China Looking To Secure Oil Supplies By Buying Stake In Rosneft

Russian Deputy Energy Minister Alexei Teksler said a couple of weeks ago that Chinese state giant CNPC is interested in participating in the partial privatization of Russia's top oil company, Rosneft.

Rumors that companies from the Chinese energy sector will take part in the Kremlin's privatization plan for 2016 first started emerging late last year when the plan was announced. Yet oil prices fell so low that there were doubts as to whether such a deal or deals are still viable. Related: Should Exxon Mobil Shareholders Be Worried About a Ratings Cut?

Prices are now recovering and some analysts believe that this is just the start of a longer, massive rally that will eventually see oil trade in three-digit territory again. The fundamental reason: less investment in new E&P projects will inevitably tighten supply and once it does, the energy sector won't have the manpower and equipment to expand it.

The Chinese, however, may be a step ahead of the rest of the world, if indeed CNPC takes part in Rosneft's IPO, as it reportedly confirmed it would.

China needs secure long-term oil supply. Forget about the much talked-about switch from an industry-based to a service-based economy. Service-based economies also need fuel (a lot of it) and even with a blooming solar power sector, China remains a huge oil consumer, which is unlikely to change anytime soon. Related: Why China Is Really Dictating the Oil Supply Glut

For now, its biggest supplier is Saudi Arabia, but Russia is contesting the top spot, actively and with some marked success. The two countries, Russia and China, already have strong ties in the energy field, which is a point for Russia. But there have also been some extravagant messages coming from Riyadh: The country has impressive ambitions in solar power and general economic diversification in a bid to reduce its reliance on oil.

Ambitions are a good thing but how realistic they are is a different matter. Riyadh believes its state oil company could be worth $2 trillion if it goes public - something that is being worked on at the moment under the kingdom's Vision 2030 plan. Yet, as the Economist reminded us in January, Aramco is the opposite of transparent and investors don't like secrecy when they decide to spend their money.

Besides, what's true for Russia's oil assets - or anyone else's, for that matter - is it's a buyer's market at the moment. Finally, a total switch to solar power takes a lot of time, to put it mildly, even for a not-so-oil-reliant country. Related: Lets Stop Pretending Nuclear Power Is Commercially Viable

Russia, on the other hand, is engaged with its own diversification (and a $21-billion deficit this year to deal with) but is guarded as to bold statements about the medium- or long-term. Commodities are Russia's major strength - or weakness, depending on the market environment - and they have always been its major attraction and source of power. The country, therefore, is not in a rush to move away from them. Instead, it's looking to make the best of what it has with what partners it has.

With the geopolitical chessboard as it is right now, with Saudi Arabia clearly and consistently digressing from its once common interests with the West by supporting Islamist groups in Syria and waging its own war in Yemen, and with Russia focused on survival (and expansion of its geopolitical significance), China is the natural focus of attention for its northwestern neighbor.

The next step in solidifying this strategic relationship - Chinese involvement in Rosneft. It won't be the last step, and this is where all geopolitical eyes should be focused right now.

By Irina Slav for Oilprice.com

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