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Russia Plans $25-$30 Bln Oil-For-Loans Deal With China

Source: Reuters 2/13/2013, Location: Asia

Rosneft is seeking to borrow up to $30 billion from China in exchange for possibly doubling oil supplies, making Beijing the largest consumer of Russian oil and further diverting supplies away from Europe.

Four industry sources familiar with the situation told Reuters that Rosneft was in talks with Chinese state firm CNPC about the borrowing, which would echo a $25 billion deal the two companies clinched last decade.

Back then, Rosneft and Russian pipeline monopoly Transneft borrowed money to help Rosneft acquire the assets of nationalised oil producer YUKOS while agreeing to build a pipeline to supply China with 300,000 barrels per day for 15 years.

This time, Rosneft wants to borrow money as it is close to completing a $55 billion acquisition of rival TNK-BP to become the world's largest listed oil producer.

Russia's leading oil company, controlled by the Kremlin, is considering ultimately doubling supplies to China, sources said.

"It can be a combination of delivery options. The strategic line is to increase supplies to China," one source familiar with the situation said.

"The reason why China is willing to lend is simple. They sit on over 3 trillion of dollars in reserves and are looking to diversify their investments," he added, referring to China's foreign exchange reserves of $3.3 trillion.

Rosneft and CNPC declined comment.

The first loan-for-supply deal between the two companies connected directly for the first time the world's largest energy producer and consumer.

It came after a number of energy disputes between Russia and its neighbours which cut gas and oil supplies to Europe several times, drawing criticism and calls from the European Union for diversification away from Russian energy resources.

Russian President Vladimir Putin retaliated by saying Moscow would divert more energy to Asia.

Since then Russia has been steadily increasing crude exports to Asia at the expense of deliveries to Europe with flows due to amount to around 15 percent of Russian oil exports this year via pipelines to China and to the Pacific coast.

Should deliveries to China double, the share of Russian exports to Asia will amount to over a fifth of overall exports by the world's largest oil producer and the second largest exporter after Saudi Arabia.

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