Venezuela Cuts $20 Billion China Debt With 200,000 Barrel Shipments of Oil

Venezuela, the largest oil producer in South America, is shipping 200,000 barrels a day of oil to China to repay $20 billion of debt borrowed from the Asian nation to finance power, agriculture and technology projects.

The OPEC nation, planning to ramp up China shipments to 1 million barrels a day by 2012, is selling oil at market prices to repay the 10-year loan, Oil Minister Rafael Ramirez said yesterday in an interview in Caracas. Shipments to repay the cash represent half Venezuela’s daily crude exports to China.

“We’re diversifying our export markets; our international policy is going in this direction,” Ramirez, also President of state oil company Petroleos de Venezuela SA, said at his office beneath paintings of Cuba’s Fidel Castro and Che Guevara. “We don’t cut prices in any of our international agreements.”

Venezuela is tapping Asian nations that need crude to fuel growth in their fast-growing economies for cash. President Hugo Chavez is seeking funds to restructure the country’s economy to provide more jobs for the poor and address power shortages.

China agreed to lend the Latin American nation $20 billion in April to finance development projects in return for future oil supplies. PDVSA, the state oil company, and China National Petroleum Corp. also signed a separate $16.3 billion joint- venture agreement this year for a project that will pump 1 million barrels a day and be sent to Asian refineries.

Ramirez, whose office is also adorned with a statue of South American liberation hero Simon Bolivar, said Venezuela is currently operating two very large crude carriers with China and will start construction on a joint refinery at this end of this year in the Asian country. The country is diversifying its export markets as Chavez distances himself from the U.S., the country’s largest trading partner.

U.S. Shipments Fall

Venezuela sent an average 1.01 million barrels of crude a day to the U.S. in May, down from a peak of 1.55 million barrels a day in 1998, a year before Chavez took office, according to the U.S. Energy Information Administration.

“Shipments to China are increasing, independent of what the U.S. does.” Ramirez said.

Venezuela tapped the first $5 billion of the $20 billion credit line with China which consists of $10 billion in U.S. currency and $10 billion in Chinese yuan, PDVSA said in a statement on July 29. Morgan Stanley, in an Aug. 2 report, said exports to Asia “may not be made at market prices, but rather at a discount.”

President Hugo Chavez said in April that the credit line is the largest that China Development Bank Corp. has extended to any country. Trade between China and Venezuela surged to $8.9 billion in 2008 from $85.5 million in 1999, according to Venezuelan state bank Bancoex.

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; Corina Rodriguez Pons in Caracas at crpons@bloomberg.net