How Will Energy Partnerships With China Affect the Region?

by Shu on March 23, 2009

in News

 

QChinese Vice President Xi Jinping last month visited Venezuela and Brazil,

 

two countries hoping to boost their oil exports to China in the next few years. How will these energy partnerships develop? Will greater Chinese engagement significantly change these countries’ energy sectors?

 

 

AGuest Comment: Jiang Shixue: "To a certain extent, the Chineseeconomy is

 

energy-intensive. Onthe one hand, China’s own energyresource is not enough for its rapid economicgrowth. So China hopes to importenergy from foreign countries, includingVenezuela and Brazil. On the other hand,many countries in Latin America have theirown relative advantage, i.e. huge reserves ofenergy. In the age of globalization, South-South cooperation has acquired bothnecessity and momentum of development.China‘s relation with Latin America is partof South-South cooperation, and this bilateralrelationship is mutually beneficial.Both Venezuela and Brazil, and many otherLatin American countries, need foreigncapital and technology to develop theirenergy sectors. Therefore, there is a goldenopportunity for China to make moreinvestment in the region’s energy sectors.As a matter of fact, Latin America’s energysectors are open to every country in theworld, and China is only one of the partners.Regarding oil exports to China, wehave to consider geographical distance. While an oil tanker can reach the UnitedStates coast in a week or so, it will take onemonth to travel across the Pacific. As aresult, economically speaking, it might behard to increase the amount of oil exportsto China from Venezuela and Brazil. Moreover, we have to understand thatChina does not have enough refinerycapacity for Venezuela’s heavy oil. Oil companiesfrom the United States and otherWestern countries have been operating inLatin America’s energy sector for decades,and China is only a newcomer. So I don’tthink China’s presence will soon changethese countries’ energy sectors, and theUS dominance in Latin America’s energysector will not be challenged."

 

AGuest Comment: Nelson Altamirano: "The energy partnershipsbetween China

 

andthe two South American countriescannot be seen independently fromthe Chinese partnership with SaudiArabia and African oil partners. SaudiArabia is the main Chinese energy partnerand will remain so because it can satisfyboth China and the United Stateswith no conflict at all. Can Venezuela bethe second partner? This partnershipdepends on developing new oil resourcesin the Faja and refineries in China. Theseprojects may need the influx of a thirdprivate partner with technological andfinancial weight. It is not realistic tothink that China National Petroleum Company (CNPC) and PDVSA alonewill carry the costs of their ambitiousprojects. At least, this is not the wayCNPC and Saudi Aramco already managedto bring in 1 million bpd intoChina. In addition, the partnershipbetween China and Venezuela dependson how fast the Chinese convince theChavez administration that the exporttarget of 1 million bpd by 2012 does notsubstitute the exports to the UnitedStates. There must be a supply and demand balance for the world’s largesteconomies. Given the current world economicconditions, low oil prices and bigsocial spending projects in Venezuela, Isee the greater involvement of China inthe Venezuelan energy sector as a positiveelement that may bring balance and pragmatismto the Venezuelan energy policy.If played right, the Chinese may be thestone needed to re launch the developmentof the Faja."

 

AGuest Comment: R. Evan Ellis: "The recently completed five nationtrip to Latin

 

America byChinese Vice-President XiJinping highlights the diverse basket ofinvestments that the People’s Republic ofChina (PRC) is making in Latin Americain support of its global search for energysecurity, as well as the impact of thosebets on Latin America itself. Venezuela isthe high-risk, highest-payoff componentof China’s Latin America energy portfolio.The national oil company PDVSA’splans to increase exports to the PRC from364,000 barrels per day currently to 1million barrels per day by 2012. Xi alsosigned an agreement doubling China’sloan to Venezuela’s Heavy InvestmentFund from $4 billion to $8 billion, to berepaid by future oil deliveries—althoughfew of the 41 projects currently in thefund contribute to the infrastructureneeded to produce that oil. The agreement signed by Xi in Brazil similarlyexpands the PRC’s claim on the newlydiscovered oil in the deep water of theSantos and Campos basins. By contrast tothe Venezuelan agreements, however, the $10 billion line of credit provided to Petrobras actually contributes to its ability to deliver the 160,000 barrels of oil per day which it committed to deliver China, and the track record of Petrobras inspires confidence in its ability to deliver on the assured future supply that China hopes to buy through this investment."

 

Jiang Shixue is vice president of theChinese Association of Latin AmericanStudies in Beijing.

 

Nelson Altamirano is assistant professor of economics at the School of Business and Management at National University.

 

R. Evan Ellis is an associate at Booz Allen Hamilton.

 

Source: Latin America Advisor, March 23, 2009

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