China putting $5 billion into Venezuelan oil

Jeff Tyler Aug 28, 2006


SCOTT JAGOW: We have word that China’s gonna sink a lot of money into Venezuela’s oil production: $5 billion by 2012. This could help Venezuela break its reliance on the US as a place to sell oil. More now from Jeff Tyler.

JEFF TYLER: When deciphering pronouncements by the populist Venezuelan president Hugo Chavez, it helps to read between the lines.

TERRANCE MURRAY:“There’s Chavez and his rhetoric. And then there’s the reality of oil markets and oil trading.”

That’s Terrance Murray, who covers Latin America for the oil research firm Energy Intelligence.

Murray says that, despite his politics, Chavez needs America’s dollars and the Chinese won’t be able to replace us any time soon.

MURRAY: “It would take such a long time for China to become a viable alternative that it would probably bankrupt him and leave him out of power.”

That’s because Chavez has staked his career on a series of ambitious and expensive social programs.

To pay for it, oil-industry economist Philip Verleger says Chavez has used money from the state-owned Petroleos de Venezuela, or Pdvsa.

As a result, he says, Chavez . . .

PHILIP VERLEGER:“Essentially diverted the cash flow from Pdvsa from searching for increased oil to providing benefits to the Venezuelans. Chavez has switched it. So production is going down. So Chavez needs high prices to keep his programs going.”

The US has been a steady source of cash, and US refineries are built to better handle Venezuela’s heavy crude oil.

But nonetheless, Venezuela would like to be less reliant on the US market.

Verleger says the deal with China represents diversification, a kind of insurance policy to hedge against deteriorating business relations with the US.

It’s insurance for China too. That country has been signing petro deals left and right.

The goal? Ensuring access to future oil supplies in order to meet China’s growing energy needs.

I’m Jeff Tyler for Marketplace.

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