Moscow (Platts)--21Apr2009

Russia and China have signed an intergovernmental agreement underpinning
a $25 billion deal on oil export-backed loans from Beijing that was signed by
Russian and Chinese companies in February.

The agreement on cooperation in the oil sector, which also gives the
go-ahead for construction of an oil link from Russia to China, was signed in
Beijing Tuesday during a visit by Russia's Deputy Prime Minister Igor Sechin
to Beijing, according to TV reports.

"This is a unique and long-term agreement which is secured financially
and for which we have already started building an offshoot from [the East
Siberia-Pacific Ocean] pipeline to China," Sechin said in comments broadcast
by Russian state television Vesti TV.

"Immediately with the signing of the intergovernmental agreement a
package of accords to build the pipeline, crude purchase and sale contracts
and loan agreements between Russian and Chinese companies come in force, which
marks a significant breakthrough in bilateral energy cooperation," Russia's
Prime-Tass news agency quoted Chinese Vice Premier Wang Qishan as saying.

In February, Russia's state-owned oil producer Rosneft and national oil
pipeline operator Transneft signed a deal with China National Petroleum
Corporation and the China Development Bank, under which Rosneft will supply 15
million mt/year (300,000 b/d) of crude over 20 years to China.

In addition, Rosneft and Transneft will receive 20-year loans of $15
billion and $10 billion, respectively, from China Development Bank.

Rosneft expects to start in January 2011 sending crude to China under the
new contract.

Crude supplies to China will flow via a planned offshoot from Russia's
new East Siberia-Pacific Ocean oil pipeline. The first 600,000 b/d stage of
the trunkline across East Siberia is to be commissioned in December 2009,
while the offshoot to China is to be built by the end of 2010.

"The construction of the offshoot has already started. Efficiency, which
highlights our cooperation with China, gives us the opportunity to speed up,"
Sechin said Tuesday, according to media reports.

Transneft has previously said it would invest its loan from China first
in the construction of the offshoot to secure crude supplies to that country.

The deal on oil export-backed loans from Beijing has been expected since
last October. Transneft and CNPC then agreed to build the offshoot, but the
project was held up as Rosneft had failed until now to agree on the terms for
future crude deliveries, with pricing being the main stumbling block.

Sechin said the agreement would open the way for cooperation in refining
and marketing in China, in exchange providing Chinese companies with an access
to Russian upstream projects.

The agreement signed Tuesday will also help Russia and China develop
similar cooperation in the gas, nuclear power, electricity and power machine
engineering, Sechin said in televised comments.

Gazprom and CNPC for several years have been negotiating gas supplies to
China, but have not moved closer to signing a deal to disagreements on the
price, Gazprom officials have previously said.
--Anna Shiryaevskaya, anna_shiryaevskaya@platts.com