China and the Venezuela Oil Sector - R. Evan Ellis Presentation to - Duke ...
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China and the
Venezuela Oil Sector
R. Evan Ellis
Presentation to
Duke University
Durham, NC
December 5, 2013
Background • Chinese operating in Venezuela since Jun 97 • CNPC in Intercampo Norte (Maracaibo), Caracoles • Modest presence / Mature fields • Ormulsion - 2001 JV with CNPC “Sinovensa” using MPE-3 • Takeover of PdVSA after Feb 03 end of general strike, firing of 20,000 workers • CNPC in Zumanao (Dec 04) • Halt to Ormulsion production in Sep 06 to produce Syncrude • Pdn ↑ from 20,000 bpd (Ormulsion) to 112,000 (Syncrude) • Drilling rigs (starting 2007…50 by 2013 (For Chinese projects) • 20 assembled in Venezuela (starting Dec 09) • Nationalization (May 07) – Rqt. for new joint companies • Reformulation of Chinese operations For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Background (contd.)
• Junin-4 (Petrourica) ($16.4B Commitment - $900M down)
• Pushed by award of Junin-6 to Russian consortium
• Delays from lack of infrastructure, PdVSA lack of capital
• Plan to blend-up Petrourica + Sinovensa output to exportable syncrude
• ↑ Sales to PRC* …based on production from mature fields
• 49,000 b/d (05) (Ormulsion+Fuel Oil)->626,000 b/d (13)
• Approx. half for loan repayments / PRC NOCs + *Much stays in region
• Gas: CNOOC in Mariscal Sucre – Announced 11 but never happened
• Primary PRC focus (CNPC, Sinopec) on oil, only associated gas
• Talk of awards to Chinese companies involving Junin-1, Junin-8,
Boyaca-4
• New deals (Sep 13) after pause – Junin 1, 10 (PdVSA needs royalties)
• Liquidity issues: PdVSA hits up partners, although mostly mature fields
• To be repaid by future production ($2.5B)
• CNPC ($4B), Schlumberger ($1.5B), Chevron, Repsol?->$10B in 2013
• Majors pushing for new framework agreements
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
PRC Loan Flows and Terms (Est.)
Elections
Transition
≈ $10B to LRLV Fund
Maduro wanted but didn’t get
$5B to HIF / LRLV Fund (Tr. C)
≈100+k b/d x 3 yrs?? @ Mkt?
$4B CDB to PdVSA
For Sinovensa (CNPC) Exp.?
• China Fund (3 instruments)
• Heavy Investment Fund Phase I ≈ $1-4B ICBC Loans
≈??? b/d x 3 yrs (est)
• Heavy Investment Fund Phase II
• Long Range / Large Volume Fund
≈ $12B to LRLV Fund (Tr. B)
• Traunche A, B, now C? ≈??? b/d till paid Exp. 2020->
• CDB loan to PdVSA
• ICBC loans (not yet) $8.8B to LRLV Fund (Tr. A)
Exp. 2020->
200k b/d till paid @ $40-$50/bbl Ref
$4B to Heavy Inv Fund Ph. II $4B to Heavy Inv Fund, Ph. II
130k b/d x 3 yrs @ $40/bbl Ref Renewal 1 of 3?
$4B to Heavy Inv Fund Ph. I $4B to Heavy Inv Fund, Ph. I
100k b/d x 3 yrs @ $50/bbl Ref Renewal 1 of 3 (for Sinovensa?)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Summary of PRC Position in
Venezuela Petroleum Sector
•Intercampo, Caracoles (CNPC) – Maracaibo,
•Petrozumano (CNPC) - Anzoátegui
Contract
•MPE-3 (Sinovensa (CNPC))
•112,000-> 330,000 bpd by 2016
•Junin-4 (Petrourica (CNPC))
•$16.4B inv. / 400,000 bpd
Announcement
•Junin 1 – Sinopec
•$14B inv. / 200,000 bpd
•Junin 10 – Sinopec
•$14B inv. / 220,000 bpd
•Junin 8 – 2010 Agreement w. Sinopec to quantify reserves
Possibility
•Boyaca 4 – Chinese company, Reliance, or other?
•Petropiar – CITIC 10% stake from PdVSA (in JV w. Chevron) $1B?
•Acq. of Petronas interest in Carabobo-1? (or to OVL or Repsol?)
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Refining –
Future Capability Depends on PRC?
In-Country:
• 1.28m bpd capacity / Plans to ↑ by 400,000 bpd (if funds)
• Operating at 60-70%: Aging infrastructure / lack of investment
• Explosion in Amuay refinery (2012), Fires (El Palito)
• Paraguaná Refinery Complex (955,000 b/d) – The big one
• Puerto de la Cruz (195,000) (Wilson Energy Services (PRC)
• $834M contract to upgrade this in October 2013
• El Palito, San Roque
Abroad:
•CITGO infrastructure (2.8M bpd) …Selloff, turning away (eg. NuStar)
•Curacao - But Gov’t pressuring PdVSA for promised investment
•Aruba – Just agreed to re-open / But does PdVSA have $$$ for rent?
•Refinery of the Pacific (Petroecuador-PdVSA-CNPC) - 300,000 bpd
• Geared for Ecuadoran (Napo/Oriente) crude / PdVSA role small
•Abreu-y-Lima - 230,000 bpd – Petrobras going forward on its own
•Petrochina-PdVSA refinery in Guongdong (CNPC/PdVSA)
•400,000 bpd / CNPC doing the work, hoping to be repaid in oil
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Upgraders –
Key Long-Term Obstacle
• 4 legacy upgraders – 10 years old
• 630,000 b/d capacity…Only at 500,000 due to
maintenance issues
• Fire in Petroanzoategui upgrader Nov 13
• Fire at Petropiar upgrader in 2011
• New Upgraders $4-$5 billion each
• Delayed for lack of capital…But can’t just dilute early
production indefinitely
• Limits to dilutant
• Problems with storage, transport and recovery:
Sediments, byproducts
• If built, PRC most likely candidate with capital + risk
tolerance
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Transport Support
•4 Chinese VLCCs to PDV Marine (CV Shipping)->Anzoátegui
•Ayacucho with 2M Barrel capacity (Oct 13)
•Boyaca (Nov 13) – But hasn’t shown up yet…
•Carabobo (May 2014) – Initially expected last year
•Paid for through China Fund
•LNG tankers in future?
Context: ↑ shipments to Asia driving need for expanded fleet…but
ships slow in arriving
• PdV Marine ordered 42 tankers in 06…Only 5 delivered
• Three never sailed (PRC, Iran, Argentina)
• PdVSA forced to rent two Suex Max tankers
• Land Transport – Work on rail, other projects
•China Railway Road – Rail upgrade (China Fund)
•2013 agreement with Essar, India Oil?
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Chinese Difficulties
With Venezuela
• 2005 CNPC tax dispute with SENIAT
• Sep 2006 - Stopped Ormulsion pdn after plant to use it (2
generators of 600 MW) built in Zhanjiang
• 2007, forced to turn to coal, sought compensation
• CDB guarantees 75% of loan from BNDES for Abreu-e-Lima
Refinery ($1.5B)(Feb 12)…PdVSA decides not to participate
(Feb 13)
• CDB frustration with lack of progress on Venezuelan projects for
monies loaned (2010, 2011 tech teams, 2013 public comment)
• Embezzlement of $84M from China Fund food program 2011-12
• Feb 2013 – Polite “no” to request for new $4B loan during Jaua
visit (Feb 13)
• Diversion of output to US Gulf Coast refineries (2013) for short-
term cash need
• Sep 2013 – Strict conditions on new $5B loan tied to projects
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Venezuela Outlook
• ↓ Production (2.4M bpd->1.5M bpd?)
• Mature fields declining + no money for Orinoco or upgraders
• Refiner problems with oil quality + sustained use of early production
• NuStar breaks 30,000 b/d contract early (Nov 13) to buy from Canada
• ↑ Internal Consumption (negative revenue/bbl)
• ↓ Revenue from exports
• Preferential Supply Agreements with Cuba, Petrocaribe (400,000 b/d)
• No shipments to Honduras, Guatemala drops out
• Earmarking of production to pay loans (China fund + partner loans)
• Net price drop as long-term contracts end ($94 / bbl16)
• Diversion of profits to Missions / FONDEN, corruption
• ↑ transport expenditures for shipments to Asia (≅1.1M b/d to India, PRC)
• Liquidity Crisis:
• Borrowing from partners $10B: Repsol, Chevron, Schlumberger, CNPC
• West – Mortgaging gold to Goldman Sachs, Loan from JP Morgan?
• PdVSA 2016 bond
Unsustainable, but unclear how it will end…
Some will get out, some may have leverage to force PdVSA to their terms…
Canada+Brazil+Shale: How valuable Venezuela’s heavy oil be to the survivors?
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.comQuestions &
Comments?
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.comChina’s Return to Venezuela
• Elias Jaua trip (Feb 13) – Venezuela turned down for $4B
new loan
• Chinese signals of discomfort in Washington (Mar 13)
• Diosdado Cabello Trip (Jul 13)
• Trying to overcome Chinese lack of confidence…but also
building own relationships
• Rafael Ramirez Trip (Sep 13) – Stage Setting
• Nicolas Maduro Trip (Sep 13)
• China-Venezuela Mixed Commission Meeting
• Ministerial level – Typically annual, end of year
• 28 Agreements this year, including new $5 billion, Junin
1, 10
• Mostly Ag and telecommunications projects
• Chinese interest in US reaction
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.comContext (1) – Chinese Oil
Companies in LATAM
• 2003 – CNPC acquires 45% interest in PlusPetrol Norte
(Argentina-Peru)
• Ecuador – First major takeover– CNPC buys Encana ($1.42B
- 2005)
• 2009 – 2011 M&A wave: Sinopec-Repsol (Brazil) - $7.1B,
Sinochem-Statoil ($3.1B), Sinopec-Oxy($2.4B), CNOOC-
Bridas ($3.1B), Failed CNOOC bid for PAE
• Other key – Omimex (Sinopec-OVL, 2006), Emerald Energy
(CNPC, 2011), CNPC->Petrobras Peru (2013)
• Advance of Chinese petroleum service companies in support
of Chinese owners (Kerui, CPEB, etc.)
• Market Economies – Acquisition of shares in key oil projects, partners with
key capabilities (eg. Brazil experience, deepwater drilling)
• Initially developed projects where injection of capital is needed
• ALBA – Expansion of state-to-state partnerships in parallel with loans
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.comContext (2) – PRC Support
for ALBA / Argentina (Gen)
• Ecuador – Earliest and significant portion of economy
• Loans backed by parallel contracts for oil delivery (to
Petroecuador starting 2009, later with MOF)
• 90% of Ec. Oil exports to the PRC…Most resold
• Currently $10.8B? Incl. $2.6B in 2013 – Many hydro projects
• ↑ Petroleum sector projects, incl. Refinery of the Pacific, opening
of Yasuni, 80+ PRC companies
• Nicaragua – Restricted – Lack of diplomatic relations, but…
• Work on / loans for $40-80B Nicaragua Canal (CRR, China Harbor)
• Bolivia - Hydroelectric project, road/rail work, smaller projects
• Some YPFB collaboration, paper mills
• Argentina
• $1.4B+ in soy exports, now corn & beef
• $10B+ in road/rail projects
• Urea plant, mfg in Tierra del Fuego, Sierra Grande mine (CMC)
For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.comOrinoco Tar Belt For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Orinoco Tar Belt For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Orinoco Tar Belt For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
Orinoco Tar Belt For more information, contact: Dr. R. Evan Ellis Tel: 703-328-7770 Email: r_evan_ellis@hotmail.com
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