Brazil Turns to China to Help Finance Oil Projects

Brazil’s oil industry is turning to China for cash in the latest sign of how Beijing’s clout is growing amid the global economic downturn.

Brazilian President Luiz In
The nations are being thrust together by the global financial crisis. Brazil’s state-controlled oil giant, Petroleo Brasileiro SA, wants to spend $174 billion over the next five years to elevate Brazil into the major leagues of oil-producing nations. With international capital markets on life support, China is among the few remaining sources of cash.

Petrobras, as the company is known, is turning to China at a time when China’s appetite for raw materials has lifted economies across commodity-rich Latin America, blunting the impact of the global downturn. In March, China passed the U.S. as Brazil’s biggest trade partner.

Terms of the arrangement had yet to be finalized before the Brazilian leader departed, a senior Petrobras official said, although a broad outline of the talks was announced by Petrobras earlier this year. On the table is a $10 billion loan in exchange for as many as 200,000 barrels per day. China’s chief goal, however, is to use the loans to win deals to provide services and equipment at a time when Brazil is becoming tougher in dealing with foreign companies, industry experts said.

Even before a deal is done, the months-long negotiations between Chinese and Brazilian officials have illustrated a competitive advantage for China’s government-backed companies at a time when credit markets are dry. Underscoring China’s importance as a lender of last resort, Brazil engaged China even though many of its past investment initiatives with the nation have ended in disappointment.

“What you are seeing is the new geopolitics of oil, where deals start from a political understanding and cut out the international oil companies,” says Roger Diwan, a partner at PFC Energy, a Houston-based consultancy.

Wall Street Journal (through Google News)