Chavez falls for Chinese ploy

By JOEL BRINKLEY - McClatchy-Tribune News Service

A little-noticed piece of news: A few weeks ago, Venezuela announced an agreement with PetroChina to build a large refinery in Guangdong Province capable of refining Venezuela’s unique, heavy oil.

At first glance that looks like very bad news for the United States. Right now, Venezuela refines nearly all of its oil in the United States, about 1.2 million barrels a day, and then sells it here. What would happen if, one day down the road, Venezuela simply cut off the supply? At the least, that would cause severe market disruptions, leading to a large jump in the price of gas.

That’s the stated aim of Hugo Chavez, the Venezuelan president. He has been casting about for an alternative market to end his dependence on the United States. Nothing would please him more than to discomfit President Bush, whom he calls “the devil.” But Chavez’s foreign policy is so heavily dependent on vilifying Washington — “the Empire,” he calls it — that it almost doesn’t matter who sits in the White House.

In May, Venezuela and China announced a “preliminary agreement” to build a massive new refinery on Gaolin Island in the southern province of Guandong. They agreed to split the cost and ownership.

Since then, U.S. oil experts and Latin America scholars have been debating the refinery deal, and a curious consensus has developed. Nobody seems to believe China will actually build it.

The idea, they note, simply makes no sense. To begin with, why ship oil to the other side of the world, at great expense, when a dozen refineries a short distance away from Venezuela, in the Gulf states, are specially equipped to handle Venezuela’s heavy, sulfur-laden oil? Today, no other refineries have the capability to refine so much Venezuelan oil.

As Jan Stuart, an international oil economist at UBS, told me, “For the moment, the Venezuelan gunk isn’t fungible.” Why would China pay so much for Venezuelan oil — the high costs of building the special refinery, and shipping more than 1 million barrels of oil each day — when cleaner crude is already available at normal costs from its usual sources, in Africa, Asia and the Middle East? But Chavez seems quite determined. From his point of view, who better to help in his quest to punish Washington than the Chinese, who have displayed an utterly unscrupulous thirst for oil.

I think Chavez is misreading China’s intent. Chavez wants to make an illogical deal for ideological reasons. The Chinese may be unscrupulous, but they are nothing if not pragmatic.

“China has shown little enthusiasm for becoming entangled in Chavez’s larger goal of counter-balancing U.S. influence in the hemisphere,” Daniel Erikson, senior associate at the Inter-American dialogue, told Congress last month. (Russia, too, wants no part of Chavez’s stratagem, he found during a visit to Moscow this week.) China’s first goal during a visit to Caracas was to sell oil-exploration equipment. Venezuela leaped at the idea because the country has spent too little on updated equipment. Chavez has staffed the oil ministry with incompetent cronies and given away millions of barrels to his ideological allies.

As for the new refinery, “over time it has proved difficult to get China to invest in these expensive ventures” like the “five or six world-class refineries” that would be required to refine Venezuela’s oil, Stuart said. “Financing refineries is a very difficult undertaking.” Building one takes five years.

Testifying before Congress, Francisco Gozales, a Latin American expert at Johns Hopkins University, said, “Economically it makes no sense, nor will it make sense any time, as long as oil remains a fungible commodity, for Venezuela to ship high amounts of crude oil to China.” What is more, if China chose to build a massive new refinery for Chavez, the United States would see that as a hostile act. Thus far, China been careful not to offend Washington, its second-largest trading partner, as it makes deals in Latin America.

The way I see it, China is playing Chavez for the chump, and he fell for it. Beijing worked out a lucrative oil-services contract, just as it has in numerous African and Asian nations. On that deal China moved fast. Just a few weeks after signing, three new Chinese oil-drilling rigs arrived at Venezuela’s Maracaibo port. Twenty-four more are on the way.

The Chinese understand Chavez’s rabid need to strike back at Washington. They probably nodded and smiled as he talked of it and then offered the tentative refinery agreement. Now, expect Beijing to slow-roll that.