China-Brazil oil and chemicals pact a model for deals


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.

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)

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