PetroChina-PDVSA: China enhancing its Latin American energy ties with new refinery project

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19 January 2011, Oil

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On January 6, 2011, China's Ministry of Environmental Protection gave preliminary clearance for the proposed Guangdong province refinery to be built in collaboration between PetroChina and PDVSA, following on from the National Development and Reform Commission agreeing to the venture early last year. The refinery, with an estimated value of $8.7bn, is to be located in the city of Jieyang, and will have the capacity to refine 20 million metric tons of heavy Venezuelan crude per year. Through this project, China seeks to bolster its ties with the OPEC member nation, and also to encourage diversification in its domestic refining market. The move is likely to lead to greater competition within the Chinese refining industry, with national oil companies (NOCs) like PetroChina and China National Offshore Oil Corporation challenging the dominance of Sinopec.

Over the past decade, China has been active in the cross-border investments and deals field, particularly in energy security projects. China's CNPC has already formed a joint venture with PDVSA in the Orinoco basin in Venezuela. In October 2010, Sinopec acquired a 40% stake in the Brazilian arm of Spain's Repsol at a cost of $7.1bn, while in December 2010 the company entered into the Argentine upstream sector with its decision to acquire Occidental Petroleum's entire asset portfolio in the country for $2.45bn. Chinese NOCs will clearly gain major opportunities at the expense of international oil companies (IOCs), the plans of which are often hindered in the region due to legal and financial security issues.

As Chinese NOCs continue to establish a greater foothold in Latin American markets, the ties between the three major NOC led energy markets of China, Brazil, and Venezuela look set to strengthen. China could further diversify its energy sources through these ties, while the Latin American nations can expect to generate significant non-US investments to augment their energy industry. The proposed refinery joint venture between PetroChina and PDVSA will provide a major non-US outlet for Venezuelan heavy crude. Moreover, such a development will provide the leading NOCs from the three countries greater clout in the global energy market, particularly against the IOCs.

Source: Datamonitor

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