One
of the biggest energy stories this year has been Russia’s Rosneft
buying India’s Essar Oil — giving the Russian company a firm grip on one
of the world’s biggest
emerging oil and gas markets.
And
this past week, that story got more complex. With Rosneft striking
another big deal — drawing in another heavyweight energy nation.
China.
Rosneft
announced Friday it
is selling a significant chunk of its equity to Chinese investors. In
this case, little-know exploration and production firm CEFC China
Energy.
Although
few investors know CEFC, the company is bringing significant capital to
the deal. With the firm agreeing to pay $9 billion to acquire a 14.16
percent stake in Rosneft.
The
deal is historic in being the first major buy-in by China into the
Russian oil and gas sector (although Chinese firms have been involved in
financing
LNG export projects in the Russian Arctic). Showing the strength of the ever-growing ties between Russia and China in the energy space.
Rosneft
and CEFC have been at the center of that burgeoning relationship. With
the two companies having signed a deal this past September for long-term
supply of Russian crude into China.
This
week’s equity purchase further cements those business ties. And shows
that China sees Russia as a critical ally in the energy game going
forward.
But
there are implications well beyond these two countries. With China now
having backdoor access into markets like India — through Rosneft’s
recently-acquired holdings in that country.
That’s
a critical development for the world energy picture. Given that Chinese
companies haven’t directly gained much access into India — despite the
nation being one of the most important emerging players on the energy
stage.
Ownership
in Rosneft could help change that. And could open up opportunities in
other parts of the world — with Rosneft currently having operations in
places ranging from Egypt to Brazil to Venezuela.
An
intriguing side note to the story: CEFC is buying the Rosneft stake
from Glencore, and Qatar’s sovereign wealth fund. Who reportedly
purchased the interest just nine months ago — for $12 billion.
That
means these holders are taking a 25% loss on the sale, less than a year
after buying in. But in the meantime, Glencore was able to strike a
lucrative deal to trade Rosneft’s Russian crude — probably making up for
the losses on the Rosneft equity, and then some.
All
of which shows just how complex things are in this rapidly-changing
corner of the energy world. Watch for more China-Russia energy deals —
and emerging influence from these two energy superpowers in other key
markets like India.
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