Maybe there’s a silver lining to EU sanctions against Moscow as Russian oil and gas producers are poised to benefit from energy deals with China.
Assessing the credit implications for Russian issuers of Russia’s increasing cooperation with China in the oil and gas space, Moody’s said in an e-mailed report on September 2 that recent deals between Gazprom, Rosneft and Novatek with China National Petroleum Corporation (CNPC) arecredit positivefor these issuers as they diversify exports into China’s large, fast growing market.
Russia-based Julia Pribytkova, the lead analyst on this 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 $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,” she said.
The report said that the Russia-China energy deals will also help mitigate adverse conditions in the European market for Russian oil and gas companies as competition in the European gas market is increasing.
Moreover, US sanctions on Rosneft and Novatek limit their funding options. Access to alternative funding is particularly important for Rosneft in light of the US sanctions as the company faces the greatest maturities in the sector in the fourth quarter of 2014 and the first half of 2015, which it expects to cover in part with oil prepayments from its contract with CNPC, Moody’s said. “However, China’s ability to put pressure on prices and the scale of the required investments could weigh on the future profitability of Russia’s oil and gas sector,” it added.
Meanwhile, the report warned that Russia’s focus eastwards also has its risks. “The decision to shift its focus eastwards is not an easy one for Gazprom, given that its strategy has historically been geared towards increasing exports to Europe,” it said.
For example, Gazprom’s decision to develop the giant Bovanenkovo field in Yamal, which has 4.9 trillion cubic metres in probable and possible reserves and is capable of producing up to 140 billion cubic metres a year, and the extensive pipeline infrastructure associated with it were all developed not to just complement the eventual decline in production at the traditional fields, but also to meet expected demand growth in Europe, the report said.
At the same time, the economics of oil and gas contracts with China may fall short of the Russian companies’ expectations as in order to obtain the financial security inherent in long-term contracts they may need to give up a little on the pricing side in exchange, Moody’s said.
http://www.neurope.eu/article/west-not-best-russia-looks-china