Rosneft interested in attracting major traders to Vostok Oil

Russian state oil major Rosneft is courting investments from global trading houses to help develop the company’s Vostok Oil project in the Arctic, states Reuters citing industry sources. Although trading houses usually avoid direct investment in production, Rosneft’s proposal may attract them by giving access to a long-term source of supply to the growing Asian market.

At the moment, Rosneft is in discussions with such major traders as Vitol, Glencore and Gunvor. According to unnamed sources, Rosneft has offered the trading houses to invest in Vostok Oil in exchange for immediate contracts for crude and refined products. Rosneft attempted to attract local investors from Japan, China and India in 2019, but negotiations stalled after the oil price collapse of 2020.

Vostok Oil is one of Russia’s biggest oil projects with resources estimated at 44 billion barrels, which is enough to supply the world for more than a year. Earlier, Rosneft stated that the deposit could produce 1% of global crude later this decade. The oil is supposed to be shipped to Asia via the Northern Sea Route. However, the project will require significant investments in new pipelines, roads and other infrastructure in East Siberia and the Arctic. Vostok Oil will cost dozens of billions of dollars to develop and is valued by Rosneft at $70-150 billion, depending on the price of oil and cost of capital, according to three sources close to talks.

Swiss-based Trafigura has already agreed to purchase a 10% stake in the project. Reuters’ sources stated that the trading house would get an extension of its long-term deal to lift oil and products in exchange. Thus, Trafigura is likely to remain the largest exporter of Rosneft fuels for the next five years. According to the trader’s spokesperson, the acquisition “builds on the longstanding commercial relationship between Trafigura and Rosneft, providing access to long-term offtake supply of crude oil including from Vostok Oil.”

Trading sources said that large traders had shown interest in securing volumes from Russia but exercised caution because of Western sanctions, which forbade long-term funding of Rosneft, and waning interest from banks in funding Arctic deposits. “It is an issue of risk versus reward, and for some people, the maths are still not working,” explained one of the sources.