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Analysis: Venezuela, China near oil deal

by Carmen Gentile
Miami (UPI) May 7, 2008
China is reportedly preparing to sign a new petroleum deal with Venezuela, this time pledging to invest $2 billion in Venezuela's oil industry.

As part of the deal, China's largest oil producer, PetroChina Co., and Venezuela's state-run PDVSA will work together to build a refinery in the southern Chinese province of Guangdong. Further details about when the refinery would likely go online were not available ahead of the deal's formal signing, scheduled for later this week, Venezuelan news sources reported Tuesday.

However, Shen Diancheng, PetroChina's vice president, said the new facility in Guangdong would have an output of 400,000 barrels per day, Chinese news sources reported.

Chinese Vice Premier Hui Liangyu is scheduled to visit Venezuela later this week to discuss further details with Venezuelan energy officials, China's Xinhua news agency reported.

"We want to cooperate with foreign firms in both upstream and downstream business to take advantage of our respective strength and secure steady oil supplies," Shen said.

The refinery will reportedly use the alternative boiler fuel Orimulsion, derived from bitumen deposits, which are plentiful in Venezuela's Orinoco basin.

The proposed $2 billion deal is just the latest in a series of agreements between the nations.

In 2006 Venezuelan President Hugo Chavez traveled to China to sign an $11 billion deal on mutual energy and transportation development that laid the foundation for close ties.

A year later Venezuelan and Chinese state petroleum companies said they will spend more than $10 billion to develop the Orinoco basin, which has Venezuela's largest deposits.

Since assuming office in 1998, Chavez has courted China and even expressed willingness to sell fuel to North Korea. He has also cultivated closer ties with Iran, drawing sharp criticism from Washington and increased concerns about the foreign-policy leanings of the Venezuelan president.

Closer energy relations have resulted in a significant increase in fuel exports to China and a reduction of oil exports to the United States, which still remains Venezuela's largest customer.

PDVSA announced in October 2007 that South America's largest oil exporter shipped an average of 197,000 barrels per day of crude oil and byproducts to China. While that amount pales in comparison to the nearly 1.4 million bpd of Venezuelan oil that was exported to the United States in July, China's exports have risen more than three-fold since 2006.

Venezuela supplies about 12 percent of the oil imported by the United States, making it Venezuela's largest customer. It is the No. 4 U.S. supplier.

Erik Kreil, an international oil market analyst at the U.S. Energy Information Administration, noted that Venezuela's exports to China were 27,500 bpd day in the first half of 2005, the first full year Beijing began pursuing Venezuelan petroleum.

By the first half of 2006, Venezuelan oil exports reached 70,000 bpd.

Kreil and others attribute the increase to China's own growing demand for fuel, as well as Venezuela's desire to diversify its customer portfolio and reduce its dependency on the United States.

"But China can only take so much," Kreil told United Press International. "The bottom line is there is only so much they can diversify away" from the United States.

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