China lends Russia $25 bln to get 20 years of oil

[Fage]

Tue Feb 17, 2009 3:23pm GMT

By Robin Paxton and Vladimir Soldatkin
MOSCOW, Feb 17 (*******) - China has agreed to lend Russian oil companies $25 billion in return for supplies from huge new East Siberian oilfields that will power its economy for the next two decades.

Russia's state oil champion Rosneft (ROSN.MM: Quote (http://uk.*******.com/stocks/quote?symbol=ROSN.MM), Profile (http://uk.*******.com/stocks/companyProfile?symbol=ROSN.MM), Research (http://uk.*******.com/stocks/researchReports?symbol=ROSN.MM)) and pipeline monopoly Transneft (TRNF_p.RTS: Quote (http://uk.*******.com/stocks/quote?symbol=TRNF_p.RTS), Profile (http://uk.*******.com/stocks/companyProfile?symbol=TRNF_p.RTS), Research (http://uk.*******.com/stocks/researchReports?symbol=TRNF_p.RTS)) on Tuesday signed a long-delayed deal to borrow the money from China Development Bank during talks in Beijing, a source close to the deal told *******.

"We agreed on supplies of 15 million tonnes of oil every year over a period of 20 years," Russian Deputy Prime Minister Igor Sechin told state news channel Vesti 24. He said a separate loan deal was signed but gave no further details. Rosneft and Transneft declined to comment.

Beijing has abundant cash that Moscow needs to access as it heads into its first recession in a decade. Some Russian firms are finding it difficult to repay loans and to borrow project finance on commercial markets.

China, which is the world's No. 2 oil importer and has been working hard to win oil supplies from Africa and elsewhere to run its industries, will secure flows from its neighbour.

"Rosneft and Transneft can't borrow easily, so China steps in ... with a lot of funds to lend because of China's huge wealth funds," said Leo Drollas, deputy director and chief economist at the Centre for Global Energy Studies.

"They have trillions of dollars of reserves and they're saying 'we'll lend you this amount to develop the oil fields and the pipeline infrastructure needed' and it will be paid for by deliveries of oil," Drollas added. Continued... (http://javascript<b></b>:goToPage(2);)


Source:http://uk.*******.com/article/marketsNewsUS/idUKLH44422920090217?pageNumber=1

[Shuimo]

win-win deal!
Cheers!

[Breakfast in Vegas]

Good deal for China. Russia may regret it, depending on the terms and development of oil prices in the next 20 years.

[Red_Rage]

Less than $10 per ton - WTF?! (puts that 80 cents a liter you paid at a gas station today in perspective, doesn't it?)
Sounds like selling out of natural resources for short term financial gain. What is the next step - lease Siberia to China, to never see it back again?

[AlexMartin2]

Good deal for China. Russia may regret it, depending on the terms and development of oil prices in the next 20 years.

Yes, Chinese is very good at bargaining, but we are not amateurs too :)

BTW I know who is the looser here, its EU. This oil can go to Europe but instead it will go to China.

[AlexMartin2]

Less than $10 per ton - WTF?! (puts that 80 cents a liter you paid at a gas station today in perspective, doesn't it?)
Sounds like selling out of natural resources for short term financial gain. What is the next step - lease Siberia to China, to never see it back again?

$10? Where you get this number?

[Silent Reader]

25g/(15m*20) = $83,33 per ton

[Red_Rage]

$10? Where you get this number?


Apologies, i was wrong by 1 digit - $83 per ton. Which comes down to about $8 per barrel. Considering current "dirt cheap" mark of $35 per barrel, deal sounds very one sided.

[Herman the II]

Still don't get how you calculate the payment. The Chinese money is only a loan and the Russian companies have to pay it back with some 6% interest rates.
That's hardly a payment, so the barrel price has to be calculated separately. I believe the loan was just granted for the guarantee of deliveries, its not the payment itself. Otherwise that would be the worst deal in history.

[Teymuraz]

Still don't get how you calculate the payment. The Chinese money is only a loan and the Russian companies have to pay it back with some 6% interest rates.
That's hardly a payment, so the barrel price has to be calculated separately. I believe the loan was just granted for the guarantee of deliveries, its not the payment itself. Otherwise that would be the worst deal in history.
thats the real story i suppose.

[Breakfast in Vegas]

Still don't get how you calculate the payment. The Chinese money is only a loan and the Russian companies have to pay it back with some 6% interest rates.
That's hardly a payment, so the barrel price has to be calculated separately. I believe the loan was just granted for the guarantee of deliveries, its not the payment itself. Otherwise that would be the worst deal in history.x2. Otherwise the whole thing doesn't make sense.

Yes, Chinese is very good at bargaining, but we are not amateurs too :)

BTW I know who is the looser here, its EU. This oil can go to Europe but instead it will go to China.EU can get it's oil elsewhere.

[Red_Rage]

Still don't get how you calculate the payment. The Chinese money is only a loan and the Russian companies have to pay it back with some 6% interest rates.
That's hardly a payment, so the barrel price has to be calculated separately. I believe the loan was just granted for the guarantee of deliveries, its not the payment itself. Otherwise that would be the worst deal in history.


To quote the article:



"They have trillions of dollars of reserves and they're saying 'we'll lend you this amount to develop the oil fields and the pipeline infrastructure needed' and it will be paid for by deliveries of oil," Drollas added.



Need more info on the deal. The article can be interpreted in several ways - all of them good for the Chinese, some not very good for the Russians.

Interestingly, Russian media sources are fairly quiet about this deal at the moment; in fact, I haven't seen a single article yet.

[NineLine]

Wonder how this will affect SE Asian suppliers.

[1curious]

The public announcement is deliberately vague. I don't think even the 10% of "meat" was released...the negotiations were tedious, long and broken off few times. Both sides are very tough negotiators. Recall the Ukrainian gas war - the Russians perceive themselves, perhaps a bit cockily, in a driver seat. The Chinese are the best at cooling off such sentiments. We'll learn more soon.

I can't say I am glad it's over, because I really don't care, but as a long time observer and an analyst of energy markets, I caution everyone not to jump to conclusions. It's not over. One of the stumbling blocks was Russia's drive to gradually transform all transactions away from the USD. China resisted as it obviously wants to have freedom of action wrt the US debt it buys. Another set of problems was division of labor and ownership rights...not clear how it got resolved.

[Notlim]

Less than $10 per ton - WTF?! (puts that 80 cents a liter you paid at a gas station today in perspective, doesn't it?)
Sounds like selling out of natural resources for short term financial gain. What is the next step - lease Siberia to China, to never see it back again?

Good Reasoning I would be more scared of Chinese buying whole sale bargain prices of USA
as seems to be the next move
cheers

[Ordie]

Russia's problem is not so much about resources, but the delivery and distribution in the exportation of resources.

As in the case with Western Europe, the delivery of natural gas is dependent upon pipelines that crosses and distributed through international boundaries. Problems arises when customer disputes occur sharing the same gas line with regular customers who pay for gas.

Russia cannot just shut off the gas without affecting thier entire customer base. Nor can it re-direct pipelines to other potential customer overnight to make up the difference.

In regards to the Russian Far East, its a question of how much local economic dependency is Moscow willing to give to Beijing.

Off Topic:
From my point of view, the future role of Russia is in rail transportation. More specifically connecting land-locked countries of Central Asia with markets in Europe and East Asia. I don't know how much investment the Russians have placed in rail.

[Breakfast in Vegas]

From my point of view, the future role of Russia is in rail transportation. More specifically connecting land-locked countries of Central Asia with markets in Europe and East Asia. I don't know how much investment the Russians have placed in rail.They've put an emphasis on rail, but the rail network is difficult to maintain and secure + weather. I think their future depends on integrating and securing Siberia into their economy beyond a mere supplier of natural resources. They need to make it attractive enough to keep their people there.

[ZeroZen]

a total rip off... 25 billion dollars for siberia. soon PRC sends its people to work on oil derricks and support. Two decades later, it will be on chinese sovereignty. nobody will forget Mao and Deng both agreed Siberia including Vladivostok and Khabarovsk were chinese and belongs to China.
If the Russian offered it to the United States, they probably grant them 1 trillion dollars for it.

[Ordie]

If the Russian offered it to the United States, they probably grant them 1 trillion dollars for it.

We bought Alaska from Russia for $7.2 million and we've had been subsidizing it ever since 1867.

[ZeroZen]

We bought Alaska from Russia for $7.2 million and we've had been subsidizing it ever since 1867.

If not, Soviet tanks columns will runover Malt producing neighbor Canada. No more beer I don't wanna see that happen. It will be Soviet America....

[zg18]

a total rip off... 25 billion dollars for siberia. soon PRC sends its people to work on oil derricks and support. Two decades later, it will be on chinese sovereignty. nobody will forget Mao and Deng both agreed Siberia including Vladivostok and Khabarovsk were chinese and belongs to China.
If the Russian offered it to the United States, they probably grant them 1 trillion dollars for it.

Aha only in your dream, Russia has actually reduced Chinese immigrants.

[zg18]

Off Topic:
From my point of view, the future role of Russia is in rail transportation. More specifically connecting land-locked countries of Central Asia with markets in Europe and East Asia. I don't know how much investment the Russians have placed in rail.

Russians invest in their railway system great sums of money, in fact Soviet Union developed very good railway infrastructure, so Russians have infrastructure but need to invest in modernization.

[Alexandr]

a total rip off... 25 billion dollars for siberia. soon PRC sends its people to work on oil derricks and support. Two decades later, it will be on chinese sovereignty. nobody will forget Mao and Deng both agreed Siberia including Vladivostok and Khabarovsk were chinese and belongs to China.
If the Russian offered it to the United States, they probably grant them 1 trillion dollars for it.

LOLOLOL

pictures of northern China town (not China-town but town in China =b) for you - do you see some letters near to chineese?whats that?isnt that english?oh wait,thats russian.
expansion what?

http://www.gazeta.lv/story/3421.html

[ZeroZen]

Aha only in your dream, Russia has actually reduced Chinese immigrants.

we talking about developing it not buying it.

[zg18]

we talking about developing it not buying it.

Russian Far East can't be considered undeveloped place by overall standards, but there is room for further progress , i think that in the long run for developing of Russian Far East greater roles will have economic situation in Japan and South Korea because in spite Chinese growth , in Vladivostok main trade is whit Japan.

[Ordie]

we talking about developing it not buying it.

North Korean labor is cheaper than Chinese.

[Red_Rage]

LOLOLOL


http://www.gazeta.lv/story/3421.html



roflroflrofl Some of those signs are absolute gems.

[zheka130]

Still don't get how you calculate the payment. The Chinese money is only a loan and the Russian companies have to pay it back with some 6% interest rates.
That's hardly a payment, so the barrel price has to be calculated separately. I believe the loan was just granted for the guarantee of deliveries, its not the payment itself. Otherwise that would be the worst deal in history.

i think its safe to trust Herman Der Deutscher

[Herman the II]

Bloomberg on the barrel price:



Feb. 18 (Bloomberg) -- PetroChina Co. and China Petroleum & Chemical Corp., the nation’s biggest oil producers, will benefit from China’s push to gain resources as the credit crisis prompts countries such as Russia to sell energy assets, said analysts.
Under the oil-for-loans agreement signed yesterday, the two companies will gain access to Russian oil at about $20 a barrel, Wang Aochao, the Shanghai-based research director of UOB-Kay Hian Ltd., said today. Oil in New York is trading below $35 a barrel. Investors should accumulate PetroChina shares, said Gordon Kwan, the head of China research at CLSA Ltd.


http://www.bloomberg.com/apps/news?pid=20601080&sid=aktsCdJwYfxQ&refer=asia

Good deal for China I would say...

[1curious]

Russian Far East can't be considered undeveloped place by overall standards, but there is room for further progress , i think that in the long run for developing of Russian Far East greater roles will have economic situation in Japan and South Korea because in spite Chinese growth , in Vladivostok main trade is whit Japan.
Exactly.

China will continue to be important for the overall economic and political picture but Japan is the main country that has the technology and the knowhow to invest in the Russian Far East.

Interestingly, the first Russian LNG plant (Sakhalin) opened yesterday and the 60% of its output will go to Japan.

The key to Russian Far East future is in resolution of the dispute of Northern Territories. Japan and Russia are still in the official state of war because of those 4 islands.

The Russians for years have been trying to tie this problem with Japan's massive commitment in the Far East.

For the life of me, I can not understand WHY the Russians are stupidly clinging to those useless rocks and forgoing the golden opportunity of fixing their relations with Japan??? :cantbeli:

[Universal_Soldier]

This thread is very misleading!

China giving a State run oil company and $25 billion loan repayable at a favorable 6% interest rate for oil guarantee not for the actual oil.
If the money was for oil why is Russia paying it back? is China still going to send the Oil back to Russia. China is securing supply guarantee for the commodity not the actual commodity.!

[Universal_Soldier]

I suggest a correction by the poster.

[Flamming_Python]

Exactly.

China will continue to be important for the overall economic and political picture but Japan is the main country that has the technology and the knowhow to invest in the Russian Far East.

Interestingly, the first Russian LNG plant (Sakhalin) opened yesterday and the 60% of its output will go to Japan.

The key to Russian Far East future is in resolution of the dispute of Northern Territories. Japan and Russia are still in the official state of war because of those 4 islands.

The Russians for years have been trying to tie this problem with Japan's massive commitment in the Far East.

For the life of me, I can not understand WHY the Russians are stupidly clinging to those useless rocks and forgoing the golden opportunity of fixing their relations with Japan??? :cantbeli:

Remember what happened last time Russia sold land?
The Americans discovered oil there and have been living off it ever since. As someone mentioned its the territorial waters, fishing and mineral exploration rights, and sea-lane passages which are perhaps more important than the islands themselves. Any agreement would most likely have to guarantee equal rights for both countries in these issues; even if most or all of the actual islands end up as part of Japan.

If you read up on the situation in the Kurill islands, you will find that there are Russians living there. And they mostly don't want to be part of Japan, some have even threatened taking up arms if their government gives their territory away. There was even a group of Cossacks who announced their intention to move and settle there, to ensure that the islands stay Russian. In reality any sort of uprising or insurrection there is unlikely, but it still brings up the question of what to do with the population living there. Should Japan agree to give them citizenship, guarantee their economic livelihood, prevent mass-immigration of Japanese to the islands and preserve the Russian language there, I think that such conditions would be acceptable to many people there, provided of course they are guaranteed and the local people's fears are addressed. Of course if the territories are given away, there will still be dissent in Russia among the more patriotic and nationalistic parts of the population, of which there are plenty.

There is also the question of Kaliningrad, which was like the Kurills also taken into the territory of Russia as a kind of war trophy (payback for German invasion of USSR in WW2 and Japanese taking of southern Sakhalin following the Russo-Japanese war respectively). Now of course it is almost as unlikely that Germany would ask for Kaliningrad back as it is for Russia to accept. Not least for Germany because of the economic cost and the fact that there are a large amount of Russians living there already who would all have to be integrated into German society, and for Russia because of the economic and strategic significance of the area. Of course Russia and Germany have very close relations without the need to throw such a demand in between. However giving the Kurills to Japan would set a precedent, and would perhaps highlight Kaliningrad's status as less then perfectly legitimate; something Russia would want to avoid.

Finally, you assume that Japanese-Russian relations can only be good if the islands are returned. So far from Russia's point of view, this has not been the case. The Russians have even multiple times stated in public; that they have little motivation to give these islands away or make any conseccions, that these issues should be pushed to the back burner. The Japanese of course continously insist on bringing it up again, but in terms of the actual pressure they are applying, it is limited. Japanese-Russian trade continues to expand year-on-year and has now reached $30 billion, the two countries may not be co-operating politically or militarily; but they certainly don't have any conflicts or reason to compete either, and Russia is no doubt militarily and politically powerfull enough already to not particularly need Japan's assistance in this area. Japan seeks to intice Russia to give up the islands not so much by pressure, but rather the economic enticement of what they can offer if the islands are given back. Namely the involvement of Japan in modernising and upgrading the Russian Far East and its Infastructure. Now this is of course a potentially huge benefit for Russia and most likely a priority as well. However, again Russia has good reason to believe that it can involve Japanese companies in such projects even without the return of the islands; after all there is a lot of money to be made there. And even Japan refuses to get involved, Russia has plenty of money and expertise of its own; and if need be can always encourage the involvment of another economical and technological powerhouse in the region; South Korea, as well as companies further afield from America and Europe.

[1curious]

Remember what happened last time Russia sold land?..As someone mentioned its the territorial waters, fishing and mineral exploration rights, and sea-lane passages ...Hi Python,

I appreciate you explaining Russia’s POV. . Not to sound snobbish, but I was aware of some. No, I do not advocate that Russia has to surrender w/o negotiations.

I got interested in the subject of Northern Territories few years back, when I first heard that the two countries are still officially at war. It was so hard to believe that I invested considerable time researching it. As you mentioned, all the issues, including the most important - mineral resources - are real but negotiable and can be resolved. The hardest hurdle is the question of sovereignty and how to present it to Russian or Japanese people. It's an emotional issue. Russia displayed considerable flexibility and pragmatism when it resolved its border disputes with China. Sure, each dispute has its own set of circumstances, though, the issue of how to handle the indigenous Russia population, is /was common. There are creative formulas to employ and, with luck and good will, it can be overcome.

I consider myself open-minded wrt Russia. Yet, based on my understanding of the historical and legal facts, I believe Russia would lose the case in the International Court of Justice in The Hague (its another subject but having Hague look into this could be another option)

To make the long story short, my point is that the strategic, long-term implications of mending relations with the country as important as Japan, far-far outweigh other tactical factors. It would be a visionary chess move because Russia is in superb position to simultaneously acquire a very capable economic partner and a strategic ally in its current dance (vis-à-vis the US) and the future competition with China. The later Russia realizes this, the higher price it will pay later, IMHO.

An explanation note: Foreign policy of heavily export-oriented economies like Japan's is almost inevitably tied to their biggest markets. If Russia succeeded in creating those conditions via energy-for-goods policy (Japan strived to find for centuries) it would stand to benefit enormously.

[Fage]

Feb 18, 2009

SAO PAULO, Feb 18 (*******) - The China Development Bank and Brazil's state-run oil company Petrobras (PETR4.SA: Quote (http://uk.*******.com/stocks/quote?symbol=PETR4.SA), Profile (http://uk.*******.com/stocks/companyProfile?symbol=PETR4.SA), Research (http://uk.*******.com/stocks/researchReports?symbol=PETR4.SA))(PBR.N: Quote (http://uk.*******.com/stocks/quote?symbol=PBR.N), Profile (http://uk.*******.com/stocks/companyProfile?symbol=PBR.N), Research (http://uk.*******.com/stocks/researchReports?symbol=PBR.N)) are finalizing a deal for the bank to extend a $10 billion line of credit in exchange for future oil supplies, a Brazilian newspaper said on Wednesday.

Petrobras Chief Executive Jose Sergio Gabrielli said on Monday that the company was seeking financing from foreign governments to bankroll an aggressive investment plan, but he gave no details on the amounts or sources.

Brazil's O Estado de S.Paulo daily said China's vice president Xi Jinping would be in Brazil on Thursday to advance the negotiations on the $10-billion deal, which would not likely be formally announced until President Luiz Inacio Lula da Silva visits China in May.

The financing is in line with China's policy of attempting to shore up future supplies in natural resources such as petroleum, agricultural goods and minerals for its voracious economy.

On Tuesday, the China Development Bank, Russia's state oil champion Rosneft (ROSN.MM: Quote (http://uk.*******.com/stocks/quote?symbol=ROSN.MM), Profile (http://uk.*******.com/stocks/companyProfile?symbol=ROSN.MM), Research (http://uk.*******.com/stocks/researchReports?symbol=ROSN.MM)) and pipeline monopoly Transneft (TRNF_p.RTS: Quote (http://uk.*******.com/stocks/quote?symbol=TRNF_p.RTS), Profile (http://uk.*******.com/stocks/companyProfile?symbol=TRNF_p.RTS), Research (http://uk.*******.com/stocks/researchReports?symbol=TRNF_p.RTS)) signed a $25 billion financing deal in exchange for future oil from the huge new East Siberian oil fields that China hopes will power its economy for the next two decades. [ID:nLH444229]

Petrobras said on Monday it was negotiating with up to four oil consumer countries to receive financing from them in exchange for future oil supply guarantees.

The company needs financing to help it cover the massive costs of exploring large new discoveries of high-grade light oil and natural gas. Analysts estimate the so-called subsalt reserves could contain up to 80 billion barrels of oil, catapulting Brazil into the top 10 of the world's oil producers.

This would be the first time Petrobras will have negotiated this type of financing, the company's finance director, Almir Barbassa, said earlier this week. [ID:nN16191048]

The state-run energy company announced last month it would raise its five-year investment plan by 55 percent at a time when large raw materials companies around the world are cutting back budgets in the face of falling prices and demand.

Petrobras said it plans to invest $174.4 billion from 2009 through 2013, compared with the $112.4 billion planned for investment for 2008-12. The company will invest $28.6 billion in 2009 alone. (Reporting by Reese Ewing; editing by Jim Marshall)

Source:http://uk.*******.com/article/marketsNewsUS/idUKN1842749720090218

[Breakfast in Vegas]

There is also the question of Kaliningrad, which was like the Kurills also taken into the territory of Russia as a kind of war trophy (payback for German invasion of USSR in WW2 and Japanese taking of southern Sakhalin following the Russo-Japanese war respectively). Now of course it is almost as unlikely that Germany would ask for Kaliningrad back as it is for Russia to accept. Not least for Germany because of the economic cost and the fact that there are a large amount of Russians living there already who would all have to be integrated into German society, and for Russia because of the economic and strategic significance of the area. Of course Russia and Germany have very close relations without the need to throw such a demand in between. However giving the Kurills to Japan would set a precedent, and would perhaps highlight Kaliningrad's status as less then perfectly legitimate; something Russia would want to avoid.
Without going into the legitimacy of Russian claims to Kaliningrad, I recall hearing something about Yeltsin offering Kaliningrad to Kohl sometime in the '90s for several billion dollars, really a "nothing" price. Kohl rejected it for various reasons straight away (mostly political) and talk of a sale died down quickly. Perhaps Yeltsin was on one of his famous "weekend binges".