According to a new report from Moody’s Investors Service, major oil and gas deals signed over the past 15 months between Russia and China will be credit positive for the Russian companies involved, as the deals will provide them with opportunities for growth and access to new sources of funding. Moody’s has also said that they will reduce Russia’s heavy reliance on European energy markets where the country is exposed to sanctions and competitive risks.
The deals in question have been signed by Russia’s OJSC Oil Company Rosneft, OJSC Gazprom and OAO Novatek with the China National Petroleum Corporation (CNPC).
The report titled ‘Russian Energy Deals with China Provide New Growth & Funding Prospects Amid Sanctions notes that China’s GDP growth rate, although slowing down, is still expected to be much higher than Europe’s, where demand for Russian natural gas remains subdued in the wake of the 2009 economic downturn. Russia is geographically well placed to fill the gap between China’s domestic oil and gas production and demand via the development of its vast, largely untapped East Siberian reserves.
Moody’s report has also said that China is helping to finance the development of Russia’s oil and gas industry. Long term supply contracts with guaranteed offtake volumes, equity deals and access to funding from Chinese financial institutions will facilitate the development of new production and transportation infrastructure required to supply the Chinese market. This alternative source of financing is rather important for Rosneft in light of the US sanctions as they company faces the greatest maturities by the end of next year in the sector, which it expects to cover in part with oil prepayments from its contract with CNPC.
Finally, in the report, Moody’s projects that Russia’ turn eastwards will also have its challenges, as China’s ability to put pressure on prices and the sheer scale of the required investments could weigh on the future profitability of Russia’s oil and gas sector.
Julia Pribytkova, Moody’s Vice President, Senior Analyst and author of the report said, ‘Russia’s efforts to diversify its energy exports, are aligned with China’s desire to secure new oil and gas supplies to meet its large and fast growing energy needs. Gazprom’s deal, which is valued at US$ 400 billion, will also provide a launch pad for the company’s full scale diversification into the Asia-Pacific region at a time when it is facing sales pressure in Europe.’
Edited from press release by Claira Lloyd
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