China Roots Spread in Latin America with New Deals
Chinese companies this year have finalized energy deals in Latin America giving China stakes in several projects that once completed will eventually amount to at least 570,000 barrels of oil equivalent per day, on top of stakes in several refinery projects totaling some 750,000 bpd of capacity, and a 5 million-barrel storage facilities. And that’s just a foot-in.
Beijing’s energy incursion into Latin America is not new. After all, it’s a perfect marriage between cash-hungry developing nations eager to diversify their economies and a roaring country needing to secure its energy needs for decades to come that is armed with a treasure chest of over $2.5 trillion in foreign reserves.
In fact, China has been signing preliminary deals for years in the region, although uncertainty surrounded many of them. But in 2010, China’s energy champions CNOOC, Sinopec, CNPC, and Sinochem have finalized contracts -some still pending regulatory approval- for a 40 percent share in some 800,000 bpd in Venezuela, another 40 percent in 300,000 bpd production in Brazil, and around 130,000 bpd of production in Argentina.
The six deals finalized this year, some after years of talk, has a total price of over $60 billion. Some have already been completed, others will take years of investment, but all appear set in stone.
“If you would have asked me a year ago, I would have said the hype over Chinese companies expanding in the region was a bit exaggerated. There was a lot of talk but not many big deals finalized,” said Erica S. Downs, China fellow in the Brookings Institute and former energy analyst at the CIA focusing on Chinese energy and foreign policies. “But there’s been a big change this year.”
On top of that, CNPC also signed a $6 billion deal to refurbish and double the capacity of a Cuban refinery to 150,000 bpd and to build a liquefied natural gas terminal, which Venezuela has financially guaranteed with oil.
China and Venezuela also plan to build a 400,000 bpd refinery in South East China specifically for the extra heavy crude found in Venezuela’s Orinoco belt, and Sinopec will also build another 200,000 refinery in Venezuela. China this year also leased a 5-million barrel storage facility in St. Eustatius in the Caribbean. And in previous years it has already set up operations in several other countries, including Ecuador, and signed long-term oil supply contracts with Brazil.
Together, China has not only secured a robust oil supply from Latin America, but also a fully vertical chain that includes refining, oil trading, and oil storage and that will not only allow it to supply its voracious energy needs, but also to profit from oil markets in the American continent, including to the US.
Most of the oil and oil businesses are tied to Caracas. “For years there have been contacts with Venezuela, and talk about huge projects and large amounts of money. But Venezuela is not the easiest place to do business,” Downs said. “So it’s significant they’ve finalized the deals.”
Venezuela’s Energy Minister Rafael Ramirez said earlier this month China will eventually invest around $40 billion in his country. CNPC will help develop one block in the rich Orinoco oil belt that will produce 400,000 bpd; Sinopec also will partner-up to develop two more nearby blocks that together will pump another 400,000.
The recently signed deals in Brazil in which Sinopec paid Spanish Repsol $7 billion for 40 percent stake for its Brazil unit, along with Sinochem’s $3.1 billion purchase of a 40 percent stake in Statoil offshore Brazilian field, are also expected to be the first of more deals to come.
In Argentina, Sinopec also bought Occidental’s operations for $2.5 billion, and earlier this year CNOOC paid $3.1 billion for a 50% stake in Argentina’s Bridas, which a few months later paid almost $7.1 billion for BP’s Argentina assets.
“Clearly there has been a big push,” Downs said. “Chinese companies are looking for good projects and to the extent that Latin American countries are open to investment, they will probably continue investing.”