New oil deals set stage for Venezuela-China visit
Venezuela's new president Nicolas Maduro will make his first visit to Beijing this weekend in a fresh test of the countries' energy relations, which have been strained in recent months
Chinese officials have grown frustrated by the slow pace of progress at their Venezuelan projects and have reportedly sought to wrest more control over the management of their oil projects from Venezuela's state oil company PdV.
Nevertheless, China is in Venezuela for the long term and appears keen to reinforce that message during Maduro's visit. In the days leading up to that visit, Venezuela's oil minister and head of PdV Rafael Ramirez has been busy in Beijing signing new oil and financing deals.
Ramirez took to Twitter (using a proxy service presumably, considering that the popular social network is blocked by China's internet censors) to announce the deals. The biggest of which were a pair of new Orinoco heavy-oil belt deals
China National Petroleum Corporation (CNPC) will join a $14 billion project to develop the Junín 10 block in the Orinoco heavy-oil belt. The project could produce 220,000 barrels a day, Ramirez said on Twitter.
French major Total and Norway's Statoil had shown an interest in joining Junín 10 in 2009, but those talks eventually broke down. At the time, Total said it would invest as much as $25bn at Junín 10 including the construction of a heavy-oil upgrader. Since then, PdV has been developing the project on its own, though little progress has been made. The company has said that it holds around 10bn barrels of recoverable crude reserves.
The other deal will see Sinopec join the Junín 1 heavy-oil project. "Junín 1 development will require investments of $14bn to reach production of 200,000 b/d of oil," Ramirez tweeted. PdV had previously signed a deal with Belarus" state oil company Belarusneft to develop the project. Ramirez did not provide any further details on the deal.
Ramirez also announced that China had agreed to inject $5bn into a joint development fund known as Fondo Chino. That will provide a much-needed cash injection for the dollar-starved Venezuelan government, which needs the foreign reserves to help bolster the value of the local currency.
China's Export-Import bank will loan state petrochemical company Pequiven $390m for work on a new port, Ramirez tweeted. "President Maduro's visit is awaited with great anticipation by the highest authorities in the Chinese government and state," Ramirez said.
Both sides have a lot riding on the relationship. China has committed $40bn in loans to Venezuela and expects the country to become a major oil supplier and market for its oil and oilfield service companies.
But the relationship is absolutely crucial to Venezuela. The country needs Chinese cash to lift its slumping oil production, the engine of its economy. It also hopes China will replace the US as its primary energy trading partner, especially as US oil import demand is expected to decline over the coming years. Venezuela sends around 600,000 b/d of oil to China currently, and Venezuelan officials have said they hope to increase that to 1m b/d by the middle of the decade.
With so much on the line, Maduro will want to make sure he keeps his backers in Beijing happy.