Chavez: China, Venezuela to plan two refineries

Chavez: China, Venezuela to plan two refineries

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Sept. 23 -- Venezuelan President Hugo Chavez said his country and China plan to construct two refineries, one in each country, with a formal agreement to be signed soon.

"Venezuela has enough oil to last for 200 years," Chavez said. "And the Chinese are already working to tap that."

Chavez said the refinery to be built in Venezuela will be built in the Orinoco basin, but he did not provide details of where the Chinese facility would be constructed.

China is a key link in Chavez's aim of developing new markets for its oil exports, and Chinese demand has been growing in the past year.

Earlier this month, China National Petroleum Corp. subsidiary PetroChina Co. said it would need to import more Venezuelan crude to feed its upgraded 180,740 b/d Liaoyang refinery in northern China.

PetroChina has completed upgrading a vacuum distillation unit at the refinery that will enable it to process 70,290 b/d of Venezuelan high-sulfur crude.

CNPC said the refinery had received 388,490 bbl of Venezuelan crude for a trial operation during August and will increase its runs in the future.

In August, Petroleos de Venezuela SA Vice-Pres. Eulogio del Pino said the state firm is sending about 360,000 b/d of crude to China. Del Pino said PDVSA aims to increase those shipments to 1 million b/d by 2012.

Venezuela's shipments to China have surged this year. In May alone, Venezuela supplied 14.1% of China's product imports, up from 3.1% in April, according to figures from the Organization of Petroleum Exporting Countries.

In the first 7 months of 2008, Venezuela exported 5.18 million tons, or 38 million bbl, of crude to China—an increase of 93.8% over 2007.

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This, among other reasons, is why the US should increase domestic crude production. Relying on suppliers like Venezuela is not sustainable not only due to geopolitical conflicts, but actual operations of PDVSA. PDVSA has been highly mismanaged, and has not reinvested back into the business. Natural declines coupled with lack of investment will reduce Venezuela's oil exports to the US.