Published time: June 20, 2013 16:40

Russia and China have drafted a major oil contract, Russian President Vladimir Putin told Chinese State Council Executive Deputy Prime Minister Zhang Gaoli at the St. Petersburg International Economic Forum.

"A major contract - it would not be an exaggeration to call it unprecedented - with the Rosneft Company has been drafted. Prospective crude deliveries to China will top hundreds of millions of tonnes and exceed 60 billion in the dollar equivalent," Putin said.

The issue of increasing exports of Russian oil to China has been repeatedly raised this year. Rosneft’s intention to boost oil supplies to China has been underpinned by opening the second line of Russia’s East Siberia-Pacific Ocean (ESPO) pipeline in December 2012.

“Expansion of cooperation between Rosneft and China is utterly positive for the company, as it creates additional market outlet, which is important given the aggressive growth of its resource base,” according to Ivan Anoshkin, an analyst at Invetscafe.

Rosneft is the only Russian company producing oil for exports to China. Tatneft, Russia’s oil transportation company, also has contracts with China, with its oil exports estimated at 6 million tonnes a year. However, the oil transporter buys the commodity from Rosneft. Rosneft oil supplies to China stand at 15 million tonnes a year, which is planned to be boosted 250% - to 37.8 million tonnes.

Given that the projected capacity of the ESPO stands at 31 million tonnes a year, Rosneft needs to use alternative export routes. These might include via the pipeline network through Kazakhstan or via the Kozmino oil port.

“However, as a vector to the tightening energy relations between the two countries, the optimal variant looks to be to construct additional pipeline capacity,” the Investcafe analyst concluded.