[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')anada - Some more flesh on the China-Vz deals: http://en.wikipedia.org/wiki/China%E2%8 ... _relations

Sino-Venezuelan trade was less than $500m per year before 1999, and reached $7.5bn in 2009, making China Venezuela's second-largest trade partner, and Venezuela is China's biggest investment destination in Latin America. Various bilateral deals have seen China invest billions in Venezuela, and Venezuela increase exports of oil and other resources to China. In September 2008 Venezuela signed a series of energy co-operation deals with China with the President of Venezuela stating that oil exports could rise threefold by 2012, to 1 million barrels per day.

Further trade agreements worth $12bn were signed in February 2009 and Venezuela's first cell phone factory, built with Chinese support, and was inaugurated. In February 2009 Venezuela and China agreed to double their joint investment fund to $12 billion and signed agreements to boost co-operation which include increasing oil exports from Venezuela, China's fourth biggest oil provider. An oil refinery is planned be built in China to handle Venezuelan heavy crude from the Orinoco basin

In 2009, China entered into a partnership with Venezuela to launch a railway company in Venezuela which will be 40% controlled by the China Railways Engineering Corporation (CREC) and the remainder by Venezuela. In September 2009 Venezuela announced a new $16bn deal with China to drill for oil in a joint venture with PDVSA to produce 450,000 barrels per day of extra heavy crude. Hugo Chavez stated that "In addition, there will be a flood of technology into the country, with China going to build drilling platforms, oil rigs, railroads, houses."

[ROCKMAN]

Tanada – Yep…it looks like the high oil prices have killed orimulsion and it’s now being upgraded to a more valuable “oil” product. Not much recent news…looks like China and Vz aren’t putting out many details these days. From: http://www.avn.info.ve/contenido/chines ... arrels-day

The new credit that will receive the Venezuelan Government from the China Development Bank (CDB) for 4 billion dollars is aimed at increasing the production of the oil mixed venture Sinovensa from 112,000 to 330,000 oil barrels per day. "This is not a special credit, but a regular one to be paid in eight years at a LIBOR rate of 5% and it will be destined to the mixed venture composed of Petroleos de Venezuela (PDVSA) and the China National Oil Corporation," Ramirez said in a press conference to present the results obtained from the Tenth Meeting of the High-Level Mixed Commission China-Venezuela, held in Caracas. Ramirez explained that the resources will be granted between the end of 2011 and the beginning of 2012. Moreover, he detailed that the goal of 330,000 oil barrels per day will be achieved in 2016. The project will run jointly with the mixed company Petrourica in the Orinoco Oil Belt.

"When we finish the oil upgrader to 42 API degrees, we will be able to upgrade the oil from Petrourica and obtain enough diluent to mix it with Sinovensa's oil," he explained. The Oil Minister also said that Venezuela will receive other two credits from China. One amounting 1.5 billion dollars to promote projects for local refineries and the other one of 500 million dollars that will be used to purchase drills and Chinese oil equipment.

Ramirez recalled that the areas in the Orinoco Oil Belt that will be exploited by China and Venezuela are the blocks Junin 1, 4 and 8; Boyaca 4 and MP3, this last one was used in the past as a zone for orimulsion, however, nowadays oil is being produced. "When it was used for orimulsion, the production was an average of 20,000 barrels a day. Currently, we are producing 112,000 and we want to increase said figure to 300,000," Ramirez added.

[ROCKMAN]

Update on the other “Panama Canal”:

14 June 2013 The Nicaraguan Congress has approved a proposal to have a canal built linking the Pacific and the Atlantic Oceans. A Hong Kong-based company has been granted a 50-year concession to build the waterway, which will rival the Panama Canal. The $40bn plan has been criticized by environmentalists, who say cargo ships will create a permanent risk to Lake Nicaragua. But President Daniel Ortega says the project will bring prosperity.

And: In a matter of weeks, a little-known Chinese tycoon has hired some of the world's top experts in mammoth infrastructure projects and pushed through Nicaragua's congress a bill granting him the exclusive right to develop a multibillion-dollar rival to the Panama Canal. Thursday's vote may have given Wang Jing the concession to build a canal across this Central American nation, but his HK Nicaragua Canal Development Investment Co. still has to study whether the idea is truly economically viable. Spokesmen hired by the company say they believe that rising world trade means it is highly likely that a new canal could be profitable. Yet they acknowledge that what will be a months-long feasibility study could prove just the opposite.

[Keith_McClary]

$this->bbcode_second_pass_quote('ROCKMAN', 'W')hatever their motivation might be I see this as a pure propaganda piece trying to convince the American people that China’s increase control of energy and other commodities around the world shouldn’t be a concern.

[ROCKMAN]

Keith – “and could cut off other supplies in the future.” I take it you mean cutting off supplies from other countries. How do you envision the US cutting off oil and refined products to China from Saudi Arabia, Iraq, Venezuela, etc? As far as an “enforced” I haven’t noticed as much enforcement as voluntary cooperation by other counties. I don’t see where China was forced to stop Iranian imports as much as they agreed to do so. Which I suspect the Chinese might see a silver lining: takes oil out of the market place that they’ll be the likely future buyer.

[Keith_McClary]

$this->bbcode_second_pass_quote('ROCKMAN', 'H')ow do you envision the US cutting off oil and refined products to China from Saudi Arabia, Iraq, Venezuela, etc? As far as an “enforced” I haven’t noticed as much enforcement as voluntary cooperation by other counties.

[ROCKMAN]

Keith - Yep...lots of unknowns. Like what if China uses their international financial connections to interfere with US? What if they decide to stop loaning the US money even on the short term basis. And what if Chinese use their military powers to interfere with US supplies?

All opinions are equal IMHO.

[ROCKMAN]

I don’t think this was part of China’s original plan but now that growth has dropped to such anemic levels (7%+ LOL) they have excess refinery products to export. And not that China doesn’t believe in a profit margin but they can minimize such expectations below that of a typical competing corporation. So now with the export capabilities they are capturing a larger market share. Not unlike (but on a smaller scale) what they did with solar panels.

From Reuters: “China's diesel exports could rise five-fold in 2013 as hefty refining capacity expansion keeps domestic supply ahead of demand, weighing on regional fuel prices and eating into Asian refinery profits. An expanding Chinese economy will require more diesel for transport and industry in 2013, but the growth rate this year is likely to remain below the five-year average and is unlikely to absorb all the additional supply. China will have a diesel surplus of about 60,000 bpd this year, according to industry and analyst forecasts, compared with 10,000 bpd in 2012. 'The economy is recovering, but it's not bullish enough,' said a source with a Chinese refinery.”

So the US and China are becoming significant exporters of refined products that’s primarily due to lower than anticipated domestic demand at a time when global demand is sustaining high prices.

“The surplus has already prompted China to tap new markets. Unipec, the trading arm of top refiner Sinopec Corp, participated in a tender by Sri Lanka's Ceypetco for the first time. PetroChina sold term barrels to Ceypetco, also for the first time. Most analysts and consultants interviewed for this story declined to forecast if China would remain in surplus beyond 2013, as this will depend on the speed of economic growth. Oil consultancy FACTS Global predicted a steady rise in surplus to 70,000 bpd in 2014 and 90,000 bpd in 2015. China added 840,000 bpd of new refining capacity in 2012. Overall, China is expected to add 820,000 bpd of refining capacity this year and another 350,000 bpd in 2014 and 490,000 bpd in 2015, said a senior oil analyst at Wood Mackenzie.”

So that’s about 1.8 million bbls of INTERNAL refinery capacity being added in just 4 years. This does not include the many millions of bbls/day capacity being added in those foreign refinery JV’s they are doing with various oil exporters. So at least initially the China refinery ops are looking more like for-profit efforts for the next few years as opposed to developing more import security. It may set up an interesting dynamic where more of the oil importers will depend on China for product imports since they can accept lower margins and thus take market share away from other refineries. This could increase the number of competing refineries to be abandoned. But eventually China may drop those buyers and begin shipping an ever increasing volume back to their home land. Suddenly the world becomes much more dependent upon a smaller number of refineries. Refineries that may not have access to the same volume of feedstock they once had before China started pulling oil out of the open market place.

[ROCKMAN]

Apparently the KSA is getting serious about establishing income beyond just selling their oil: Saudi Aramco-Dow JV will spend $19 billion on the largest single phase construction of a chemical complex anywhere in the world. Yes…that Dow Chemical that’s a major producer of hydrocarbon products in the US.

“Employing best-in-class technologies from Dow, the Sadara world-scale chemical complex will produce over 3 million tons of performance, value-added chemical and plastics products. Many of Sadara’s products will enable significant development of the conversion industry, support Saudi Arabia's ambition to be a manufacturing hub for downstream industries, and drive growth in many of the industries below:

Transportation (automotive parts, maintenance fluids)
Construction (pipes, adhesives and sealants)
Packaging and containers
Consumer goods (foam for furniture and bedding; rigid for appliances)
Adhesives and sealants
Coatings (for industrial, maintenance and marine applications)
Oil and gas (pipeline coatings, sour gas treatment)
Electrical and electronics (wire and cable, insulation)

Value Creation:
This joint venture represents a major step forward in the strategies of Saudi Aramco and Dow to drive growth further downstream, in value-added businesses. Customers, particularly those in emerging geographies, such as China, the Middle East, Eastern Europe and Africa, will benefit from a strong supplier with feedstock integration, in-market commercial and supply capabilities, advanced technologies and resources to grow with their demand. The new manufacturing hub will provide needed capacity and will include a world scale cracker that will be able to crack a wide range of feedstocks. The complex will produce and market high-value performance plastics and chemical products, to capture growth in the rapidly growing sectors of energy, transportation and infrastructure, and consumer products. The landmark partnership will bring to life many products that will be made in the Kingdom of Saudi Arabia for the first time.

Economic Diversification
Sadara will be a relevant and meaningful contributor to the Saudi Arabian economic agenda. As a standalone enterprise, this proposed joint venture would represent the largest foreign direct investment in the Saudi petrochemical industry. Once operational, Sadara would contribute significantly to the country's industrial diversification by providing additional value chains within both the joint venture and the industrial Plaschem Park. The diversity of the products from Sadara will complement the existing materials available in Jubail-I to attract additional foreign direct investment and further contribute to the diversification of Saudi Arabia's economic base. Ultimately, Sadara will be instrumental in Saudi Arabia’s strategy to become not only a strategic chemicals and plastics producer, but also a hub for future downstream industrialization."

IOW Saudi Arabia has just committed to removing another large volume of oil and NG from the open market place for many decades if not for ever. Add that to the volume that will be removed from the market place as a result of the refinery JV with China, plus ELM , plus depletion and I suspect that loss will add up to be as much or greater than any new production they bring on line.

[Keith_McClary]

$this->bbcode_second_pass_quote('ROCKMAN', 'A')pparently the KSA is getting serious about establishing income beyond just selling their oil ...

[ROCKMAN]

Keith - And perhaps subbing Mexico for the KSA in the near future as seen in the new thread about our neighbors to the south getting cozy with China. And further to the south our friends in Brazil doing likewise. Starting to feel like a strange twist to "It takes a village to raise a child". Now more like "It takes the oil exporters to raise China's economy". And with the US starting to look like the red-headed stepchild that no one cares about.

[Keith_McClary]

$this->bbcode_second_pass_quote('ROCKMAN', 'K')eith - And perhaps subbing Mexico for the KSA in the near future as seen in the new thread about our neighbors to the south getting cozy with China. And further to the south our friends in Brazil doing likewise. Starting to feel like a strange twist to "It takes a village to raise a child". Now more like "It takes the oil exporters to raise China's economy". And with the US starting to look like the red-headed stepchild that no one cares about.

[ROCKMAN]

Keith – So was I. I can easily envision China building refineries in Mexico and running them…some PEMEX has done a very poor job of. Then Mexico can do the added value ting and keep much of the products themselves and export products if there’s a surplus. Maybe to the US to replace the products that were once made from imported Mexican oil. In fact, in the short term China might export their share of the products to the US or another country to capture profits. At least until their internal demand requires otherwise.

Building a plant in Texas wouldn’t necessarily take any oil out of the market. If that plant were a JV with an oil exporter that had $billions tied up in it then yes…it might take oil off the open market. Which might be exactly what happens at the Motiva refinery in Texas that’s owned 50/50 by the Dutch and the KSA. My original thought was that they would import KSA oil and thus take 600,000 (?) bopd of ME oil out of the market place and lock it in to the US. Now I’m wondering with all the new pipeline/rail systems delivering more oil sands production to the Gulf Coast if it’s Canadian oil that will be removed from the open market on a long term basis. After all, there’s no govt restriction to exporting either oil or products imported from foreign sources. We’re already doing that on a very small scale by exporting oil from the US to China right now.

[ROCKMAN]

China continues its efforts in the US backyard

“China National Petroleum Corp. signed a framework agreement on June 6 that would see it take a share in the construction of the Pacific Refinery project and participate in the exploration and development of Ecuador's upstream resources. CNPC, which produces more oil and gas than any other Chinese company, already owns four oil-and-gas blocks in Ecuador. In January, Ecuador's minister told Dow Jones Newswires that talks were under way for CNPC to take a 30% stake in the 300,000-barrel-a-day project, in which state-owned Petroecuador owns 51% and Venezuela's state oil firm Petroleos de Venezuela owns the rest.”

Venezuela: Just a short trip away from Ecuador via the newly widened Panama Canal.

“30% of the funds needed to build the refinery will come from the three partners. The rest will be financed by a group of Chinese banks headed by the Industrial & Commercial Bank of China Ltd. China has become the largest source of financing for the Andean country since Ecuador defaulted on its global bonds in 2008.”

And back on mainland China:

BEIJING, June 5 (Reuters) - China has given the final go-ahead to China National Offshore Oil Company's plan to expand a refinery and petrochemical plant. CNOOC, will add a 200,000 barrel-per-day refinery and a 1 million tonne-per-year ethylene complex. "There are lots of changes in the market that need to be considered," said the official, adding that foreign crude oil and CNOOC's own crude productions from Chinese offshore facilities are both options for the new refinery.

The plants will be built next to CNOOC's existing 240,000-bpd refinery and a 950,000-tpy ethylene complex jointly owned by CNOOC and Royal Dutch Shell. The two plants are likely to be completed around 2015/16. NDRC also gave final approval to Sinopec's plan to add 200,000 bpd refining capacity at Hainan, where the Chinese refiner runs a 160,000-bpd refinery.”

A lot more refining capacity in a world that already has a small excess in refining capacity. I wonder whose refineries won’t be getting the feedstock they’ll need in the future.

[ROCKMAN]

Chinese economic update. It wil be interesting to see how much or how little this rapidly changing dynamic affects their efforts to control more of the oil and refining market. From:

http://online.wsj.com/article/SB1000142 ... lenews_wsj

“China's cash crunch intensified Thursday with companies turning to Hong Kong for funds and the financial pressure triggering a sharp selloff in the bond market. The stress that is rocking China's financial system is showing no signs of easing with short-term interest rates jumping to record highs and the central bank again refraining from adding cash to ease the pain. Analysts say authorities view it as temporary—and that it may even be deliberate, as they try to curb bank lending and investments that they view as excessive and risky. “

I find the “deliberate” comment interesting. For a number of years some folks were predicting a big Chinese crash due to their high growth rate exceeding 12% at times. Of course, others saw a rate drop below 8% as a sign of bad times for China. But the article seems to imply greater problems on the domestic front and not necessarily with those international deals. Chinese growth could still fall 50% and they would still be ahead of the US. Import revenue may continue to fall but they’ll still remain the primary supplier to much of the world. And the Chinese banks reducing cash availability to local businesses would seem to leave more available for those international projects.

[ROCKMAN]

China is working the game close to home also:

"Vietnam and China have extended an agreement to jointly explore for oil and gas in the Gulf of Tonkin until 2016, while significantly expanding the area involved. The two sides started joint explorations in the gulf in November 2006. However, no reserves of commercial value have been identified yet. Under the new terms, Vietnam and China have expanded the area covered by the joint-exploration agreement to 4,076 square kilometers from the 1,541 square kilometers under the initial arrangement. The two sides will equally split operational responsibilities and costs, it added."

Not every deal works. As they say: Ya gotta break some eggs to make an omelet. But there is oil out there:

"According to Oil & Gas Journal, Vietnam now ranks third in terms of proven oil reserves for the Asia-Pacific region. Vietnam held 4.4 billion barrels of proven oil reserves as of January 2012, which was significantly higher than 0.6 billion barrels of oil in 2011. This increase is in part a result of Vietnam's efforts to intensify exploration and development of its offshore fields. Ongoing exploration activities could increase this figure in the future, as Vietnam's waters remain relatively underexplored."

Sounds like China is in the right place at the right time...again.

[agramante]

With regard to China, Rock, beyond oil (I realize this site is devoted primarily to oil, but broader info is relevant sometimes too), I've been reading a lot lately about the Trans-Pacific Partnership (TPP). Progressives (I'm one) have tended to be pretty infuriated about this, not only regarding the speed, but also the secrecy with which Obama is operating. (A very bipartisan Senate just approved his handpicked negotiator--3 Dems and one independent voted nay, 3 abstentions, and 93 yeas.) There are a host of potential finance, labor, environmental and intellectual property law impacts from this treaty. I've seen it described as NAFTA on steroids.

The more I read, the more I come to think of it as, rather, a Pacific rim, economic NATO. The object? Contain China. Now this interpretation isn't necessarily perfect:

http://www.brookings.edu/blogs/up-front ... ship-solis

http://thediplomat.com/pacific-money/20 ... it-happen/

(thanks for the tip on The Diplomat, it's now one of my favorite sites) but I find myself persuaded. It dovetails with Obama's pivot from the mideast to the western Pacific in military strategy. It suggests to me that the dots you're connecting haven't gone unnoticed, or unconnected, in Washington either.

[ROCKMAN]

a – The site has gone way beyond the simplicity of producing oil IMHO. In fact, I consider you comment about the TTP to be is exactly where it needs to be. I wasn’t familiar with it so I dug some facts out:

“The 2005 Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4) is a free trade agreement among Brunei, Chile, New Zealand, and Singapore. It aims to further liberalize the economies of the Asia-Pacific region. The TPP is a proposed free trade agreement under negotiation by Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The TPP is ostensibly intended to be a "high-standard" agreement specifically aimed at emerging trade issues in the 21st century. These ongoing negotiations have drawn criticism and protest from the public, advocacy groups, and elected officials, in part due to the secrecy of the negotiations, the expansive scope of the agreement, and a number of controversial clauses in drafts leaked to the public. Anti-globalization advocates accuse the TPP of going far beyond the realm of tariff reduction and trade promotion, granting unprecedented power to corporations and infringing upon consumer, labor, and environmental interests.”

This is a little more than confusing to me. As seen below it would appear the TTP was designed to be a counterforce to China’s expansion, which naturally ties to their efforts to secure future energy resources. Thus this seems to be the perfect thread to discuss the TTP. But as far as a force against China there are some odd inconsistences highlighted below. From last year:

“Secretary Clinton's speech on the importance of the openness of Asian markets (read: to American goods) and of free navigation in the South China Sea (read: for the US Navy and for merchant ships carrying goods from and to the U.S.) is not news. What happened last November is. Between the APEC Summit, the EAS meeting – the first attended by representatives from the United States and Russia – and his visits to Australia and Indonesia, President Obama put forward a 21st Century containment strategy, this time aimed at the People's Republic of China. He also made the first moves in this strategy.

1) The United States and 8 more countries (Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam) have agreed on the outline of the Trans-Pacific Partnership (TPP), a free trade agreement that should benefit 500 million consumers on both sides of the Ocean. Japan too has finally decided to join the TPP. The political significance of the TPP lies in the exclusion of China. Beijing's neighbors are growing wary of the rise of the PRC, and they are trying to exploit Washington's same concern.

2) A few days after the agreement on the TTP, Barack Obama announced the deployment of up to 2500 US troops in Darwin, northern Australia, and additional cooperation between the armies of the two countries. Similar steps have been agreed recently also with Vietnam and Singapore, and while Obama was making his speech in Australia, Secretary Clinton was in Manila reaffirming the strong bilateral military relationship between the US and the Philippines.”

Everyone who was aware the US has deployed its military (though a token number. Maybe a trip-wire? A somewhat scary thought IMHO) raise your hand.

“China reacted by confirming its own military drills in the Pacific and by trying to revive talks on a Sino-Japanese-South Korean free trade deal that would counterbalance the TTP; but no breakthrough is to be foreseen in the near future. On the sidelines of the EAS meeting Chinese premier Wen Jiabao had an unscheduled meeting with President Obama, in which he reportedly looked more constructive than in the past on the South China Sea sovereignty issue, according to the American press.”

The idea that the TTP was organized to confront China seems to have been lost. A number of the members of the TTP are openly trading with China on energy and other infrastructure development. Costa Rica, Viet Nam, Canada, Ecuador and perhaps Mexico in the near future (on the Pacific Rim last time I saw a map) have entered major energy trades with China. And President Obama has announced a joint naval exercise in the Pacific in 2014 with China? It seems a key component of the basic TTP structure was to develop globally enforced trade agreements between corporations and sovereigns. Given the 100’s of $billions China is investing in other countries such enforced protections would be to their benefit. Perhaps I don’t understand the details enough but even though the US has been pushing the TTP it looks ripe for China to be a major beneficiary. It would seem the TTP, with US support, would go a long way towards protecting China’s foreign energy investments in the Pacific Rim.

[agramante]

Yeah, it's a tangled scenario, especially since the negotiations have been so secret. A buddy of mine at the Congressional Research Service doesn't even think it'll amount to much, for the reason you cited: a lot of the member nations are already trading heavily with the supposed target, China. In a lot of ways my NATO comparison isn't accurate, and "containment" is the wrong concept. But on the theme of ongoing economic engagement, if the TPP becomes a real thing, a viable and desirable trade arrangement with suitable incentives for major economies like China to join, then its rules would force the new members to open their economies far more than they already do.

So on the one hand, the USA gives up even more sovereignty in the issue of trade than it already has through agreements like NAFTA; on the other hand, it might ultimately make the economic playing field far more level than it is right now. That's pretty far-flung conjecture, but it's the explanation that makes the most sense to me.

[Keith_McClary]

$this->bbcode_second_pass_quote('ROCKMAN', 'E')veryone who was aware the US has deployed its military ... raise your hand.