Rosneft and CNPC to Build US$5 Billion Oil Refinery in Tianjin City

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Sept. 23 – OAO Rosneft, Russia’s largest oil producer, and China National Petroleum Corp. will invest around US$5 billion in a joint oil refinery in the Chinese port city of Tianjin.

Russia’s Deputy Prime Minister Igor Sechin, who is also Rosneft’s board chairman, joined Chinese Vice Premier Wang Qishan in the future refinery town of Tianjin to lay the cornerstone of the 13-million-ton per year refinery, to be completed in two years.

Under the agreement, Russia will supply 70 percent of the oil to the Tianjin refinery, in which CNPC has 51 percent interest and Rosneft 49 percent, a spokesman for Russian Deputy Prime Minister Igor Sechin told Reuters.

The oil refinery capacity was increased from originally 200,000 barrels a day to 260,000 in light of rising petroleum demand in China, Rosneft said in its statement.

Last year, China secured 300,000 barrels a day in Russian crude supplies for the next 20 years in exchange for a US$25 billion loan. And last month, China agreed to lend Russia an additional US$6 billion in exchange for increased coal supplies for the next 25 years, The Wall Street Journal reports.

According to the agreement signed Tuesday, the refinery will purchase 183,000 barrels of crude oil a day from Russian companies. The rest of the crude feedstock for the facility will be bought from the Middle East.

“This is another step in developing cooperation between the largest oil companies of our countries,” Rosneft Chief Executive Eduard Khudainatov said.

Rosneft expects the refinery to start operations in 2015, the Moscow-based oil producer said to Bloomberg.

At the second stage, according to Sechin, the joint venture plans to develop a network of 500 retail filling stations in the north of China.

Sechin traveled to China to set up a visit by President Dmitry Medvedev from Sept. 26 to Sept. 28. Medvedev is expected to discuss gas pricing, an issue of far greater concern to Russia than the refinery.

“The price would only be determined in the next year,” Interfax quoted OAO Gazprom Deputy Chief Executive Officer Alexander Medvedev as saying.

Price talks have dragged on for years, while China’s options for gas imports have multiplied. The country also has potential domestic shale gas reserves which could leave Russia squeezed from east and west, Reuters speculates.

Analysts say China may not need to rely on Russian natural gas as much as before. China started importing natural gas from Turkmenistan last year and is building new terminals to import larger quantities of liquefied natural gas.

Russia is seeking to diversify energy exports away from Europe to Asia’s growing economies.

“It’s clear that gas exports to China won’t be as profitable as to Europe, but I think Russia is keen to diversify its gas exports,” said Vitaly Yermakov, director of the Moscow branch of consultants Cambridge Energy Research Agency.

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