Russian Railways claims that China has offered to guarantee payments for railroad deliveries of crude from OAO Yukos, but Chinese government officials have yet to confirm that.
"The guarantee may have the opposite effect of what Russian rail officials intended by further eroding confidence in Yukos's ability to meet its obligations and the Russian government's responsibility to assure export continuity on its own. China also seems to be sending a signal to oil markets that it is willing to pay a premium to meet its rising demand, which could add even more upward pressure on world prices," said Michael Lelyveld, senior advisor with PFC Energy Caspian Business Intelligence Service.
Russian Railways Pres. Gennady Fadeyev reported Aug. 18 in Moscow that financially beleaguered Yukos would be able to keep exporting to China, even if Yukos were to run out of cash.
"China will pay for everything if Yukos encounters problems with payment," Interfax quoted Fadeyev as saying. He also said that Yukos has paid for transportation to China until Sept. 10.
Implications
Nearly all the implications could be negative for the oil market, China, and the Russian oil industry, Lelyveld said.
"First, raising the issue of a Chinese guarantee may have just the opposite effect of what Fadeyev intended, since it shows little confidence in either Yukos or the Russian government to keep exports flowing on their own," he said.
Yukos's rail exports to China reportedly averaged 159,800 b/d of oil during the first 10 days of August. Russian Railways and Yukos agreed to transport 6.4 million tonnes of crude oil to China this year, 8.5 million tonnes in 2005, and 15 million tonnes in 2006.
"A second implication of the Russian government's failure to provide its own guarantees to China is that it has yet to formulate a clear plan for Yukos or potential successors," Lelyveld said. "The uncertainty comes on top of the indecision over the Angarsk-Daqing pipeline."
Future oil exports from Eastern Siberia face the option of a pipeline starting from Angarsk but ending either in Northeast China or near the Russian Pacific port of Nakhodka (OGJ, Oct. 6, 2003, p. 62).
A third implication is the signal that a Chinese guarantee could send about the premium that China is willing to pay for oil.
"If Fadeyev's claims are correct, China is willing to pay substantially more than world prices to meet its demands," Lelyveld said. "A shift of Russian transport costs to China would raise its import prices significantly. But even if the guarantee is never triggered, China's willingness to pay higher prices will send a signal to world markets that Beijing expects its demand to keep rising at high double-digit rates. Beijing seems concerned that it could be hard-pressed to find the Yukos volumes elsewhere, even though they are relatively recent as a major factor in its import mix."
