Venezuela agreed with China, the world’s fastest-growing major economy, to form a joint venture that will produce oil in Venezuela’s Orinoco Belt to supply a new 400,000 barrel-a-day refinery they will build in China.
The venture between Petroleos de Venezuela SA and China National Petroleum Corp will pump oil from an area known as Junin 4, where CNPC has quantified reserves, Venezuelan President Hugo Chavez said at a signing ceremony in Caracas on Friday evening.
China is securing long-term energy supply deals around the world to satisfy its growing needs. Chinese oil consumption will rise 5.3 percent this year, the International Energy Agency said Jan. 16. Demand rose 6.6 percent in 2006, the most recent BP Statistical Review showed.
“This isn’t about an immediate advantage,” said Pedro Benitez, a professor of political economy at Central University of Venezuela and oil consultant. “It’s more about the political economy of China. It’s to maintain a commercial relationship.”
Zhou Jiping (周吉平), vice president of CNPC, and Venezuelan Energy and Oil Minister Rafael Ramirez, who is also president of the state energy company known as PDVSA, signed the agreement.
China also has supply contracts with Iran and Sudan as it pursues a strategy of bilateral deals in return for development funds rather than purchases on the open market, Thomas O’Donnell, a US Fulbright scholar studying Chinese oil deals at the Central University of Venezuela, said in an interview.
Venezuela will be able to supply all of the refinery’s needs by the time it opens in 2013, said Eulogio del Pino, a board member and head of joint ventures at PDVSA.
The PDVSA-CNPC venture will extract and improve tar-like oil from the Orinoco and export it to China.
China last year promised US$4 billion to a Venezuelan development fund.
The money is to be repaid in fuel oil.
Projects in line for the cash include a factory to make drill pipe for the oil industry, a new steel mill, agricultural projects and the construction of 10 universities, Chavez said.