Analysis: Venezuela, China boost oil ties

MIAMI, Sept. 12 (UPI) -- Venezuelan and Chinese state petroleum companies said they will spend more than $10 billion to develop the oil-rich Faja del Orinoco region, part of a continuing effort by Caracas to bolster ties between the two countries.

Energy and Oil Minister Rafael Ramirez said the project will produce up to 1 million barrels per day at full capacity.

Speaking at an OPEC meeting in Vienna, Ramirez said the project would be financed by Venezuela’s “own capacities,” though some of the oil will be refined in China. President Hugo Chavez said earlier this week Venezuelan state-owned energy firm PDVSA would collaborate with China National Petroleum Corp. to build three new refineries in China.

Chavez has been courting new customers in Asia, particularly China, in hopes of broadening Venezuela's client base and reducing its dependence on the United States, its No. 1 customer.

Venezuela already enjoys strong petroleum ties with China. Earlier this year Ramirez announced Venezuela would buy 13 new oil rigs from a Chinese supplier. Over the past several years Chavez has worked steadfastly to improve Venezuelan-Sino oil ties. In August 2006 he traveled to China to finalize a deal for the construction of 24 drilling rigs in Venezuela and the purchase of 18 oil tankers with a $1.8 billion price tag.

Earlier that year Chavez said Venezuela would like to increase oil sales to China to 300,000 bpd by the end of the year. Other officials in Venezuela said the increase would reach 200,000 bpd, up from the 150,000 bpd now.

Since assuming office in 1998, Chavez has courted China and even expressed willingness to sell fuel to North Korea. He has also cultivated closer ties with Iran, drawing sharp criticism from Washington and increased concerns about the foreign-policy leanings of the Venezuelan president.

PDVSA has also in recent months announced plans to expand its exploration operations to Vietnam, where Venezuelan petroleum officials are reportedly interested in potential offshore sites, though it already rejected two sites offered by Vietnam following a review of a recent geological survey.

The decision to join forces with CNPC came in the wake of the July pullout of oil giants ConocoPhillips and Exxon Mobil Corp. after a protracted struggle with PDVSA over a plan that gives the Venezuelan state energy firm a majority stake in all the country’s oil and gas operations. While most companies acquiesced, ConocoPhillips and Exxon would not come to terms with PDVSA.

Their departure has left a production vacuum that PDVSA has yet to fill. Venezuela's oil output is believed to have slipped by more than 250,000 bpd from a year ago, according to the Paris-based International Energy Agency. Production has reportedly decreased from 2.6 million bpd to 2.37 million bpd.

Hoping to counter the shortfall, PDVSA recently announced it was investing $3.5 billion in new oil rigs, a much-needed injection of cash into improvements for a sector that some experts say has been abused by Chavez for his social programs.

Peter DeShazo, a former U.S. deputy assistant secretary of state for Western Hemisphere affairs and now Americas program director at the Center for Strategic & International Studies, a Washington think tank, noted PDVSA's infrastructure has been neglected in recent years to fund Chavez's social spending agenda.

"Certainly PDVSA's overall capabilities are not what they used to be," he told United Press International.

But some analysts counter that concerns about production shortfalls could be a calculated effort to jump-start the oil sector.

“Recent statements by PDVSA officials declaring the company in ‘operational emergency’ seem to aim at legitimizing a fast-track procurement process that bypasses normal bidding rules,” read a recent report by the New York-based Latin Source.

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