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Editorial Commentary
VenEconomy: Hot air
China and Venezuelasigned an array of bilateral agreements last week.
Nevertheless, in light of past experience, the probabilities are that, in the long run, it will turn out to be just another set of tall tales by the Bolivarian government.
Two of the agreements between Venezuela and China are for the establishment ofjoint ventures: One is aimed at developing and increasing production of extra heavy crude from the Orinoco Oil Belt by 400,000 b/d. The other involves construction of a refinery in the Chinese province of Guangdong, with a capacity of 400,000 b/d. According to the government, the cost of the two projects will total $2 billion; experts in the field, however, feel that the scope and size of the projects would suggest a much higher price. They estimate that the two could very well end up costing more than $5 billion.
In addition, the agreements cover six new joint projects in the fields of finance, social affairs, agriculture and energy, to be financed by the Chinese-Venezuelan Fondo Pesado de Inversiones (FPI) created, under an agreement signed in August 2006,with a capital of $6 billion ($4 billion contributed by China $2 billion by Venezuela). The FPI was set up to pay for “productive investments in Venezuela aimed at the creation of companies on Venezuelan soil with the economic and social development policies being promoted by the Bolivarian government.”
PDVSA and the Chinese state-owned CNPC, in turn, have signed an agreement aimed at increasing production by Sinovensa, their joint venture company, from its current 65,000 b/d to 110,000 b/d by late July 2008. This company, originally created to produce Orimulsion, is only exporting negligible volumes of fuel oil andMerey 16 crude (a mixture of extra heavy crudes and Mesa 30 light crude).
These agreements are in addition to a number of other ones signed in 2007, including one calling for the joint construction of three refineries in China capable of refining 600,000 b/d; several upstream projects on the Orinoco that would produce 600,000 b/d of crude; and the creation of an international shipping company, with50-50 ownership, that would manage 8 to 10 VLCCs transporting close to 2 million barrels per trip. The “minor detail” is that nobody knows where the terminal to dock this mammoth vessel is located.This collection of accords is additional to some $11 billion worth of agreements signed in 2006, during President Chávez’s trip to Beijing.
All in all, since 2006 Venezuela and China have signed contracts and agreements of all kinds valued at approximately $29 billion, with nothing to show for them so far.
Up to now, start-ups are few and far between. PDVSA reports that exports to China still haven’t reached the 200,000 b/dtarget originally set; in actual fact, however, thesituation is apparently far worse given that, according to Chinese sources, exports still haven’t even reached the 10,000 b/d mark.
As is the case with so many of the Chávez administration’s great “achievements,” these megaprojectswould seem to be nothing but a lot of hot air
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy , on 05/13/2007. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 05/15/08
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