The Thirsty Dragon Deals With Chavez

An interesting report in the Christian Science Monitor, detailing a new oil exploration deal between China and Venezuela – China’s largest single investment in an overseas energy project to date.  And while Venezuela’s motivation is likely political in nature, i.e. it is seeking a strategic geopolitical alliance, China is primarily seeking a steady supply of energy.  As the article notes:

“…Under the November agreement, China will pay $4 billion into a $6 billion fund to develop Venezuela’s oil industry, in return for the rights to explore for oil in Venezuela’s Orinoco region, potentially among the world’s richest deposits.

The deal is set to be renewed after three years.

Venezuela also announced its intention to supply 1 million barrels of crude a day (bpd) to China by 2011, up from the current government figures of 350,000 bpd, and to construct three refineries in China….

“…He is hoping to get [from China] the kind of financial support and expertise [he loses] when he chases out Conoco,” says William Ratliff, an expert on China’s influence in Latin America at Stanford University’s Hoover Institution. “Certainly Venezuela has in mind that relations with China – and Russia and Iran – make it less dependent on major international companies.” In a statement on the PDVSA website, Chávez bluntly stated the political significance he attaches to the China deal. “Relations between China and Venezuela should be at the highest strategic level, and in the front lines of the battlefield,” he declared….

…But while Chávez’s rhetoric revolves around the creation of a new “multipolar” world – one with multiple power centers – China is driven mostly by the need for primary products, as it devours goods from Africa to Latin America, and anywhere else it can find the raw materials it needs to fuel its rapid economic growth….

“…China is a developing country, as is Venezuela, and we can deepen our cooperation within the framework of South-South cooperation,” adds Dr. Jiang. “But our cooperation does not target any third country.

…Even for Venezuela, selling oil to China instead of to the US does not necessarily make business sense.

Abelardo Daza, an international analyst at ODH Consulting Group, says that the average transport costs for a barrel of oil sold to the United States, five or six days away by sea, is $3; costs double for the 30-day trip to China. “If you sell more oil to China, you are going to get less income,” he says.

Many analysts also warn that China, and other countries with which Venezuela is forging relations, lack the technical expertise to extract and refine the unusually heavy crude found in Venezuela’s Orinoco region. “Venezuela is bound to the West by technology that [the other countries] cannot provide,” says Mr. Ratliff….”

This entry was posted on Wednesday, January 2nd, 2008 at 1:44 pm and is filed under China, Petróleos de Venezuela, Venezuela.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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