April 09,2009

China and Venezuela Strengthen Oil Alliance

By CSC staff, Shanghai
Venezuela’s President Hugo Chavez’s visit to China this week, his sixth, was labeled a "visit of energy" . PetroChina and Venezuela together are exploring new ways for energy cooperation.
According to a PetroChina insider, China and Venezuela plan to establish a joint venture crude oil exploiting company in Venezuela, with Venezuela holding a 60% stake and China the other 40%. To facilitate oil transportation, the two sides will also found a shipping company, split evenly between them.
Through such cooperation, "Venezuela’s crude oil exports to China will rise steeply to one million barrels a day in 2013," Chavez claimed.
French multinational giant Total is also expected to be involved in the project. Total CEO Christophe de Margerie visited Beijing himself on March 6, seeking talks with PetroChina senior officials on cooperation.
Venezuela has become PetroChina’s third largest oil production area, and is hopeful to see production increase in all areas. PetroChina has earned rich paybacks since it started in Venezuela in 2006. In 2008, 1/6 of the company’s overseas oil production came from Venezuela.
In 2006, the Venezuelan government transferred the exploitation rights of the Junin 4 region in the Orinoco River Basin to PetroChina. According to the bilateral agreement, PetroChina gained 40% equity in the project and can take oil produced in this area according to its equity percentage.
With strong technical support from PetroChina, the annual production of Junin 4 has exceeded 10 million tons. The Venezuela government therefore looks to PetroChina to exploit and develop other areas.
With the alliance covering the whole oil production chain, Venezuela and China each draw sufficient interest from it. Venezuela gets a stable market for its oil sales, while China gains a long-term and stable oil import channel.
90% of Venezuela’s export income comes from oil sales, so the last nine month’s drastic oil price decline has put a great deal of pressure on its government. Chavez has to travel around the world to promote the country’s oil production capacity.
In Japan, Chavez signed bilateral energy agreements with several Japanese companies, allowing them to exploit Venezuela’s oil resources. Meanwhile, the Japan Bank for International Cooperation, Mitsubishi, and Itochu will together offer $1.5 billion in loans to increase the production capacity of two of Venezuela’s domestic refineries.
China has also signed similar agreements with Venezuela. Venezuela plans to repay the loans with its income from oil sales.
PetroChina aims to increase its overseas oil and gas production to 200 million tons by 2020. Increasing its oil production in Venezuela will be a major cog in this plan.
The company’s 2008 overseas production of oil totaled about 62 million tons, and of gas 6.7 billion cubic meters. Sudan, Kazakhstan, and Venezuela contributed most of it.
According to reports, PetroChina has a 40% stake in two main oil production areas in Sudan, and a 90% stake in six other areas in the country, but production in the six areas is not high. In 2008, PetroChina got about 10 million tons of oil from all eight areas combined according to its equity percentage. In Kazakhstan, PetroChina holds two local oil companies, but is unlikely to see any large production increase there due to limited potential.



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