Rosneft Looks To Eastern Europe

The state oil company is looking for partners on the new market.

Russian oil company Rosneft is interested in oil refining and trading projects in Eastern Europe, the company’s Chief Executive Officer Sergei Bogdanchikov told reporters yesterday. But analysts are cautious about Rosneft’s plans to get a foothold in the region.

Rosneft would like to set up a joint venture with local partners, covering the complete cycle, from oil production to trading and transportation, Sergei Bogdanchikov said yesterday at the World Petroleum Congress in Madrid, ITAR TASS reported. “We need to create at least one full-scale project in Europe to see the advantages,” he told reporters.

He said the idea had already been discussed with foreign companies and EU officials, but no decision has yet been made. Bogdanchikov did not elaborate on the details of the project. He said Rosneft was interested in North and West Africa, but viewed Russia as a priority. Rosneft’s press office has not commented on Bogdanchikov’s remarks.

Russian companies have been increasingly active on the Eastern European market recently. An oil refinery in Bosanski Brod (Bosnia), which was purchased by Russia’s Zarubezhneft about a year ago, will begin operations in October 2008. For its part, Gazprom’s oil production arm, Gazprom Neft, has acquired a controlling interest in Serbia’s NIS.

Now, Rosneft decided to follow suit. Konstantin Simonov, General Director of the National Energy Security Fund, says that Rosneft’s plans for Eastern Europe seem to contradict its expansion policy. Rosneft has different priorities on foreign markets, according to Simonov. “Rosneft should be more interested in the Chinese market, where it will come after the East Siberia-Pacific Ocean pipeline’s branch to China comes into operation,” he said.

It is unclear what assets can attract Rosneft in the region. Earlier, Latvia’s Dinaz offered Rosneft to supply oil to an oil refinery in Latvia and to take part in the transshipment of oil products at an oil terminal in Riga. According to unconfirmed reports, Rosneft declined the offer as it hopes to refine more than half of its oil at its own refineries, and for political reasons it would not like to transport oil and oil products through transit countries, the Baltic republics in particular.

If Rosneft is serious about expanding into Eastern Europe, it could focus on Hungary and the Czech Republic, with their cheap refining facilities, analysts say. Oil refining margins in the region are estimated at between $5-7 per barrel, against Russia’s $20-25.

Dmitry Lyutyagin, at Veles Capital, believes that Rosneft could buy an oil refinery in Eastern Europe using the 9.44 percent of its shares it had purchased at a YUKOS bankruptcy auction for $11 billion. Building an oil refinery (with an annual capacity of 25 million to 27 million) from scratch would cost Rosneft approx. $9.5 billion, he calculated.

Sourrce: RBC News, July 02, 2008