Rosneft is drifting to the East

The company wants to increase shipments to China.
Details of Rosneft's proposals for increasing oil supplies to China via Kazakhstan became known. The company wants to increase exports on this route from 10 million to 13 million tons as early as 2019, and in the mid-2020s - up to 18 million tons per year. At the same time, according to Kommersant, Rosneft expects a prepayment from the Chinese CNPC. But the issue has not yet been agreed with the Russian government and Transneft, and the transfer of export volumes to the east could worsen the quality of the oil currently supplied to the west.

"Rosneft" is going to increase the supply of Chinese CNPC by 3 million tons, Reuters reported and confirmed the sources of "Kommersant" in the industry. According to them, it is expected to conclude a new contract or expand the current agreement, deliveries may begin probably from 2019. An additional volume of oil for CNPC is planned to be transferred from West Siberian fields of Rosneft (most likely, Samotlor) through Kazakhstan, which means the removal of part of the volume from the western direction of exports. According to Kommersant sources, supplies are expected to be carried out, as in a number of previous cases, on a prepayment basis.

Kommersant's interlocutors say that Rosneft was going to consolidate the corresponding intention to increase the Kazakh transit already in the September protocol of the Russian-Chinese intergovernmental energy commission, but this did not happen because of the inconsistency of the issue with the Ministry of Energy and Transneft. Meanwhile, Rosneft, according to Kommersant sources, wants to increase supplies to China via Kazakhstan by another 5 million tons by the mid-2020s, but this decision has not yet been made. Rosneft and the Energy Ministry declined to comment. In September, the head of the company, Igor Sechin, spoke of the desire to increase shipments through Kazakhstan without giving details.

Now Rosneft delivers oil to the PRC through Kazakhstan under a contract with the CNPC, concluded in 2013. These volumes were originally intended for export via the Skovorodino-Mohe pipeline, but were transferred to the Kazakhstan route because of the unavailability of the Chinese section of the pipeline. First, the volume of supplies was 7 million tons per year, and from this year - 10 million tons, since in January, Rosneft and CNPC expanded the contract for 3 million tons and extended it to 2024.

Advisor to the president of Transneft, Igor Demin, confirmed that Rosneft had offered to increase supplies through Kazakhstan by 3 million tons, "the appeal is being considered." "For now, we believe that this can affect the quality of oil that will go west, in terms of sulfur content. Besides, the scheme of cargo flows will change, it will be necessary to change tariff plans for other directions, "he said. According to Kommersant's interlocutors in the industry, Rosneft is likely to lift exports from the northern ports (for example, Ust-Luga).

As for the sulfur problem, it can significantly worsen at the beginning of the 2020s, because by that time it is planned to start deliveries through Kazakhstan as well as 5-6 million tons per year at the refineries of Kyrgyzstan and Uzbekistan. This will further reduce the supply of low-sulfur Siberian oil to the west. Realizing this, Rosneft, according to Kommersant's interlocutors, is now proposing to return to the project for the allocation of a separate stream of sulphurous oil (mainly from the Volga region), which was proposed three years ago, but was not adopted. The main opponent then was Tatneft (producing about half of the sulphurous oil), which risked incurring losses in the allocation of the flow, as the price for sulfur dioxide would be lower than for Urals.

At current prices, 3 million tons of oil is about $ 1.2 billion, says Andrei Polishchuk from Raiffeisenbank, believing that Rosneft will primarily direct the money from its sale to the investment program. If any advance is received at a low interest, the funds can be directed to refinancing, the expert believes, that is, part of the company's more expensive debt will be replaced with advances.