Venezuelan President Hugo Chavez said China will invest $16 billion to boost oil production in the country, as part of a strategy to reduce dependence on the U.S. and strengthen oil ties with other nations.
A Venezuelan commission is meeting with Chinese officials, and the deal to develop the block with state oil company Petroleos de Venezuela SA will be completed in October, Chavez said yesterday in comments on state television. He didn’t name the Chinese partners or identify the Venezuelan block where they will invest.
The deal for China to invest over three years follows a joint venture agreement with a group of five Russian companies announced last week to spend $20 billion developing the Junin 6 field. Chavez said output from Russian and Chinese projects in the Orinoco oil fields combined will produce 900,000 barrels of crude a day.
“Yesterday after intense days of negotiations in Beijing, an agreement was made with China to invest $16 billion over the next three years,” Chavez said. “Adding the deals with Russia and China there will be investments of $36 billion to produce with our partners.”
PDVSA, as the Caracas-based oil producer is known, will work with Chinese oil companies to build rigs and platforms for the Orinoco projects, Chavez said.
Orinoco oil is known as heavy crude for its tar-like consistency, and must be upgraded. In 2007 Chavez seized operating control of joint ventures in the Orinoco, prompting Exxon Mobil Corp. and ConocoPhillips, the first- and third- largest U.S. oil producers, respectively, to seek arbitration.
“China’s ambitious plan to secure overseas crude supply will continue in the near future before the global financial market goes back to normal,” Qiu Xiaofeng, chief oil analyst with China Merchants Securities Ltd., said by telephone in Shanghai.
Venezuela sent an average of 385,000 tons of fuel oil each month to China in the first half of 2009, up from the previous record of 380,000 tons a month in the first six months of 2007.
Chavez visited China in April and met with China National Petroleum Corp., or CNPC, and China Petroleum & Chemical Corp. to seek financing for oil projects.
Liu Weijiang, spokesman for CNPC, and Huang Wensheng, spokesman for Sinopec, as China Petroleum is known, didn’t answer calls to their offices and mobile phones.
CNPC has a minority stake in the Petrocaracol joint venture, which operates oil fields in Venezuela, and is certifying reserves in the Junin 4 area of the Orinoco belt. A venture between PDVSA and CNPC will pump oil from Junin 4 to supply a 400,000 barrel-a-day refinery to be built in China.
“The upstream crude exploration venture and downstream refining cooperation with Venezuela will form a chain serving the interests of both parties,” Qiu said.
Venezuelan Oil and Energy Minister Rafael Ramirez said on Sept. 9 that the government may award joint venture contracts to develop the Carabobo area of the Orinoco before the end of the year, after several delays.
CNPC along with Chevron Corp.,Total SA and 16 other companies paid $2 million each for the right to bid on the Carabobo blocks.
Oil prices are beginning to stabilize and could reach $80 per barrel soon, Chavez said yesterday. Ideally, oil would settle between $80 and $100 a barrel, he said.
Crude oil for October delivery fell 75 cents, or 1 percent, to $71.76 a barrel at 9:12 a.m. on the New York Mercantile Exchange. Futures are up 61 percent this year.