Under a 10-year deal, China Development Bank is giving a $10bn credit line to Brazilian energy giant Petrobras in return for the company sending an average of 150,000 bbls/day of oil to China in 2009 and 200,000 bbls/day from 2010. Petrobras needs the money to develop its huge reserves and China needs the oil. China's energy major Sinopec and Petrobras are now discussing joint projects in refining, petrochemicals as well as exploration, said Petrobras CEO Jose Sergio Gabrielli de Azevedo at a press conference at the New York Stock Exchange. The deals are part of a broader economic partnership between Brazil and China, which plan to put forth a joint action plan for 2010-2014. In April, China overtook the US as Brazil's largest trading partner for the first time. But why not view this deal as a model for the US and other oil importing countries to secure supplies from abroad? Petrobras says it's financing needs are now all taken care of, with $30bn in funds raised this year, but there are always other opportunities. China is aggressively locking up oil and other natural resources through deals and acquisitions. It's a race out there to secure increasingly limited resources. With oil output in the next several years projected to decline sharply in Mexico, the second-largest oil exporter to the US at around 1.2m bbls/day, the US must seek additional supplies. While the US is ploughing billions of dollars to develop its own energy resources, direct government lending to help develop much needed foreign oil supplies might not be a bad investment as well. (Photo credit: Xinhua/Rao Aimin)
CHINA'S $10bn deal with Brazil to lock up significant oil supplies from its energy firm and join in exploration, refining and petrochemical ventures, heralds a new age of cooperation between the two countries.
May 2009 Archives
But as pointed out by James McIlvenny, senior vice president of Dow Chemical's performance products division, China, which represents 2-3% of global GDP, is not in and of itself large enough to drive "real growth." McIlvenny gave a keynote speech at the Asia Petrochemical Industry Conference (APIC) in Seoul, South Korea, where the mood was cautious. While the recent price surge has given producers a nice window of solid profit margins, that window is likely to be shut. Driven up by restocking, some demand recovery and as well as speculation, prices have risen on the order of 50% from their late 2008 lows. But many companies should view this period of strong prices not as a return to the good ol' days, but as an opportunity to restructure and reposition for the future. New and low-cost commodity chemical production capacity is on its way from the Middle East and China, and there is still too much capacity out there. Players in the mature economies of Asia as well as the US and Europe will have to shut down high-cost plants to compete in the new reality. And they must seek to move further downstream into specialties through an enhanced focus on innovation. No doubt we are entering a period of unprecedented heightened global competition. But we must take into account the lessons of the past and not hinder trade between countries. This was a major concern at APIC - that countries with an eye towards protecting their struggling domestic economies would put up increasing barriers to trade. Korea Petrochemical Industry Association chairman Won-Joon Hur, cited the "all-out protectionism back in the Great Depression of the 1930s (that) eventually led to the delay in the economic recovery." Indeed, let's not make it harder on ourselves and let free trade flow where it may.
ASIA HAS roared back with a strong rebound in petrochemical and plastics prices. High hopes are being pinned on the region, and especially China, to lead the global economic recovery.
