CEFC Eyes Big League with Rosneft Oil Offtake Deal
As part of its recent $9.1 billion investment in Russian oil giant Rosneft, little-known CEFC China Energy will have access to up to 260,000 barrels per day (bpd) of Russian oil - giving it the sort of market clout to potentially challenge dominant Western oil traders like Vitol.
For China, the world's top crude importer, having access to Russian oil would be a big step towards its ambition to create a globally integrated oil supply chain.
The CEFC deal comes in parallel to a Chinese offer to buy a 5 percent stake in Saudi Aramco, the world's biggest crude oil exporter.
CEFC announced plans last month to buy a stake of more than 14 percent in Rosneft, the world's largest listed oil producer, from a consortium of Glencore (GLCNF) and the Qatar Investment Authority.
Rosneft declined comment on the matter, but a CEFC spokesman said on Tuesday that under the agreement Rosneft agreed to sell the Chinese firm 11-13 million tonnes of Russian crude a year, starting in 2018.
That equates to 220,000-260,000 bpd, about 5 percent of Rosneft's output and a quarter of China's monthly imports from Russia.
The offtake deal would eventually rise to 42 million tonnes (840,000 bpd), which CEFC will get through its equity investment.
Beyond extending Russia's lead over Saudi Arabia as China's top oil supplier, the deal will also catapult CEFC, a hitherto little-known and secretive fuel trader, into a top-10 global oil merchant.
Several people within CEFC have said the company one day hopes to rival Vitol, the world's leading oil trader that deals more than 7-8 million bpd.
Over the past year, CEFC has invested in oil concessions in Chad and Abu Dhabi.
CEFC says on its website its management model fuses "entrepreneurship, Confucianism, and military-style regimentation".
BELT AND ROAD
CEFC's tie-up with Rosneft is also seen as a strategic deal that fits Beijing's ambitious Belt and Road trade route initiative.
The cooperation between the two firms extends across the oil and gas supply chain, the CEFC spokesman said.
"The current focus is on upstream oil and gas resources, including exploration and production. The next step will be to bring these resources to China and to develop together, with Rosneft, petrochemical production, further extending the supply chain," he said.
The offtake, signed with the stake purchase agreement last month, is subject to approval by the Rosneft board. That could take place next month, the CEFC spokesman said.
To handle the new oil business, Shanghai-based CEFC, established just 15 years ago, is expanding its trading team, including in Singapore, Asia's oil trading hub.
Led by 41-year-old entrepreneur Ye Jianming, CEFC aims to eventually build a global trading team of over 100, with offices in Singapore, Hong Kong, London and the United States, said a senior person familiar with the plan. It already has a European base in Prague.
The terms of the offtake have drawn notice among international traders, who say it could reduce the amount of Russian Eastern Siberia–Pacific Ocean (ESPO) crude grade available to third parties, such as Trafigura which takes 60 percent of seaborne ESPO.
ESPO is one of the most actively traded crude oils in Asia, and is popular among Chinese refiners.
Underscoring a commitment to its home market, the CEFC spokesman said the company will prioritise sales to China, while some of the Urals crude, which it will also receive, will be sold to Chinese refineries in Europe.
CEFC will market about half the supply via term contracts with Chinese independent plants and the trading arms of state oil majors - Sinopec's Unipec and China National Petroleum Corp's Chinaoil - said the senior source, with the rest sold on the spot market.
"CEFC is no longer the same CEFC it was in 2012-13 when it was a small trader of mixed aromatics .... It has upgraded," said a Beijing-based executive at a global trading house.
(Reporting by Chen Aizhu and Olga Yagova, with additonal reporting by Florence Tan and Henning Gloystein; Editing by Josephine Mason and Ian Geoghegan)
(Reporting by Chen Aizhu and Olga Yagova, with additonal reporting by Florence Tan and Henning Gloystein; Editing by Josephine Mason and Ian Geoghegan)
