‘Maoist’ Chávez strengthens oil ties with China

China’s President Hu Jintao (L) gestures to his Venezuelan counterpart Hugo Chavez while reviewing an honour guard during a welcome ceremony at the Great Hall of the People in Beijing Sepetember 24, 2008.  REUTERS/Alfred Cheng Jin (CHINA)

Financial Times | Sep 25, 2008

By Geoff Dyer in Beijing and Benedict Mander in Caracas

Describing himself as a “Maoist” and predicting the “collapse of global capitalism”, President Hugo Chávez announced yesterday that Venezuela and China would expand their energy ties by building an oil refinery in the Latin American country.

On his fifth visit to China, aimed at deepening cooperation between the two countries, Mr Chávez also announced that a joint investment fund would be doubled in size to $12bn (€8.2bn, £6.5bn).

Mr Chávez, whose anti-US rhetoric has sharpened re-cently, has long hoped that fast-growing China could become an important alternative market for Venezuelan crude and allow him to divert supplies from the US, which has caused unease in Washington. He said exports to China would more than treble to 1m barrels per day by 2012.

Although there remains considerable scepticism within the oil industry about the likelihood of Venezuela selling large volumes of oil to China because of distance and technical obstacles, the visit underlines the two governments’ strengthening relationship.

Bilateral trade is expected to exceed $8bn this year, from less than $200m a decade ago. Some 26 agreements are to be signed during Mr Chávez’s visit, including the construction of four oil tankers and projects in agriculture, telecommunications, electronics and petrochemicals. Before arriving, Mr Chávez said Caracas would buy 24 Chinese military aircraft and also planned to launch its first satellite from China in November.

Mr Chávez’s visit – which comes between stop offs in Cuba and Russia – could cause some difficulties for Beijing, which usually tries to avoid open confrontations with the US and eschews the Venezuelan leader’s outspoken rhetoric. Chinese diplomats have regularly argued that the country’s emergence will not lead to oil supplies being diverted from other countries.

However, China also sees Venezuela, which has substantial undeveloped oil reserves, as an attractive long-term partner to boost its energy security.

“To establish the strategic partnership with Venezuela would help China expand its overseas sources of oil in order to ensure its energy safety,” said Zou Jianhua, a professor at Zhongshan University in Guangzhou.

Some oil industry experts think the plans will not advance quickly. According to Trevor Houser at Rhodium Group in New York, China has announced investments that will expand its refining capacity by 50 per cent in the next three years, well ahead of demand growth. The result is that some of the announced projects will not get built.

David Johnson, analyst at Macquarie Securities in Hong Kong, said that it made sense for Chinese companies to attract partners to invest in building new refining capacity in China. It was less attractive to build refineries in Venezuela.

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