Oil lubricates Beijing-Caracas
relations By Jose Orozco
CARACAS - As its trade with Venezuela
increases, China's political influence in the
Latin American country also grows, which may well
serve both countries' interests.
Venezuelan President Hugo Chavez' visit to
China this August accomplished two goals, the
signing of oil and infrastructure agreements as
well as getting China to support Venezuela in its
bid for a United Nations Security Council seat.
Although Venezuela lost that bid, Chavez' visit
showed the United States
that geopolitics and
trade go hand in hand in the China-Venezuela
"strategic alliance".
Attracted by China's
investment power, many Latin American countries
are seeking closer trade ties with China, which in
turn seeks raw materials and new markets in which
to flex its muscles. China's trade with Latin
America increased fivefold from 1994 to 2004,
reaching an annual US$40 billion. A recent local
news story estimated that Venezuela-China trade,
having reached $2.1 billion in 2005, would hit $4
billion this year.
Yet the US remains
Venezuela's No 1 trade partner, purchasing 60% of
Venezuelan oil exports. Trade with the US reached
$40 billion last year, $34 billion of which was
Venezuelan exports and overwhelmingly oil-based,
according to the US State Department website.
Venezuela wants to break that dependence and
diversify its oil customers.
But the
strategic alliance with China isn't merely an
economic venture. Tension has marked relations
between the US and Venezuela since Washington
backed a 2002 coup against Chavez that unseated
him for 48 hours.
Chavez has called US
President George W Bush "the devil" and the US a
threat to humanity.
Since taking office in
1998, Chavez has visited China four times. China
already works with Petroleos de Venezuela SA
(PDVSA), the state oil company, on the Intercampo
Norte and Caracoles fields and has signed
agreements to operate jointly the Zumano block's
mature oilfields as well as the Orinoco Belt's
Junin block. Venezuela exports about 150,000
barrels per day to China, but Chavez has promised
to increase that number to 1 million in 10 years.
"The oil issue is of utmost importance
because we are diversifying the petroleum
business," said Chavez on his recent visit to
China. "It's one step more in a strategic
alliance." But analysts see China as being more
strategic for Venezuela's geopolitical ambitions
than the other way around.
"The use of the
term suggests a magnitude that isn't present,"
said Mazhar Al-Shereidah, an oil-economics
professor at the Central University of Venezuela
in Caracas. "It's a political understanding, but
not a political alliance."
Many analysts
argue that Chavez wants to help China's ascent to
power, while China takes a pragmatic and
business-minded approach to its dealings with
Venezuela. While diversifying its oil-customer
base is a smart move, say experts, politics has
led Venezuela to diversify toward less profitable
customers, hurting its bottom line.
Through PetroCaribe and other agreements,
Venezuela provides oil at significant discounts.
The Chavez government claims these oil deals
strengthen regional integration efforts, while
critics say Chavez is trying to buy support for
his anti-US struggle. Venezuela assumes the high
transportation costs on its oil shipments to
China, for instance, so eager is it to become
friends with China, say analysts.
Chavez
has repeatedly threatened to cease oil shipments
to the United States if it intervenes in
Venezuelan affairs, suggesting he would like to
divert oil to China, squeezing the US. But
analysts say diverting those 1.5 million barrels
per day to China faces significant obstacles.
"The biggest obstacle is China's inability
to refine Venezuela's high-sulfur crude,"
explained Patrick Esteruelas, Latin America
analyst for Eurasia Group in New York. "Although
China is building additional refining capacity,
it's mainly for heavy crudes from the Persian
Gulf, which have much lower sulfur content. This
leaves little room for Venezuelan crude."
By contrast, the US states on the Gulf of
Mexico coast have refineries ideally set up to
refine Venezuela's heavy crude, along with being
just a four- or five-day trip away.
Oil
shipments to China take more than 40 days from
Venezuela. A proposed pipeline through Colombia to
the Pacific would cut transportation time to about
25 days, bringing Venezuela and China closer. Yet
the pipeline project isn't going anywhere right
now.
While oil grabs all the attention,
Venezuela is keen on obtaining Chinese technology.
The August agreements included Venezuelan
purchases of Chinese tankers and oil-drilling
rigs. There are plans for China to help Venezuela
manufacture its own drilling rigs at home.
"The Chinese developed their own
technology without copying foreign models," said
Al-Shereidah. "That attracts a country that
doesn't want to imitate."
For Saul Ortega,
a pro-Chavez deputy and president of the
legislature's Foreign Affairs Commission, "Chinese
technology is very important."
The key to
Venezuela's Chinese ambitions, argues Esteruelas,
lies in boosting investment, and with it,
production. Although Venezuela claims to produce
3.3 million barrels per day, most industry experts
estimate production at about 2.6 million. They
attribute much of the flagging production to the
traumatic loss of half of PDVSA's workforce at the
turn of 2003. Chavez fired them for taking part in
an oil strike aiming to oust him from power.
Although PDVSA plans to produce 5.8
million barrels per day by 2012, the new Orinoco
Belt projects won't produce oil until 2008 or so
and profits that could support new exploration and
production have instead been used to pay for
social programs. These programs meet urgent social
needs, but the country's long-term economic health
depends on heavy investment of its own.
Before Venezuela can dream of diverting
oil away from the US, it needs to get its house in
order, said Esteruelas. "With their production
woes, there's no way they can send significant
volumes of oil to China," he said.
Jose Orozco is a freelance
journalist based in Caracas, Venezuela.
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