Venezuela and China bolster oil ties -- again

MIAMI, Feb. 25 (UPI) -- Venezuela and China have broadened their agreement on oil development in the South American country in hopes of increasing exports to China.

Beijing last week pledged $8 billion of a $12 billion joint Chinese-Venezuelan fund to improve oil production in Venezuela in the hopes of increasing exports to China as well as improving production capacity across the board at Venezuela's state-run oil company Petroleos de Venezuela SA.

Venezuelan President Hugo Chavez, who has taken great pains over the last decade to court China as an oil customer, pledged to improve production to its Far East client to 1 million barrels per day by 2015.

PDVSA currently supplies China with about 350,000 bpd.

"We will meet that goal," Chavez said following last week's meeting with Chinese leaders, including Vice President Xi Jinping, in Caracas. "All the oil China needs for the next 200 years is here. It's in Venezuela."

The agreement announced last week is the latest in a series of bilateral oil deals between Venezuela and China.

Since assuming office in 1998, Chavez has made a priority of courting oil-hungry China and laying the groundwork for an expanded energy relationship.

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

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

Closer energy relations have resulted in a significant increase in fuel exports to China during a time when oil exports have decreased to the United States, which still remains Venezuela's largest customer.

More recently, Chavez appears keen to draw China closer in an effort to attract more investment dollars from Beijing during a global economic downturn that's left most countries cash-poor, including Venezuela.

The Venezuelan economy has been particularly troubled by the fall of oil prices from a high last year of around $150 a barrel.

The steep drop-off in the price of oil -- almost 60 percent less than it was at its all-time high in July 2008 -- forced significant cost-cutting measures for the Venezuelan government and the wide-sweeping social programs favored by the leftist Chavez.

Venezuela's budget for 2009 was created with a $60-per-barrel price tag in mind. But with prices hovering in the $30-to-$40 range, the Chavez administration has admitted that its social efforts, both at home and abroad, would surely suffer.

"It shouldn't be surprising that Venezuela is looking for funds as the price of oil declines and there is no improvement (forecast) in the short term," Roger Tissot, an associate consultant with Gas Energy Latin America, told United Press International on Tuesday.

Tissot noted that Venezuela's need for cash for PDVSA comes at an opportune time for China, which has cultivated new oil agreements with several nations in Latin America, Africa and elsewhere to meet its ever-growing energy needs.

China's thirst for oil has some in Washington concerned that Caracas and Beijing intend to one day cut oil supplies to the United States altogether.

Though exports to the United States from Venezuela have decreased over the last year -- mostly due to OPEC-mandated oil-production cuts -- China has not appeared interested in squeezing the United States, which receives 12 percent of its oil from Venezuela, out of the Venezuelan export picture, Tissot said.

"China's strategy is not to take over (Venezuelan oil) but a self-preservation strategy" for its own energy needs, he said.