Thursday, May 27, 2010

China signs $10-billion 'oil-for-loan' deal with Brazil news

Asia's largest crude refiner, China's state-owned Sinopec and China Development Bank (CDB) have signed a $10-billion 'oil-for-loan' trilateral agreement with Brazilian oil giant, Petrobras – finalising an accord agreed in February 2009 during China's vice president Xi Jinping visit to Brazil. (See: China to lend Petrobras $10 billion to secure future oil supplies)

Under the three-party agreements signed this week, the state-owned China Development Bank would lend $10-billion at low-interest rates to the Brazilian state-run oil company in return for a guaranteed supply of 7 million metric tonnes of crude oil in 2010, to Sinopec, which would increase to 10 million tonnes from 2011 to 2020.

This 'oil-for-loan' deal will be the fifth such deal signed by China since February 2010 totalling $45 billion, according to a Securities Journal report yesterday.

China Development Bank had agreed to a similar deal in February 2009 and cemented this year with Russian oil companies, where Russia would supply 300,000 barrels a day for the next 20 years in return for $25 billion loan at 6 per cent interest. (See: China, Russia sign $25-billion loan-for-oil deal)

Petrobras and Sinopec have also signed a memorandum of understanding on exploration, equipment and service supply. Sinopec said that it is negotiating with Petrobras to invest in their upstream projects.

Sergio Gabrielli, CEO of Petrobras, said that the $10 billion loan from China Development Bank, and other Brazilian banks would reach $30 billion, which would be used to explore offshore oil at Tupi basin in Brazil that is expected to cost $174 billion by 2013. (See: Petrobras to make $174.4-billion oil investments by 2013)

China has moved into Latin America for its energy needs in a big way.

This week, Beijing-based state-owned Sinochem Group, which figures in the Fortune 500 list acquired a 40-per cent stake in Norway's Statoil-owned Brazilian offshore Peregrino oilfield for $3 billion, making its first entry into the high risk deepwater exploration. (See: Sinochem acquires 40-per cent stake in Statoil's Brazilian oilfield for $3 billion)

In December 2009, China National Offshore Oil Corporation (CNOOC), the country's largest offshore oil producer, signed a deal to help exploit Venezuela's Orinoco petroleum belt, which in turn would increase the country's exports to China from the current 400,000 barrels per day to 1 million barrels per day. (See: Chinese oil firms in deal to exploit Venezuela's Orinco oil belt)

Earlier, China and Venezuela were reported to have set aside $12 billion for infrastructure construction in Venezuela, and China is ready to invest $800 million in the oil trade with Venezuela.

Venezuelan president Hugo Chavez said in April 2010 that China will provide soft loans worth $20 billion to Venezuela for the development of the Venezuela's oil reserves in the vast Orinoco basin. (See: China offers $20-billion loan to Venezuela)

Chavez said the new loan was on top the existing $12-billion Chinese-Venezuelan investment fund in which China deposits money in return for forward sales of oil.

But Brazil has become a strategic country in terms of energy and iron ore needs for China.

In a move to secure long term supply of iron ore for its steel plants, China's third-largest steel producer Wuhan Iron and Steel (Group) Co. had signed an agreement in December 2009 with Brazil's Mineração e Metálicos SA, to acquire 21.52-per cent stake in the iron ore miner for $400 million.

For its oil imports, China depends on the Middle East and Africa, and in the recent past has increased efforts to procure more oil from its neighbour Russia, with whom it shares a 4,300 km border, as well as from Kazakhstan and even in South America.

China imported more than 21 million tons of crude oil in April, an increase of 30.91 per cent from March, according to the latest statistics released by China Customs.

According to latest estimates, China will be dependent on crude imports by approximately 60 per cent by 2020, which means that it will have to source the globe for its future oil needs from oil producing countries.

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