Russia’s $65b oil deal with China to strain Europe

Russian state oil company Rosneft intends to sign a big contract to supply China with more than $US60 billion ($A65 billion) of crude oil, a deal that could signal a small shift away from Western Europe towards Asia.

Russia has been gradually opening its oil spigot to China in recent years. While the overall volume of Russia’s oil output has remained level, the country has decreased sales to recession-plagued Europe.

‘‘Without any exaggeration a large-scale contract has been prepared by Rosneft,’’ President Vladimir Putin said after a meeting on Thursday with China’s Vice-Premier, Zhang Gaoli. Supplies to China are expected to reach ‘‘volumes of hundreds of millions of tonnes of oil, in total worth more than $US60 billion’’, Mr Putin said, though he provided no further details about the hefty contract.

Even a modest shift could have a significant effect on Europe, raising prices across the region. Russia is now the largest oil producer in the world, pumping about 10 million barrels a day, slightly more than Saudi Arabia.

Currently, Russia exports about a fifth of its oil output to Asia. It pipes oil directly to China after a trans-Siberian pipeline was completed in 2010 that overcame decades of tension along the long and remote border between Siberia and Manchuria.

Mr Putin told Mr Zhang that he hoped two Russian gas companies, Gazprom and Novatek, would similarly strike deals to export energy to China. Energy analysts said Rosneft had also been negotiating with Chinese companies to form joint ventures to drill in the Russian sector of the Arctic Ocean above eastern Siberia, after granting similar deals to ExxonMobil, Eni of Italy and Norwegian oil company Statoil to drill in the Kara Sea, an inlet on the western side of the long coastline.

The Rosneft deal would become the latest in a series of financial transactions between Russian energy companies and China.

Rosneft first took a loan of $US6 billion from Chinese state banks as prepayment for oil exports in 2005. The company, in turn, used the money to finance its takeover of the largest production unit of Yukos oil company, after the imprisonment of the founder, Mikhail B. Khodorkovsky, an episode criticised by Western governments but not the Chinese.