ARKANSAS, Sept 12 (Future Headlines)- Venezuela, a country with the world’s largest proven oil reserves, has had a long-standing and complex relationship with China. As Venezuela’s largest creditor and a major player in its oil and gas sector, China’s involvement in the South American nation’s energy industry has far-reaching implications.
China’s oil trade with Venezuela has been a significant component of their bilateral relationship. Despite stringent U.S. sanctions imposed on Venezuela, China has maintained its role as a key buyer of Venezuelan oil. One notable shift occurred in August 2019 when China National Petroleum Corp (CNPC), a major investor and oil client of Caracas, ceased lifting Venezuelan oil due to intensified U.S. sanctions. Following this, China began receiving Venezuelan oil through traders who labeled it as Malaysian crude.
According to data from tanker tracker Kpler, China purchased approximately 110 million barrels, equivalent to roughly 300,000 barrels per day (bpd), of Venezuelan crude in 2022. Vortexa, another tanker tracking specialist, estimated that China’s imports of Venezuelan oil, often labeled as Malaysian crude or bitumen mix, averaged around 430,000 bpd during the first eight months of 2023.
Moreover, China Aerospace Science and Industry Corp (CASIC), a state-owned conglomerate with a focus on defense, has been involved in shipping Venezuelan crude to China since November 2020. Notably, these shipments entered China through a customs green channel and were not subject to import quota systems. Officially, China has not reported any crude oil imports from Venezuela since September 2019. Venezuelan crude grades, primarily heavy sour Merey and Boscan, have found a market among independent refineries in China’s eastern Shandong province. These refineries typically label the imported Venezuelan oil as diluted bitumen at customs to bypass tightly controlled import quotas.
- CNPC’s role in Venezuela
CNPC has played a significant role in Venezuela’s oil and gas sector for nearly three decades. While CNPC ceased fresh investments in Venezuela in 2009, the company continued to maintain existing projects. Some key activities of CNPC in Venezuela include:
Intercampo and Caracoles Fields (1997): CNPC won contracts to take over-extraction at the established Intercampo field in Venezuela’s Lake Maracaibo and the Caracoles field in the Eastern Venezuela Basin.
Joint Venture with PDVSA (2001): In 2001, CNPC established a joint venture agreement with Venezuelan state oil company Petroleos de Venezuela SA (PDVSA) for an ultra-heavy oil development in the Orinoco Belt, home to the world’s largest heavy oil reserves.
Zumano Field and Heavy Oil Upgrading (2006): This cooperation was expanded in 2006 to develop the Zumano field, which lies near the Orinoco Belt. It also included extra heavy oil upgrading facilities for producing exportable crude in 2007. CNPC currently holds a 40% stake in the joint venture, known as Petrolera Sinovensa, which operates several blocks in the Orinoco Belt.
However, since 2009, CNPC has refrained from entering any new oil projects in Venezuela, with its last commitment being the investment in the Junin 4 block of the Orinoco Belt.
- Loans-for-oil deals
Financing the development of Venezuelan oil assets has largely been facilitated by Chinese state-owned banks through loan-for-oil deals. This financial arrangement dates back to 2007, when former Venezuelan President Hugo Chavez agreed to $50 billion in credit lines and loan-for-oil deals with China. These deals allowed Venezuela to secure financing for its oil projects, with the understanding that oil shipments would serve as collateral and repayment. However, a combination of factors, including a significant drop in oil prices and declining output from Venezuelan fields, led Caracas to seek grace periods on its debt to China.
In 2016, Venezuela faced economic challenges, forcing it to request grace periods on its debt to Chinese lenders. This move highlighted the vulnerability of Venezuela’s economy to fluctuations in oil prices and production levels. Venezuelan crude production declined substantially over the years, reaching 716,000 bpd in 2022, a fraction of the 2.8 million bpd it produced a decade earlier, according to official data reported to OPEC. This decline in production further strained the country’s finances and its ability to meet debt repayment obligations.
By August 2020, Venezuela had to negotiate grace periods for approximately $19 billion of debt owed to Chinese banks, indicating the dire financial situation of the Maduro administration. As of now, Venezuela’s debt to China stands at over $10 billion, according to independent data.
- The complex landscape
China’s involvement in Venezuela’s oil and gas sector is multifaceted and unfolds against the backdrop of shifting global dynamics. As the world’s largest importer of crude oil, China has a vested interest in securing a stable supply of energy resources. Venezuela’s immense oil reserves make it an attractive partner despite the challenges posed by mismanagement, sanctions, and political instability.
The relationship between the two nations is further complicated by Venezuela’s reliance on Chinese financing and China’s desire to ensure the security of its investments. The oil trade between China and Venezuela, while subject to sanctions and scrutiny, continues to be a lifeline for the Venezuelan economy. As Venezuela grapples with declining oil production, mounting debt, and political instability, China’s role becomes increasingly critical. Beijing must balance its strategic interests in Venezuela with the broader geopolitical landscape and its relations with the Western world.
While China remains a steadfast partner to Venezuela, the dynamics of this partnership are constantly evolving. The resilience of China’s engagement with Venezuela hinges on various factors, including:
Oil prices: The global oil market plays a pivotal role in determining the viability of Venezuela’s oil exports to China. As one of the world’s leading consumers of oil, China is sensitive to price fluctuations. A sustained period of low oil prices could challenge the economic feasibility of importing Venezuelan oil, affecting the terms of their trade relationship.
U.S.-China relations: The relationship between the United States and China is a critical factor influencing China’s approach to Venezuela. U.S. sanctions on Venezuela have repercussions for Chinese companies involved in the country’s energy sector. China may need to navigate its economic interests in Venezuela while managing tensions with the United States, which has voiced concerns about China’s support for the Maduro regime.
Venezuela’s political stability: The political landscape in Venezuela is highly unstable, with ongoing disputes over the legitimacy of President Nicolas Maduro’s government. China must assess the risks associated with its investments and financial support in a country marked by political volatility. A change in leadership or significant political developments in Venezuela could impact China’s approach.
Venezuela’s economic viability: The economic challenges facing Venezuela, including hyperinflation, food and medicine shortages, and declining living standards, raise questions about the country’s long-term economic viability. China may need to evaluate the feasibility of its loans and investments in a country grappling with severe economic crises.
Global energy transition: The global shift towards renewable energy and decarbonization initiatives may have implications for Venezuela’s oil-centric economy. As the world pursues cleaner energy sources and reduced greenhouse gas emissions, the demand for fossil fuels, including those from Venezuela, could decline. China might need to consider the long-term sustainability of its investments in a carbon-intensive energy sector.
Geopolitical alliances: China’s interests in Venezuela must be seen in the context of its broader geopolitical alliances. As China expands its influence globally, it will weigh the importance of its relationship with Venezuela against its interests in other regions. Decisions regarding energy partnerships are intertwined with China’s global strategy.
In navigating these complexities, China may seek to balance its economic interests, energy security, and geopolitical considerations. The resilience of China’s engagement with Venezuela depends on its ability to adapt to changing circumstances while safeguarding its investments and energy needs.
Writing by Moe Khaled; Editing by Sarah White