The Math of the Chinese Investment in Venezuela’s Orinoco Oil Belt

December 4, 2010

According to a PDVSA official in the local newspapers, Chinese companies will invest US$ 40 billion in the Orinoco oil belt of Venezuela, between now and 2016.

Let’s do the math:

Since all projects by law have PDVSA holding a 60% stake as a minimum, this implies that PDVSA will have to invest US$ 60 billion in five years or US$12 billion per year in the Chinese projects alone.

Add to that all of the other projects and the math is trivial:

At current oil prices, it ain’t going to happen.

21 Responses to “The Math of the Chinese Investment in Venezuela’s Orinoco Oil Belt”

  1. loroferoz Says:

    If this deal ever goes forward, it’s because the Chinese lent, one or other underhanded way, the money to PDVSA. Thus the Chinese will de facto own a piece of PDVSA, and in the future, they will own it in paper, when the next government finds it impossible to run.

    I do feel like I am living the last pages of Animal Farm. The pigs under Napoleon and Squealer will literally sell other animals to keep their farce running. Whereas beforehand, the pigs under Snowball kept a nationalized Farm running, more or less.

    It is a source of wonder for me how the social-democrats/christians will nationalize enterprise or regulate it to death, only to have the real Socialists run it to the ground in Venezuela. Then the same social-somethings will have to sell the whole hulking brutish monopoly wholesale to a multinational corporation for next to nothing. Don’t worry, all the blame can be shouldered by neoliberals. Who will have the consolation of laughing bitterly, having a clear conscience of the mess, and emigrate to a country that makes sense.

  2. An Interested Observer Says:

    “But that’s not their style. Their style is to announce, announce and then nothing happens”

    It’s also not their style to cede control over anything oil-related. Their style is precisely the opposite (witness the forced renegotiations, and the later expropriations). Maybe they’ll change the rules to not require 60% cash up-front by the government, but they’ll still get to make the calls as if they did. I’d like to see how much investment they get then.

  3. Roger Says:

    Also, I see that PDVSA is issuing another 2Bn$ in bonds Not a big sum as oil projects go. Also, who would buy bonds from a company that has no assets, only the liabilities of mismanagement?

  4. Carlos Says:

    PDVSA also announced a dozen of new refineries in Ecuador, Brasil, Venezuela, Nicaragua, an asian country, etc etc… No one is currently in the book.
    However PDVSA is selling its big stake in some europea refinieries.

    You cannot believe anything announced by PDVSA

  5. Potator Says:

    I think that the Chinese will go “solo player” in this project and the government will look to the other side like nothing is happening. esteban needs to show some investment to the people so they believe that things are going well in our industry. The Chinese and esteban are too clever as to let pdvsa screw all this money. Of course, this means tha the Chinese will do whatever they want without any supervision. We all know that the Chinese are not very worried about QA/QC and any enviromental issue. It is already happening on the “Tinaco-Anaco” Train project.

  6. moctavio Says:

    The announcement was China would invest 40 billion in the Faja projects. Since the projects are 60% owned by PDVSA then, that is China’s 40%. Remember two things China has lent Venezuela money, not Pdvsa. Secind China decided not to participate in the last round of tge Faja because one of th requirements was that it lend money to Pdvsa. Why is this? Easy, Pdvsa can go bankrupt, Venezuela not Pdvsa owns the oil fields. The Chinese probably feel safer that if there is a change in wko is in power, Govt. To Govt. Deals will becrespected.

  7. HalfEmpty Says:

    Could that 60% be partly “good will”?

  8. bruni Says:

    Is that your interpretation of the deal or is it what the deal really says (that Venezuela has to invest for 60% of the project). How much is the actual resource (the oil) is actually evaluated in terms of % for the project?

  9. deananash Says:

    The Chinese are playing long ball, no doubt about that. I know that they’ve sworn off interfering in other countries internal affairs, but the following scenario might just prove too delicious to resist:

    Overthrow the government – setting up a puppet – and blame the Americans. Surely there’d be no shortage of Venezuelans willing to sell out their country. Especially if it came with the added bonus of finally removing the clown-in-chief.

    Come to think of it, he’s already sold out the country…

  10. […] en Vargas Mientras Llueve Diciembre 5, 2010 (Version en ingles aqui, esta version realizada en colaboracion con nuestro amigo Kepler) Con la tragedia de la lluvia […]

  11. mick Says:

    If Hugo tries to expropriate the Chinese, I think they will send a few hundred thousand of their troops along with their lawyers to the negotiating table.

    No amount of used Russian arms will save Venezuela.

  12. moctavio Says:

    The 40 billion is Chinese investment in the projects, does not include what PDVSA has to invest. The Chinese did not accept to pay for PDVSA’s side in the projects, that is why they did not bid in the Carabobo field, which required that.

  13. Robert Says:

    Is it possible the 40 billion from the Chinese includes the PDVSA 60% in the form of a loan to be paid back in oil? I would expect this with the Chinese and from the China perspective, I could see this as a great deal. On the other hand, this is just Venezuela selling it’s future for a buck today. I wonder what kind of “commissions” where required?

  14. Speed Gibson Says:

    face me….the Chinese, who are far smarter than any latin and not forgiving, are gonna own your asses in a few years….better get used to the new coolie class

  15. HalfEmpty Says:

    Ugh, gotta go a little lower before the New Economic Policy is announced.

  16. m_astera Says:

    It’s apparent that selling oil to imperialist capitalists is the only strategy that the glorious revolution has.

  17. Roger Says:

    Part of the deal were loans that we must assume that China thought were going to help Venezuela with their part of the investment. But, the first loans paid out seem to have gone to help finance the last election. Reading sites like it is obvious that China’s interest in securing its needs for the future. They are partners with many Super Majors who don’t come to the table with a big bag of political baggage and are investing worldwide. Also, they seem to find Heavy Crude, Tar Sands and (my favorite) Oil Shale a great investment. It’s about science and technology and the willingness to invest with often high levels of risk. Long gone are the days where to get a few more Bs. all you had to do was poke another hole in the ground!

  18. moctavio Says:

    Veneconomy has done it and only for the Faja Pdvsa would have to come up with around 90 billion

  19. vdpsc Says:

    Has El Nacional ever done article outlining all of the project proclamations made, but never started, or completed? They should include dates.

  20. moctavio Says:

    But that’s not their style. Their style is to announce, announce and then nothing happens. It will be almost a year in February of the Faja announcements and PDVSA has yet to start on the required infrastructure projects that were its responsibility. Without that, the projects simply dont start. They will blame the rain, or maybe the lack of rain, or the lack of electricity, but they will never admit ot is the lack of money.

  21. jeffry house Says:

    Or they could change the law….or even ignore the law to achieve what the Chinese imperialists require.

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