"We agreed on a huge, long-term financing plan," Venezuelan President Hugo Chavez said in announcing the agreement on state television Saturday. "This is a larger scope, a super heavy fund. China needs energy security and we're here to provide them with all the oil they need."
The highlight of the deal is a $16.3 billion joint venture between Petroleos de Venezuela and China National Petroleum Corp to develop the Junin-4 block of the Orinoco oil belt. Through the venture, PDVSA gets 60 percent of shares compared to 40 percent for CNPC in the exploration agreement, valid for 25 years.
The venture will spend $10.3 billion on production and $6 billion to build an upgrader to refine the heavy crude into lighter oil for export, Bloomberg News reports.
A PDVSA statement forecasts production for the Junin-4 block at 50,000 barrels a day by 2012, reaching 400,000 barrels a day by 2015. It expects about 2.9 billion barrels in extra-heavy crude oil production from the accord.
"As conventional oil reserves run out, non-conventional oil projects like Venezuela's Orinoco delta will take on a more prominent role in meeting China's oil demand boom," Gordon Kwan, the head of energy research at Mirae Asset Securities Ltd. in Hong Kong told Bloomberg News.
Kwan said the projected production of 400,000 barrels a day would represents a "sizable" increase in terms of mitigating China's reliance of Middle East oil, which accounts for about half of China's oil imports.
The $20 billion loan comes on top of an earlier $12 billion bilateral investment fund and underscores increasingly warm ties between Venezuela and China, but The New York Times notes the energy ties between the two countries remain blurred, given that Venezuela reports exports of 460,000 barrels of oil a day to China but Beijing places the figure closer to 132,000.
China, the world's second-biggest consumer of oil, spent $32 billion last year on mining and energy acquisitions.
Chavez said China's loan is the largest that China Development Bank Corp. has extended to a country and will go toward funding housing, railroad, energy and agriculture projects.
"The relations between China and Venezuela extend from below the surface of the Earth to outer space," Chavez said, in reference to the oil deal and Venezuela's first satellite, which China built and launched into orbit in 2008.
"We're producing oil together and our satellite is out there in space. This is a mutating world in transition," he said.