Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How China Just Grabbed 90% of Ecuador’s Oil

Politics / Crude Oil Dec 16, 2013 - 02:29 PM GMT

By: Money_Morning

Politics

Dr. Kent Moors writes: I was a guest on Chinese national television last night. The discussion was via a live satellite link that had me sitting in a Pittsburgh studio with the feed traveling through their affiliate in Washington.

I’ve done this before. But this time the discussion was all about a subject I have been personally involved in.

It had to do with the big Chinese move into Ecuador – one that has given Beijing the upper hand over who really controls of the country’s oil.


As long-time readers will recall, I have been advising on a refinery project in Ecuador for some time now. Slated for outside Manta on the country’s west coast, it’s known as The Pacifico Project, or locally as the Refineria

Project costs in this massive endeavor have swelled to about $13 billion. Nonetheless, the government still says the 300,000 barrel per day complex will begin operations in 2017.

The real story, however, lies in the combination of interests surrounding the facility.

As you’ll learn, this is just the latest example of the bold move by China into South American energy …

China’s Bold Move into Ecuador

When it comes to Ecuador these days, I can tell you Chinese fingerprints are everywhere you look.

In fact, The Pacifico Project will be built by Chinese Sinopec – Sinopec Shanghai Petrochemicals (NYSE: SHI) – while processing about 16% of its capacity in heavy oil from Venezuela. As of yesterday, it is also being primarily funded by Beijing and will have the China National Petroleum Corp. (CNPC) as a partner.

This move into Ecuador and other South American venues, mirrors similar moves in other parts of the world and is driven by Chinese finance. In Ecuador, this has produced a very significant result.

Of course, whenever I discuss such a matter of state interest with a national television network, it is often like walking on eggshells. But I still made the point clearly last night.

With this deal, China now controls Ecuadorian crude oil production.

Put another way, Beijing can now dictate where the oil exports are going from a member of OPEC. To be sure, Ecuador is the smallest producer in the cartel, about 500,000 barrels a day.

Even so, the symbolism is dramatic.

China’s Hidden Upper Hand

This was accomplished because of the continuing financial difficulties faced by President Rafael Correa’s administration. The nation defaulted on its foreign bonds a few years ago, seriously limiting access to international capital. That allowed China to move in, offering funds at heavy rates with Ecuador having few genuine alternative sources.

Beijing has loaned billions to the government budget, the national oil company PetroEcuador, bankrolled the primary hydroelectric power project in the country, and is now about to finance one of the largest refineries in South America. Ecuador pays back these loans from the proceeds of its oil exports.

And the Chinese are rather creative in how that works out.

Only a rather small amount of the exports actually go directly to China. In fact, PetroEcuador still depends on selling most of its oil closer to home with U.S. and other North American companies, either receiving the shipments or having control over the contracts.

Nonetheless, anecdotal evidence, shipping manifests, and intelligence from sector sources point toward a Chinese control over up to 90% of the oil leaving Ecuador.

This is hardly the first time China has used loans to gain leverage over South American oil.

Chinese state banks have loaned more than $10 billion to Brazil and over $40 billion to Venezuela. Hydrocarbons are the essential collateral in each case.

These parallel similar steps elsewhere – at least $13 billion to Angola, upwards to $20 billion in Sudan, and a whopping $55 billion in Russia.

Add to this acquisitions in the region, such as the recent purchase of Brazilian state Petrobas (NYSE: PBR) assets in Peru and a cross-border pipeline project, and China’s goal to develop an integrated presence in South America is rapidly reaching fruition.

Yet to accomplish this Chinese companies need larger positions as operators upstream. SHI is already doing so in Ecuador, despite its primary experience being in refining.

A Mammoth Battle is Shaping Up

But this big move is fraught with very emotional political overtones. It is also the primary reason Chinese TV wanted me on last night.

You see, Correa is in a real political dogfight surrounding the next major oil development wanted by Quito. It has become a major controversy with an opposition coalition moving to have a national referendum to stop the project.

The Ecuadorian government plans to develop the Ishpingo, Tambococha, and Tiputini (ITT) oil block, pitting the state against environmentalists, indigenous populations and a wide swath of the scientific community.

This block is inside the Yasuni National Park, a UNESCO global biosphere area, the nation’s largest nature reserve, and the home of two indigenous tribes wanting nothing to do with the outside world.

The government has responded by closing the offices of a highly visible environmental group, claiming they have been fomenting violence. Meanwhile, the prospect of some 900 million barrels of crude continues to generate considerable interest.

Chinese companies are now positioning themselves to take a major chunk, despite the fact the project “officially” being run by state company, PetroAmazonias. On the other hand, any approach will need to be very carefully orchestrated, given the environmental fallout from another matter about to come back into the news.

The more than two decade-old legal fight between Chevron (NYSE: CVX) and the Ecuadorian government over massive pollution in the rain forest region of Oriente is heating up again. It was one of the most horrendous ecological disasters I’ve ever seen.

Initially, the development upstream there was by Texaco (later absorbed by Chevron) with claims being waged between the American company and PetroEcuador over who was really responsible for cleanup.

In its wake, a Chevron counter suit filed in a New York federal court should be ruled upon shortly. The liability here is now approaching $10 billion with a major judgment against the company already handed down in Ecuador.

The ITT development is now bringing back the same ecological concerns and adding fuel to an already tense situation. Foreign companies, certainly the Chinese, are going to need to walk a tightrope.

In the past, Correa has successfully championed environmental attacks against Western interests as a political tool, using them to condemn Chevron while pairing with the Chinese.

But his strong support for the ITT project may come back to dent his political image.

This is quickly escalating into a major test of how sophisticated the Chinese have become in the geopolitics of oil.

But I can tell you this will take more than just a large checkbook to pull off.

Source :http://oilandenergyinvestor.com/2013/12/how-china-just-grabbed-90-of-ecuadors-oil/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in