Russia’s Rosneft signs LNG agreement with Egypt’s EGAS

Russia’s incumbent oil producer Rosneft has signed an agreement with Egypt’s state-owned oil and gas company EGAS for LNG supply over 2015 and 2016.

The preliminary deal involves the delivery of 24 LNG cargoes between 140,000 cubic metres (cbm) and 170,000cbm each, starting from the fourth quarter of this year, ICIS understands.

However, the signed “term sheet” is preliminary in nature and involves further conditions that must be resolved before shipments commence. These are expected to be completed in the third quarter, ICIS understands.

Rosneft has not produced any LNG, nor is it involved in the trading aspect of the business. It is unclear where Rosneft will source the volumes for the LNG deal.

The deal, which is crude-linked, was structured by Rosneft’s trading subsidiary which is based in Switzerland.

While it is unclear how Rosneft structured its supply position with EGAS, one industry source in Russia said the company could have formed swap agreements with one or more Switzerland-based energy traders to exchange crude or crude products for LNG.

“Rosneft has been engaged in product swaps before. Having no exposure to short-term LNG markets, it is unlikely that the company would have taken a short position of this level,” the source said.

“There is likely to be backing on this from at least one energy trader with whom Rosneft is very close on other products,” the source added.

Rosneft has existing trading relationships with Vitol, Trafigura and Gunvor, all of which are active in the LNG sector. It is unclear, however, if any of these traders are involved in Rosneft’s LNG supply deal with EGAS.

The deal is part of a larger agreement that involves the shipments of liquefied petroleum gas (LPG) and other products. The document has also defined the key terms of future cooperation between the two companies in the area of LNG supplies.

“The implementation of the terms of the signed document will allow Rosneft to access the high-growth potential Egyptian gas market and deepen broader cooperation between the two companies,” Rosneft said in a statement on 7 July.

Rosneft did not reply to requests for further comments. roman.kazmin@icis.com