How is China Helping Venezuela?
Jul 28 2018 Read 1461 Times
While Venezuela was once the backbone of the Latin American oil industry, today political and humanitarian crises have thrown the nation into turmoil. The latest statistics from OPEC suggest national crude oil production dropped almost 13% in 2017 to hit a devastating 28-year annual low. In June, the country produced just 1.36 million barrels per day according to the IEA. Analysts warn that the crisis could deepen and predict Venezuelan production could plunge to the 1 mb/d mark by the end of 2018.
“As for 2019, it is hard to see a recovery and output is likely to fall further,” comments the IEA. “For now, we estimate an additional loss of around 200 kb/d over the course of next year, to around 800 kb/d – but the decline could be far steeper.”
China steps up as fiscal saviour
Now, there could be light on the horizon. In a move worth an estimated US$250 million, the China Development Bank will invest heavily in Venezuela’s Orinoco Belt in a bid to save the country’s heavy oil production industry and minimise the chances of a debt default. Furthermore, rumours are circulating that China is also flirting with a much larger investment plan worth a cool US$5 billion.
So why is China stepping up? Beyond altruism, China relies on several hundred thousand barrels of Venezuelan oil per day to feed its daily consumption of 11.5 million barrels, with much of it was sent as repayment for past loans. In the wake of Venezuela’s catastrophic oil industry decline China is at risk of not receiving its shipments and seeing Venezuela default on debt worth tens of billions of dollars.
A much-needed infrastructure injection
Lack of infrastructure is one of the biggest causes, with Venezuela unable to ramp up production due to financial hurdles.
“Upgraders operated by foreign joint-venture partners in the vast Orinoco heavy oil belt are breaking down and running below capacity due to the stress associated with sourcing diluents, payment and corruption issues and staff security,” says the IEA. “Flows from Venezuela’s ageing conventional oil fields are falling fast.”
Cue an injection of Chinese cash. In a bid to boost Venezuela’s Orinoco heavy oil belt and help the country meet its contractual obligations, China is set to pour at least US$250 million into the oil economy. While it's good news for Venezuela, experts warn that Chinese support may not be enough to slow the decline and save the country's oil industry.
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