25 de Agosto de 2006
Venezuelan President Hugo Chavez's announcements of late make it sound like Venezuela is about to jump completely into China's lap. The truth is considerably less sensational.
Venezuelan President Hugo Chavez announced several deals after his Aug. 22-25 visit to China. To take Chavez's word for it, China will install a fiber-optic network in Venezuela and build 20,000 houses in the country by the end of the year. In the energy sector -- the Venezuelan economy's real powerhouse -- Venezuela will increase the amount of oil sold to China to 200,000 barrels per day (bpd) by the end of the year, 500,000 bpd by 2011 and 1.0 million bpd by 2012. (Currently Venezuela sells China about 150,000 bpd.) Additionally, bilateral cooperation in agriculture, gold and coal mining, tourism and the developing of new oil and natural gas fields will blossom. China will also sell Venezuela 18 oil tankers and 12 oil rigs.
At first, this Chinese-Venezuelan pairing looks like a match made in heaven. China consumes about 7.4 million bpd of crude -- 3.6 million bpd of which needs to be imported -- and is positioning itself to be a long-term challenger to U.S. hegemony. Venezuela exports about 1.9 million bpd of crude, mostly to the United States, yet resents anything that even alludes to the colossus to the north. China has shipyards but needs someone to bring tankers full of crude to its doorstep; Venezuela wants to buy tankers, and wants a customer to take its oil. Venezuelan oil fueling Chinese industry seems like a nice arrangement.
That is, until one looks at a map.
Venezuela is located almost precisely opposite of China on the planet, and since all of Venezuela's export points are in the central Atlantic and the Panama Canal is unable to transit supertankers, a Venezuelan-Chinese shipping run would be the single longest shipping route in the world. Right now China's oil supplies come predominantly from the Middle East and Africa, making them potentially vulnerable to a number of possible foes. But oil shipped around South America and then across the Pacific is vulnerable to U.S. interdiction anywhere along the way.
Additionally, Venezuela's crude oil is both viscous and contaminated with a host of impurities -- heavy and sour in the oilman's lingo. Not the sort of stuff anyone would pay top dollar for. In fact, Venezuelan crude generally trades for less than "normal" crude blends -- sometimes upwards of $5 a barrel less. The transport costs of a 45-day sail to China would add another $3 to $4 per barrel -- and that is assuming China's refineries can even swallow the stuff in the first place.
China can be described as aggressive. China can be described as hungry for commodities. China can even be described as focused on displacing the United States. But what China cannot be described as is stupid. China will not pay a premium of nearly $10 a barrel for the privilege of using the world's most-exposed energy transport route to consume some of the lowest-quality crude that has ever been discovered.
The only way China will take delivery of large volumes of Venezuelan crude is if:
1) Venezuela assists China in revamping its refineries to digest the stuff;
2) Venezuela buys its own tankers for the long-haul journey;
3) Venezuela pays the entire extra transport cost; and/or
4) Venezuela supplies the crude at a discount commensurate to its quality.
Taken together, this means that if Chavez were actually to make good on his promise to supply China with 1.0 million bpd of crude, he would need to extend the Chinese a discount in the neighborhood of $8 million to $9 million a day. That is a very high price for rhetoric. There is a reason every announcement about the details of this much-vaunted Chinese-Venezuelan cooperation has come from Chavez and there has not been so much as a peep from the Chinese.
The one area in which Chinese-Venezuelan cooperation is likely to blossom is refining. Most of the world's major oil fields -- and the vast majority of its high-quality oil fields -- are past maturity. Chinese leaders are well aware that, as the years grind on, heavier and sourer oil will become more prevalent in the global crude stream. Despite years of creeping degradation, Venezuela still commands the technology to process such materials, and China knows full well that it will need precisely those skills -- particularly if China is to ultimately develop reserves of heavy oil just off the mainland's shore. The desire to master such technologies can neither be quantified nor ignored.
The government entity making the most inroads into the world of heavy crude is the China National Petroleum Corp. (CNPC), which boasts a refining capacity of 2.42 million bpd. That is more than enough to absorb every drop of crude Venezuela currently exports. But in the meantime, once CNPC finishes upgrading its refineries it will be happy to absorb everything Chavez is willing to send -- that is, of course, assuming Chavez is committed enough to his rhetoric to ship it across the Pacific free of charge.