China’s Rail Building In Colombia Looks East And North

The long-term significance of the proposed rail link between the Atlantic and Pacific Oceans that the Financial Times reports China is in talks with Colombia to build and finance may not lie so much in exporting Colombian coal but Venezuelan oil, and providing Chinese exporters a new route to U.S. east coast ports.

The so-called dry alternative to the Panama Canal is one of several transport projects the Chinese and the Colombians are investigating. Most advanced, according to the FT report, is a 791 kilometers railway and expansion of the Pacific port of Buenaventura. The $7.6 billion project, funded by the Chinese Development Bank and operated by China Railway Group, would be capable of carrying up to 40 million tonnes of cargo a year, both outbound Colombian natural resources and inbound Chinese semi-manufacturers. Should Washington ever ratify a long-stalled free-trade agreement with Bogota, Colombia would become an important access point for exports to the U.S. market.

At the same time China is already buying oil from Venezuela to the east. China National Petroleum Corp. last year struck deals with PDVSA, Venezuela’s national oil company, to develop the Orinoco Belt oil field which extends from northern Venezuela out into the Atlantic and to explore for oil in southern Venezuela. The eventual output from both will need transporting to Pacific ports for transshipment to Asian markets. Colombia’s will be closest and potentially best connected thanks to the proposed rail lines. “Colombia has a very important strategic position, and we view the country as a port to the rest of Latin America,” Gao Zhengyue, China’s ambassador to Colombia, told the FT.

Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

PetroChina’s New Venezuela Oil JV

PetroChina has signed a 40-60 joint venture agreement with Venezuela’s state oil company PDVSA to develop the Junin 4 block in the Orinoco belt, the massive offshore field that has proven oil reserves of 8.7 billion barrels. The goal is to extract  2.9 billion barrels of crude over the 25-year term of the JV. In parallel, China Development Bank will make $20 billion of soft loans to Venezuela secured against oil sales from the JV, part of the broader oil-for-loans accord between the two countries struck last year similar to those Beijing has with Russia, Kazakhstan and Brazil.

Venezuela President Hugo Chavez said at the weekend that $16 billion of Chinese investment will help develop not only Junin 4, but also a 500MW thermal plant in Merida state to be built by CAMC Engineering, while the soft loans will be used to build housing, roads and three 300MW power generation plants to alleviate Venezuela’s electrical power shortages.

Venezuela has become Beijing’s fifth largest trading partner in the region with bilateral trade toping $7 billion last year. Venezuela now exports 460,000 barrels of oil a day to China, up from 200,000 barrels in 2006, and the oil-for-loans accord sees that rising to 1 million barrels a day eventually.

Chavez was hoping to tout all this while playing host to President Hu Jintao, but Hu cut short a visit to South America to return to China to visit victims of the Qinghai earthquake.

China’s Cloudy Investment In Chavez’s Grandiose Vision

Details of the newly struck oil deal with Venezuela remain murky. We don’t know much beyond the fact that there will be $16 billion of Chinese investment over three years to boost production from the Orinoco River basin by 450,000 barrels a day, probably from developing a new field as was the case with a similar recent $20 billion deal with Russia, also intended to add an extra 450,000 b/d. Fuller details are expected next month following talks between Chinese and Venezuelan oil officials.

China National Petroleum Corp. has a previous oil-for-investment deal with Caracas, but we understand the new deal to be separate from that, though CNPC, which also has rights to bid on the undeveloped Carabobo blocks in the Orinoco basin, is the likely company involved in the new deal. It is part of Venezuelan President Hugo Chavez’s attempt to wean the oil industry that bankrolls much of his political power off its dependence on U.S. investment (Exxon Mobil and ConocoPhillips getting the boot) and establish Venezuela as a self-styled energy giant in Chavez’s idiosyncratic vision of a multi-polar world.

The new deal would be the eighth and seemingly largest acquisition of overseas oil and gas assets this year by China’s state-owned companies. CNPC said recently that the first seven had a total value of 82 billion yuan ($12 billion),  80% up on the same period a year earlier. China Daily reported earlier this month that the company has taken a $30 billion loan from China Development Bank to finance overseas acquisitions.

Venezula, China To Build Oil Refineries Together

Venezuelan president Hugo Chavez would like to sell more of his country’s oil to China and less to the U.S.

Venezuela sold Beijing 38 million barrels in the first seven months of this year, almost double last year’s sales, despite the logistics difficulties of shipping it. Chavez, now visiting Beijing, says Venezuela could be sending China 1 million barrels a day by 2012. Overall trade between the two countries is expected to top $8 billion this year, up from less than $200m a decade ago.

During the three-day state visit, a stop off on trips also taking in Havana and Moscow, the two countries announced they would build two refineries, one in each country, capable of processing Venezuela’s heavy crudes that China currently has to blend with lighter crudes to refine, or sell on.

Meanwhile, Chavez has to settle for the fact that he is dependent on the U.S. he so detests to buy half Venezuela’s oil.