Rosneft To Have Refining & Retail Ventures in China.

Russia's state-controlled oil major Rosneft and the state-owned China National Petroleum Corp. (CNPC) aim to produce 10 million tons/year of crude oil in Russia within three to five years, a concrete step in closer energy ties between Beijing and Moscow. The plan is in parallal to a partnership in China where the two giants plan to build a 200,000 b/d refinery near Beijing and to set up no less than 300 gasoline retail stations.

Rosneft President Sergei Bogdanchikov last week told a news conference: "We are targeting [oil E&P] blocks in eastern Siberia and the Far East. We need to acquire licences necessary to explore for oil, but I'm confident that we'll see positive results". The production goal follows Rosneft's tie-up with China's number two oil firm Sinopec in the purchase of a mid-sized oil unit from BP-TNK, Udmurtneft. Russia, the world's second largest oil exporter but now the world's largest oil producer ahead of Saudi Arabia, is looking to diversify its energy exports away from saturated European markets and considers China, the world's second biggest oil consumer, as a vital future market.

The growing cross investment, which appears to have picked up pace since President Putin's visit to Beijing last March and is worth at least several billion dollars, is on top of growing oil trade between the two nations. Bogdanchikov said Rosneft planned to increase the amount of crude his firm supplied to China next year by 130,000-140,000 b/d to a total of 400,000 b/d. The additional barrels may include Rosneft's new crude from Sakhalin-I due for start-up in early 2007 and where the Russian firm has a production share of 40,000 b/d. "If the Chinese are interested and participate in our [export] tenders, we are ready to sell to them", Bogdanchikov said.

Rosneft, the Kremlin's oil vehicle which plans to become a key player in China, has been supplying around 180,000 b/d to China by rail since buying YuganskNefteGaz (YNG), a 1m b/d crude oil production unit of bankrupt oil firm Yukos after a forced state auction in December 2004.

Russia now is China's fifth largest crude oil supplier, with exports up 40% in the first nine months of 2006 at nearly 335,000 b/d, according to official Chinese customs data. Rosneft is set to become a key supplier via Russia's first pipeline to Asia with a branch line leading to north-eastern China. Russian gas monopoly Gazprom is also planning to build two major pipelines to carry up to 80 BCM/year of natural gas to China (see gmt9RusGasExportAug28-06).

Asked whether the government could sell off more of its stake in Rosneft after its July IPO of $10.6 bn, Russia's largest public offering, Bogdanchikov said: "My personal speculation is that there is no such plan". He said two other Chinese firms, apart from CNPC which acquired $500m worth of Rosneft stocks, had bought into the company, but declined to give details, adding: "In terms of foreign investors, Malaysia's Petronas holds the largest stake and Chinese firms the second".

The Russian government controls 75% after the IPO and Rosneft's consolidation of key units. There has been market speculation that Moscow could float more shares.