Venezuela-China oil deal

Sep 18, 2009 02:00 AM

Venezuelan President Hugo Chavez announced a $ 16 bn deal with China for oil exploration in the Orinoco Belt in eastern Venezuela.
Chavez's announcement comes less than a week after Venezuela's agreement with Russia for at least $ 20 bn worth of oil investment over the next three years. State-owned Petroleos de Venezuela (PdVSA) will have a majority stake in both projects, Chavez said.

The agreement with China calls for a total investment of $ 16 bn over the next three years to produce up to 450,000 barrels of crude per day. Although Chavez did not identify the Chinese companies, he visited China in April and met with Chinese oil giants CNPC and Sinopec to seek financing for oil projects.
Chavez said the joint ventures with Chinese firms will involve "building oil drills, platforms, (and) railroads that will traverse the (Orinoco) belt and homes."

Venezuela sent an average of 385,000 tons of fuel oil each month to China in the first half of 2009, up from the previous record of 380,000tons a month in the first six months of 2007.
The Russia deal, announced by PdVSA, is for a joint venture to exploit the belt's Junin Block, said to have the potential to produce between 400,000 and 450,000 bpd of extra-heavy crude. PdVSA will have a 60 % stake in the venture, with the remaining 40 % held by a consortium of Russian companies Rosneft, LUKoil, Gazprom, TNK-BP and Surgutneftegaz. PdVSA said the venture's time line is for 25 years.

"This new strategic alliance is part of the new multi-polar vision" that the Chavez government "has devised in its investment plans to optimize Venezuela's energy resources," PdVSA said.
PdVSA echoes the refrain of Chavez's vision for a "multi-polar world" in which Latin America is less dependent on Washington. Yet US-based companies are still the mainstay of Venezuela's oil industry.

The president is increasingly expanding government control over oil, Venezuela's biggest industry. His 2007 move to nationalize multibillion-dollar oil production projects in the Orinoco region was a blow to foreign oil giants operating there, prompting oil giants ExxonMobil Corp and ConocoPhillips to seek arbitration.
In May Chavez ordered PdVSA to seize assets of 60 local and foreign oil service companies operating throughout the country.

Chavez contends that the nationalization of oil field service companies in Venezuela will reduce PdVSA's operating costs by $ 700 mm.
Yet the Latin American Herald Tribune reveals PdVSA's problems, including a backlog of unpaid bills to suppliers and falling output at nationalized oil fields since they were taken over on Chavez's orders.

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