By WAYNE MA
BEIJING -- Chinese companies are stepping in to support
refinery projects in Latin America and the Caribbean due to an
uncertain political situation and deteriorating financial
conditions in Venezuela, which has been slow to deliver on
earlier promises to develop refineries in the region.
State-owned China National
Petroleum Corp., for example, is mulling an equity stake in the
$13 billion Refineria del Pacifico project in Ecuador.
CNPC also has a $4.5 billion engineering contract to expand
production at the Cienfuegos refinery in Cuba, while
state-owned China CAMC Engineering Co. has a $233 million
contract to help build a refinery in Nicaragua.
All three projects were originally conceived
by Venezuela in 2007. The Ecuador and Cuba refineries are 49%
owned by Venezuela's state-run Petroleos de Venezuela, while
the Nicaragua refinery is backed by Venezuela
through an investment company.
"The basic problem begins with a lack of investment capital
from Venezuela to cover all of its promises made not only to
Ecuador but to other places," said Jorge Pinon, a research
fellow at the University of Texas at Austin.
"A lot of these announcements were political and without any
sound commercial value behind them."
Venezuela has sought greater influence in the region by
offering subsidized crude and promises to build refineries in
neighboring countries. However, Venezuela has struggled to
follow through since the 2008 financial crisis, which triggered
a sharp decline in global oil prices and hurt oil revenue.
Chinese energy companies have been cautious about buying
into downstream projects in Latin America and the
Caribbean due to their lack of familiarity with local markets,
fear of nationalization and concerns over the regulatory environment, said Yu Simin, a lawyer
at King & Wood who specializes in outbound China energy and
Aside from CNPC's planned joint $1.2 billion refinery in Costa Rica, China's role
has been mainly as a contractor rather than stakeholder.
All that could change, however, if countries like Cuba,
which rely heavily on Venezuelan crude, decide to sell equity
stakes in refining projects to the Chinese in
order to deepen ties and ensure oil supplies.
"What we've seen recently is that when a Chinese state-owned
construction company goes into a
project, part of the payment is not only in cash but in equity
interest," Mr. Yu said, citing some construction of overseas nuclear
power plants as an example.
For the Chinese, downstream investments in the region make
strategic sense because they provide additional outlets for
crude produced from offshore oil projects in places like Brazil and
CNPC's listed unit PetroChina, for example, is already in
talks to buy a refinery in Aruba from Valero Energy
for $350 million. PetroChina is also studying the construction of refineries and
logistics centers in the Caribbean and North and South America,
PetroChina's chairman Jiang Jiemin said in May.
With Venezuelan President Hugo Chavez battling cancer and
facing a tough election at home in October, neighboring
countries like Cuba are looking to China to fill the political
and economic vacuum that may be left behind.
All eyes will be on Cuban President Raul Castro's visit to
Beijing, which wraps up this week, to see if any energy deals
"Cuba needs to try to manage what happens if there is a
change in government in Caracas tomorrow, either by the death
of Chavez or by Chavez losing the election," said Mr.
"I personally believe that China would make an important
long-term strategic partner for Cuba."
Dow Jones Newswires