Venezuela, China Sign $11 Billion Oil, Transport Agreements 
By Peter Wilson and Allen T Cheng
Aug. 24 (Bloomberg) -- Venezuela, the world's fifth-largest oil exporter, has signed at least eight accords with China, including agreements on energy and banking, as it seeks to lessen its dependence on the U.S., President Hugo Chavez said.
China will invest $9 billion to help Venezuela build a railway line and $2 billion on the country's oil industry, Chavez, who is on a five-day official visit to the world's fourth-largest economy, said in Beijing today.
The country will double fuel sales to China next year to 300,000 barrels a day and more than triple them within five years to half a million barrels a day, he said earlier today in an interview with Venezuelan state television.
``We are going to reach 500,000 barrels within five years,'' Chavez said, up from 150,000 barrels a day now. China imported just 14,000 barrels a day from Venezuela in 2004.
Chavez has sought to lessen Venezuela's dependence on the U.S., which buys about two-thirds of the country's daily exports of 2 million barrels. Chavez, who took office in 1999, has repeatedly threatened to cut off sales to the U.S., alleging its government has attempted to assassinate or overthrow him.
Chavez's visit is an attempt by China to tell the U.S. that it has influence in South America and that it supports Venezuela's efforts to move away from the U.S., said James Brock, a Beijing-based independent energy adviser for major foreign oil companies.
Cooperation
The visit will ``push forward the development of our bilateral relations'' and promote cooperation on ``all aspects'' China's President Hu Jintao said at a welcoming ceremony.
State oil company Petroleos de Venezuela has signed an agreement with China National Petroleum Corp., the parent of China's largest oil company, to form a joint venture to manage and produce oil from the fields in the Zumano region and the Orenoco Oil Belt, Chavez said. No further details were available.
Zumano has proven reserves of about 400 million barrels of light oil and 4 trillion cubic feet of natural gas. Petroleos de Venezuela will hold a majority stake in the enterprise. The Zumano fields are currently producing about 25,000 barrels a day.
The two companies will also form a joint venture to certify reserves in the Junin 4 tract, one of Venezuela's heavy oil blocks. Venezuela is seeking to certify reserves in 27 blocks, which Chavez says may hold up to 235 billion barrels of oil.
``China would want to keep their options open on securing supply,'' Gavin Thompson, country manager for China at energy consultant, Wood MacKenzie Ltd., in Beijing said. ``Venezuela would like to see lots more Chinese investment for onshore, and the Chinese have experience in that area, in enhanced oil recovery from older, life-long fields, as long as the environment isn't very challenging like in deepwater. That's very good for Venezuela.''
Tankers and Rigs
Chavez also plans to sign contracts for 18 oil tankers worth $1.3 billion, and 24 oil drilling rigs. Part of the rigs would be constructed in Venezuela, he said.
The country has previously pledged to boost oil sales to China, the world's second-largest importer, with mixed success. Oil Minister Rafael Ramirez said in January that oil sales to China would top 300,000 barrels a day by the end of this year.
Venezuela's efforts to boost sales to China have been hurt by its type of crude oil, which is heavy in metals and sulfur. China's refineries aren't equipped to process the oil.
``China won't be able to process Venezuelan crude for five to 10 years,'' said Roger Tissot, an analyst with PFC Energy in Washington, D.C.
Far Away
Long distances are another factor, Tissot said. Venezuela can send oil to the U.S. Gulf coast in four to five days, while shipment to China can take as long as 40 days. Transportation costs also are higher, and Venezuela is probably losing as much as $3 a barrel by paying for the crude to be shipped to China, according to oil analysts.
``Most of the oil and Orimulsion is very heavy and you don't really want to be shipping them over, through large distances,'' said Wood MacKenzie's Thompson. ``There're some very clear economic reasons why they (the Chinese) are not as bullish about Venezuela as perhaps they might be.''
Orimulsion is a Venezuelan brand of alternate boiler fuel made of water and bitumen.
Venezuela last month ranked fourth in production from the Organization of Petroleum Exporting Countries, behind Saudi Arabia, Iran and the United Arab Emirates. The Latin American nation has failed to meet OPEC's output target since September 2002.
As Chavez has sought new markets for his country's crude, oil sales to the U.S. have fallen. Venezuelan oil and petroleum product sales to the U.S. fell 6.3 percent for the first five months, according to the U.S. Energy Department.
Still, Venezuela is one of the top four suppliers of crude oil and fuel to the U.S., according to Energy Department figures. In some months the country sends more to the U.S. than Saudi Arabia.
To contact the reporter on this story: Peter Wilson in Caracas at pewilson@bloomberg.net . To contact the reporter on this story: Allen T. Cheng in Beijing at acheng13@bloomberg.net
Last Updated: August 24, 2006 10:00