China Lubricates Its Ties With Venezuela

Offshore Oil RigChina will provide Venezuela with $20 billion in long-term financing, much of it to help the South American nation develop crude oil reserves. It's another example of how the People's Republic is soaking up energy supplies from the tar sands of Canada to wells in Iran to the deep-water crude miles under the ocean off Brazil. And it shows the extent to which China is going to build a portfolio of deposits to cover its nearly insatiable appetite for fossil fuels.

Venezuelan President Hugo Chavez said "the deal was on top of an existing $12 billion Chinese-Venezuelan investment fund in which Beijing deposits money in return for forward sales of oil," according to Reuters. Some of the new capital will be used to explore what's known as Venezuela's Junin 4 region. Experts expect that the area will eventually yield 400,000 barrels of crude a day.

China Daily reported late last year that "Figures from the General Administration of Customs show imported oil in December hit a record 21.3 million tons, pushing the country's total oil imports last year to 204 million tons." The figure was 52% of China's needs that month, an illustration of how much China needs to tap foreign reserves.

That appetite has become more voracious in 2010. The Wall Street Journal wrote that Chinese "refiners raised output by 18% from a year earlier." The demand from the mainland is almost certainly one of the causes for the run-up in oil price, which recently moved a touch above $87 a barrel.

China and its state-controlled oil companies are increasingly competing for supply with the largest Western companies like Exxon Mobil (XOM). This not only adds to demand but also pits a nation with nearly infinite supplies of capital against large oil companies that, despite their size, do not.

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