China drills deeper into Latin America
By Russell Hsiao
Norwegian oil company Statoil announced on May 21 that it agreed to sell to
Chinese state-owned Sinochem Group a 40% stake (US$3 billion) of the Peregrino
field located in the Campos basin offshore of Brazil. The Peregrino
announcement closely follows the disclosure in March that another major Chinese
state-owned oil company, China National Offshore Oil Company (CNOOC), was
acquiring 50% ($3.1 billion) of a joint venture with Argentina's Bridas Energy
Holdings Ltd.
While the two transactions are still subject to their respective governments'
approval, these agreements highlight the renewed focus of Chinese activities on
Latin America, markedly raising China's stakes and profile in the region. The
apparent surge of Chinese interests in the region demonstrated by the raft of
recent deals also laid bare Beijing’s geopolitical strategy to assure a
diversified energy supply and evolving strategic partnership with Latin
America.
In Brazil, according to the Chinese Communist Party-owned Global Times, China
Development Bank (CDB), China Petroleum and Chemical Corporation (Sinopec) and
Brazilian state-run energy giant Petroleo Brasileiro SA (Petrobras) signed an
"oil-for-loan" agreement that stipulates that Petrobas will be committed to a
10-year oil supply (of roughly 200,000 barrels of oil per year) to Sinopec in
exchange for $10 billion worth of loans from the CDB within the next 10 years.
In Argentina, CNOOC president Yang Hua commented, "Bridas, with a world-class
oil and gas asset portfolio, is a very good beachhead for us [CNOOC] to enter
Latin America. Through this transaction, we'll establish a fair presence in
this region, which will further enable the company's production and reserve
growth in the future." Bridas also has exploration and production operations in
Bolivia and Chile, and according to a CNOOC statement filed with Hong Kong’s
stock exchange, it owns 40% of Pan American Energy LLC, an affiliate of BP Plc.
(Business Week, March 14).
In Venezuela, China agreed in April to extend $20 billion of loans to Caracas,
with the payment terms being $10 billion and 70 billion yuan ($10.25 billion).
China and Venezuela will reportedly form a joint venture to operate the Junin-4
Block located in the Orinoco heavy oil belt, which is expected to yield 2.9
billion barrels of extra-heavy crude over the 25-year contract term. According
to Wang Peng, a Latin America researcher at the prestigious Chinese Academy of
Social Sciences, the significance of the loan is that, "The 70 billion yuan
fund will be a trial to internationalize the yuan. Given the large oil reserves
and oil potential, the settlement of the deal in yuan will raise the Chinese
currency’s position in oil trade."
In order to reduce its vulnerability to high oil prices, China has intensified
its courting of Latin America as one of its three major regional energy
suppliers (the others being Russia/Central Asia and the Middle East/Africa).
While China's energy imports from Latin America lag in comparison to such
imports from other regions, China's substantial commitments in Argentina,
Brazil and other areas are strong indicators of the push to come.
As these recent cases also demonstrate, China's presence in Latin America is
not confined to securing access to markets and sources of primary products. It
is also strategic. Given Brazil's and Argentina's relatively sophisticated
level of development in several high-technology sectors, it is not surprising
to see Brasilia and Buenos Aries emerge as hubs of China's push into the
region. Progress in trade, investment and political and military cooperation
are usually tied to cooperation in the energy sphere. Indeed, both Brazil and
Argentina possess a vibrant nuclear industry, a robust aerospace industry and a
telecommunication infrastructure, among others.
Against the backdrop of the global financial crisis, Chinese activities in
Latin America have become notably more pronounced. The impact that the crisis
has had on Western economies cannot be understated, and the depth of China's
strategic partnership with countries in the region is becoming clear as China
becomes more confident and assertive in conducting its foreign policy. While it
remains unknown at what cost to US interests China's strategic partnerships
with Latin America will have in the long-term, it behooves Washington to engage
Latin America and maintain friendships throughout the region as the power
gravity slowly shifts east.
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