Russian state-controlled oil company Rosneft made a small price concession to China, the single biggest consumer of oil from its new eastern fields, to resolve a long-running dispute, a Russian industry source said on Tuesday. China buys 300,000 barrels per day of Russian oil, mostly delivered from the new oil fields of Eastern Siberia via a new pipeline.
Russia has said China has been underpaying for crude, while China has said Russia levies excess transit fees. Under the deal, Rosneft granted China National Petroleum Corp (CNPC) a discount of $1.50 per barrel, the source said. The agreed discount could serve as a bargaining chip if China seeks more crude from Russia to feed its rapidly rising energy needs.
"At first they were underpaying by $13 per barrel, then they reduced it to $7, and when we started negotiations in May, they dug in at $3," the source said. "Now the number is $1.50." China Development Bank in 2009 financed the pipeline with a landmark $25 billion 30-year loans-for-oil deal, under which Russia is due to ship oil to China through 2030.
Rosneft is the supplier of the oil, although state pipeline monopoly Transneft, which took $10 billion of the loan package to build the pipeline, is the nominal seller of some volumes. The Rosneft board is expected to review the deal at a Tuesday meeting.
The deal secures demand for eastward oil flows for Russia. The world's largest producer pumps around 10.3 million barrels per day and aspires to be a swing supplier, able to switch supplies between Europe and Asia depending on price and demand fluctuations. "We have guaranteed deliveries and we have seaborne ESPO crude, which together total about 30 million tonnes, thanks to which we have a regional grade which trades at a $6 premium to Dubai crude," the Russian industry source said.
The agreement also may help Russia make up for a shift in demand for seaborne ESPO crude, which is loaded in the Pacific port of Kozmino for deliveries to customers around the Pacific rim. The United States, the biggest buyer of seaborne ESPO crude last year, has stepped back from the grade in 2012 because of tightening regional environmental restrictions, which could not be met by refining ESPO into motor fuels. "Russia doesn't want the price to be controlled by one country," an Asian industry source said.