Venezuela Signs Energy Pacts with Portugal, Ecuador, and China for Orinoco Oil

Over the past week, the Venezuelan government signed agreements with Portugal, Ecuador, and China to jointly produce, refine, and market petroleum from Venezuela’s Orinoco Oil Belt. Planned projects will cost tens of billions of dollars and span over the next decade.

Mérida, May 15, 2008 (– Over the past week, the Venezuelan government and its state oil company PDVSA signed agreements with Portugal, Ecuador, and China to jointly produce, refine, and market petroleum from Venezuela’s Orinoco Oil Belt. Planned projects will cost tens of billions of dollars and span over the next decade. Venezuela and Portugal also signed agreements to, in the words of Venezuelan President Hugo Chávez, “exchange petroleum for spaghetti,” and explore potential liquid gas and wind power projects in Venezuela.

After a private meeting with Portuguese Prime Minister José Sócrates Carvalho Pinto de Sousa on Tuesday, Chávez said improved bilateral relations between the two countries shall “correspond to the profound brotherhood between our peoples,” and “will permit us to begin weaving a net of just and necessary relations between both nations.”

PDVSA and the Portuguese oil company PETROGAL concretized plans to explore and exploit the 257-square kilometer Block 6 of the Orinoco reserve with an estimated yield of 86,000 barrels per day (BPD) to be sent to Portuguese refineries.

The two companies intend to form a mixed enterprise, which by law must be 60% Venezuelan-owned. It will also explore liquid gas in Venezuela’s Sucre state and create a pilot project for wind power.
In addition, Portugal will now import 10,000 BPD of Venezuelan crude oil and will aim to import 30,000 BPD by the end of this year, with an eventual goal of 96,000 BPD, which would satisfy nearly a third of Portugal’s national demand.  

The oil will be paid for in the form of food, goods, and services. Specifically, the PDVSA affiliate Bariven signed accords with the Portuguese food companies Cerealis and Sovena to import 5,000 tons of powdered milk, 21,000 tons of pasta, and 21,000 tons of soybean oil, items found in shortage and with inflated prices in Venezuela and worldwide. Also, Portuguese firms will repair Venezuelan oil ships, renovate the Venezuelan La Guaira port, and the two countries will cooperate to promote mutual tourism.

“We continue with our task of diversifying the actors, the business partners of our national petroleum industry as well as the destination countries for our petroleum production,” said PDVSA President and Venezuelan Oil and Energy Minister Rafael Ramírez after visiting the Orinoco River Belt with the prime minister.

Sócrates, who commenced his visit by paying homage to Latin American Liberator Simón Bolívar at his burial place in Caracas, said, “We are two countries in friendship, two countries with fragile bilateral relations and there is no reason not to seek the benefit of Portugal and Venezuela.”

Venezuela’s energy accords also forged links in the Pacific this week. Monday, Ecuador’s state oil company PETROECUADOR confirmed that this month it will establish a mixed enterprise with PDVSA to construct a $6.5 billion refinery and a possible $5 billion petrochemical plant near the Port of Manta, southwest of the capital Quito.

PETROECUADOR will control 51% of the joint project. The two companies plan to finance 30% of the construction, which is scheduled to begin in early July and last five years, while they solicit international financing for the remaining 70%. It is estimated that the refinery, called Pacific Refinery – CEM, will process 300,000 BPD.

According to the Ecuadorian Ambassador to Venezuela René Vargas Paz, the town of El Aromo outside the Port of Manta was chosen as the site for the refinery because it “will permit that the product be commercialized in Asian countries such as China and Japan”. This will be “of grand importance to the two countries and Latin American unity,” he emphasized.

Members of the El Aromo community, however, claim they were not consulted about the refinery and that the impact it will have on the 5,000 inhabitants remains unclear. They also say the refinery threatens the nearby 4,000 hectare (9,880 acre) Pacoche forest reserve, on which they depend for clean water and materials for local industry.

“The sad thing is that the technicians who chose the site appear not to have known that the zone is the only lung and water source that [the Port of] Manta has” said Tito Erazo, the director of Environmental Studies at the Eloy Alfaro de Manabí University. Last weekend, Greenpeace activists and University professors arrived at the Pacoche to gather petition signatures and plan strategies for protecting the forest and the community of El Aromo.

Two days prior to PETROECUADOR`s announcement, the Chinese Vice Prime Minister, Hui Liangyu, finished a week-long visit to Venezuela during which the Chinese petroleum company CNPC concretized plans with PDVSA to exploit a 678 square kilometer block of the Orinoco reserve through a mixed enterprise called Sinovensa, in which Venezuela controls the 60% majority share.
Sinovensa will also build a refinery in the Guandong province of China with the capacity to process up to 400,000 BPD of crude, according to President Chávez. The entire project is estimated to cost $12 billion, and could include the manufacture of cargo ships to facilitate the 45-day journey of Venezuelan crude across the Pacific.

About his visit, Hui commented that “it has been wholly a success for the development and cooperation between Venezuela and China” which “have initiated a new era as friends and cooperative business partners on the basis of equality and reciprocal benefit.”

The two countries also signed an agreement to cooperate to reduce poverty and mutually promote agricultural production, and formed a joint investment fund to help finance their projects, starting with a loan from the Chinese Development Bank to Venezuela’s National Economic and Social Development Bank (BANDES).

Venezuela currently sells a more than a third of the 3 million BPD it produces to the United States. In addition to Portugal, Ecuador, and China, it has signed accords with companies from Russia, Norway, France, India, Argentina, Spain, Britain, Cuba, Belarus, Uruguay, Vietnam, Malaysia, Chile, and Brazil for the exploitation and refining of the Orinoco oil reserves, which are estimated to be the world’s largest.

Despite protests from the United States and other oil importing countries, Ramírez steadfastly holds that “there is no reason to modify the volume of production” of oil, because there is plenty of supply on the market, which has been expanded by rising demand from China and India, he says. Meanwhile, world oil prices surpassed a record $126 per barrel earlier this week.