China Woos Latin America in Oil Hunt

By Juan Forero –
Latin America is becoming a rich destination in China’s global quest for energy, with the Chinese signing accords with Venezuela, investing in largely untapped markets like Peru and exploring possibilities in Bolivia and Colombia.
China’s sights are focused mostly on Venezuela, which ships more than 60 percent of its crude oil to the United States. With huge oil reserves and a president who says that his country needs to diversify its energy business, Venezuela has emerged as an obvious contender for Beijing’s attention.

Vice President Zeng Qinghong of China, accompanied by a delegation of 125 officials and businessmen, signed 19 cooperation agreements with the Venezuelan leader, Hugo Chavez, in Caracas late in January. The deals included long-term plans for Chinese stakes in oil and gas fields that are now mostly considered marginal but which could become valuable with investments. Despite tensions between Chavez and the administration of President George W. Bush, Venezuela remains a major source for American oil companies, one of four main providers of imported crude oil to the United States.
Analysts and Venezuelan government officials say that tie will not be severed, as Venezuela is a relatively short tanker trip from the United States.
“The United States should not be concerned,” Rafael Ramirez, Venezuela’s energy minister, said in an interview. “This expansion in no way means that we will be withdrawing from the North American market for political reasons.”
Still, China’s voracious economy is an attractive market for Venezuela and other South American energy producers. “The Chinese are entering without political expectations or demands,” said Roger Tissot, an analyst for PFC Energy Group in Washington. “They just say, ‘I’m coming here to invest,’ and they can invest billions of dollars. And obviously, as a country with billions to invest, they are taken very seriously.”
China’s entry is worrisome to some American energy officials, especially because the United States is becoming more dependent on foreign oil at a time when foreign reserves remain tight. It was fear of supply shortages that pushed the price of a barrel of oil to $55 in October, driving up retail prices and hurting economies. On Tuesday, crude oil for April delivery was at $51.69 a barrel on the New York Mercantile Exchange.
The U.S. Senate Foreign Relations Committee, headed by Richard Lugar, Republican of Indiana, recently asked the Government Accountability Office to examine contingency plans should Venezuelan oil stop flowing. Chinese interest in Venezuela, a senior committee aide said, underlined Washington’s lack of attention to Latin America. China, the world’s second-largest consumer of oil, is already a leading competitor to the United States in its global search for oil, gas and minerals.
China has accounted for 40 percent of global growth in oil demand in the past four years, according to the U.S. Energy Department, and its consumption in 20 years is projected to rise to 12.8 million barrels a day from 5.56 million barrels now. The United States now uses 20.4 million barrels a day, nearly 12 million of them imported. Chinese companies, which have substantial government help, can dispense government aid to secure deals, take advantage of lower costs in China and draw on hefty credit lines from the government and Chinese financial institutions to compete with rivals from the United States and other countries.
“These companies tend to make uneconomic bids, use Chinese state bilateral loans and financing, and spend wildly,” Frank Verrastro, director at the Center for Strategic and International Studies in Washington, told the Senate Energy Committee in February. “Chinese investors pursue market and strategic objectives, rather than
commercial ones.”
China already operates two oil fields in Venezuela. Under accords signed in Beijing in December and in Caracas in January, it would develop 15 declining fields in Zumano in eastern Venezuela, buy 120,000 barrels of fuel oil a month and build a plant in Venezuela to produce fuel for Chinese power plants. Energy analysts say these deals, though mostly marginal, show that China is willing to wade in slowly, with larger ambitions in mind. Under the agreements, Venezuela has invited China to participate in promising projects like exploring for oil in the Orinoco belt, which has one of the world’s great deposits of crude oil, and searching for natural gas offshore.
Analysts say that part of China’s effort is to learn about Venezuelan technology, particularly the workings of its heavy-oil refineries. Much of the oil that will be exploited in the future will be tarlike, requiring an intricate and expensive refining process. In return, China is offering the Venezuelans a $700 million credit line to build housing, aid that helps Chavez in his goal of lifting his compatriots out of poverty.
“It’s a country that permits you to get more out of agreements than just energy accords,” Bernardo Alvarez, Venezuela’s ambassador to the United States, said of China.
Venezuela, with a view to exports to China, says it is exploring plans to rebuild a Panamanian pipeline to pump oil to the Pacific. Another proposal calls for the construction of a pipeline from Venezuela to Pacific ports in Colombia. China, though, is not just interested in Venezuela.
Much of Latin America has become crucial to its need for raw materials and markets, with trade at $32.85 billion in the first 10 months of 2004, about 50 percent more than in 2003. Mining, analysts say, is among China’s priorities, whether it is oil in Venezuela, tin in Chile or gas in Bolivia.
Chinese involvement in Latin America is “growing by leaps and bounds,” said Eduardo Gamarra, director of the Latin America and Caribbean Center at Florida International University.
Source: (C) 2005 International Herald Tribune.

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