Can China Save Venezuela’s Collapsing Oil Industry?

China is throwing Venezuela a lifeline, although it is unlikely to pull the country back from the abyss.
 
China Development Bank will reportedly invest $250 million in Venezuela’s Orinoco Belt in an effort to stave off the decline of the country’s heavy oil production. That comes as China is also mulling a much larger $5 billion investment plan in Venezuela.
 
Venezuela’s oil production has fallen by more than half in the last few years, with output down to just 1.36 million barrels per day in June, according to the IEA.
 
The investment from China does not come from mere altruism. Venezuela has been sending China several hundred thousand barrels per day of oil for several years as repayment for past loans. But the catastrophic decline of Venezuela’s oil production threatened those shipments. China was in danger of never being paid back for the tens of billions of dollars that it loaned to Venezuela.
 
The crisis rose to a new level the last two months. The seizure of PDVSA’s assets on several Caribbean islands by ConocoPhillips deepened the problems for Venezuela. Unable to process heavy crude on those islands, PDVSA tried to bring operations back to the country.
 
But Venezuela lacks adequate infrastructure to export oil at levels it had been when PDVSA operated the Caribbean facilities, so the loss of those assets meant that PDVSA could not load enough oil onto ships. As a result, a backlog of ships sat idle off the coast, and PDVSA was under pressure to declare force majeure on oil shipments.
 
Ultimately, that means that Venezuela does not have enough oil to meet all of its contractual obligations. And the inability to load oil onto very large crude carriers from Venezuelan ports threatens to interrupt long distance shipments to customers around the world – including China.
 
Reuters reports that Venezuela’s shipments to India declined by 21 percent in the first half of the year compared to a year earlier, presenting problems for Indian refiners who are also under pressure to curtail imports from Iran because of sanctions.
 
The IEA estimates that Venezuela’s production could fall close to the 1 mb/d mark by the end of this year, implying a loss of around 600,000 bpd since the start of 2018. “As for 2019, it is hard to see a recovery and output is likely to fall further,” the IEA said in June. “For now, we estimate an additional loss of around 200 kb/d over the course of next year, to around 800 kb/d – but the decline could be far steeper.”
 
Related: The Biggest Risk For Natural Gas Markets
 
China hopes to stem the losses at Venezuela’s Orinoco heavy oil belt. “Upgraders operated by foreign joint-venture partners in the vast Orinoco heavy oil belt are breaking down and running below capacity due to the stress associated with sourcing diluents, payment and corruption issues and staff security,” the IEA said. “Flows from Venezuela’s ageing conventional oil fields are falling fast.”
 
But it isn’t at all clear that China’s investment will slow the decline. For one, the sum is too small to have a significant impact. But in a broader sense, Venezuela has been taking out loans from China for years and it hasn’t led to economic progress. A report earlier this year from the Center for Strategic & international Studies argued that far from being an economic boon to Venezuela, China’s financial assistance has kept Venezuela hopelessly dependent on oil, while other sectors of the economy have been entirely hollowed out.
 
Moreover, as Venezuela racks up debt defaults, as seems unavoidable, China will be there to pick up the shattered pieces. The state-owned oil companies from China and Russia “will probably market a significant share of PDVSA’s exports and operate an increasing share of its production, guaranteeing the repayment of their loans,” Francisco Monaldi wrote in a report from the Atlantic Council in March. While China may offer some financial assistance, but it probably won’t lead to a rebound. The most likely outcome will be Venezuela continues to decline and is forced to hand over slices of the country’s assets to China.
 
Venezuelan officials may sell the latest loan from China as a sign that things are turning around, but that is unlikely to be the case.
Shoot

Trending News

BigBasket eyes 40% revenue from private labels next fiscal

Flipkart appoints Smriti Singh as chief human resources officer

CitiusTech eyes $500M revenue in five years

China's JD.com feels pressure as sales of big ticket items slow down

E-pharmacies divided over their legal status

CapitalG’s India head Kaushik Anand quits, will join A91 Partners

Infosys completes JV formation with Temasek

With Walmart in driver's seat, Flipkart set to speed up hiring

Mumbai: Now, Uber fare to factor in fuel rate fluctuation

Amazon, Flipkart under ED probe for alleged violation of FDI norms

Paytm sets up wholesale entity for ecomm business like rivals

Uber posts $1Bn loss in quarter as growth in bookings slows

Infosys to open Texas hub, hire 500 Americans by 2020

Swiggy's $300M secondary share sale to be the fastest liquidity event for growth-stage investors

Over half of billion-dollar startups in US are founded by immigrants

Apple to tighten e-commerce play in India post Amazon deal

Amazon Wholesale's FY18 revenue up 73% due to B2B focus

Twitter cuts suspect users from follower counts again

Payments majors Visa, Mastercard and American Express may be taxed on India income

IRCTC wakes up after 2 years to fix its security bug

Alibaba's on-demand online services unit raises $4Bn, now valued at $30Bn: Sources

Twitter is looking to take the conversation to Bharat next

Bharat going digital for payments

Reserve Bank of India plans payments watchdog

Apple not in settlement talks 'at any level' with Qualcomm: Report

Payment cos witness growing adoption of digital gold during festival season

Meesho raises $50M from DST, Shunwei, RPS Ventures

BMTC will soon allow commuters to buy tickets using digital wallets

Flipkart, Amazon India register significant user base growth during the festive month

Rural e-commerce market a $10b-$12b opportunity in the next four years

Amazon goes shopping for Future Retail, to buy 9.5% stake

Walmart’s veggie-tracking technology: Use Blockchain

India's oldest cryptocurrency exchange Zebpay shuts down

Apple's growth in India is becoming a challenge: Tim Cook

Google India tax row: $2 billion remittance in 5 years may add to tech giants load

Want WhatsApp to cooperate with law enforcement agencies: RS Prasad

Flipkart acquisition won’t hit Walmart India plans

Twitter India earnings fall 14% in 2017-18

Alibaba to help manufacturers solve future problems with technology: Jack Ma

Ola likely to hit $5.5Bn valuation with Steadview's $100M investment

Flipkart India losses widen to Rs 2,063.8 crore in FY18

Google to give away USD 25 million to fund humane AI projects

Swiggy FY18 revenues surge 232% to Rs 442 Cr, inches closer to Zomato

Paytm's losses go up 270% to Rs 3,393 Cr driven by e-tail business

Flipkart told to stop selling products under MarQ private label

Once considered as rivals, Ola and Uber could now be saviour of autorickshaws

HCL Tech to hire nearly 30,000 people, applies for 640 H-1B visas

Zensar Technologies Q2 profit up 49% at Rs 93 crore

Facebook beyond Facebook? Instagram, Messenger & WhatsApp step up

Paytm Mall expects fashion, grocery to drive its growth

HDFC Bank Q2 net profit climbs 21% to Rs 5,005 crore on robust core income

Zomato, Swiggy and UberEats double salaries of delivery staff in some cities

Funding Galore: Indian Startup Funding Of The Week

“Over $3 Bn Was Invested Across 372 Deals With 54 Mergers & Acquisitions”

E-commerce players brace for big battle over online pharma

Walmart signs 5 year Cloud tech partnership with Microsoft

Flipkart adds recharge, travel tabs

Unhappy with WhatsApp reply, Indian govt may send second notice

Cars24 closes $50M funding to fuel its expansion plans

Agritech startups Sabziwala and LivLush merge their business under new entity Kamatan

Avail Finance lands $17.2M from Matrix Partners & Ola, Freecharge and Flipkart founders

RBI suggests tax sops, self-regulation to build fintech space

Swiggy hires new CEO for its Access Service, gets new CFO

Logistics company Delhivery registers 44% increase in FY17 revenues

WeWork to acquire one of the oldest social networks, Meetup

Qualcomm rejects Broadcom's $103 billion offer

EasyRewardz gets $2 million Series-A funding

'Anemic' iPhone 8 demand drags Apple shares lower

Lending platform Lenden Club gets Rs 3.5cr in Equity Investment

On festive sales, Flipkart says 65% clients from Tier-II cities