudi Arabia."
To contact the reporters on this story: Dina Khrennikova in Moscow at email@example.com ;Elena Mazneva in Beijing at firstname.lastname@example.org; Stephen Bierman in Moscow at email@example.com To contact the editors responsible for this story: Mark Sweetman at firstname.lastname@example.org Steve Geimann, Claudia Carpenter
Copyright 2016 Bloomberg News.
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