The Growing China-Latin American Energy Relationship

By Ryan Opsal, an Adjunct Lecturer and PhD Candidate in International Relations at Florida International University in Miami, FL, where he teaches on issues ranging from security to political economy. His primary focus is on political risk and energy security and politics. Originally published at OilPrice

With Li Keqiang’s recent business and investment blitz through Latin America, many in the region are hopeful these increased commitments will result in expanding business and trade links between the two.

The energy sector represents one of the largest opportunities for expanding trade between China and Latin America. China has made a concerted effort to expand energy links in the region and to assiduously build up dependencies, especially in form of oil-backed loans. This has resulted in oil exports from the region realizing near double-digit growth to China over the past decade, a relationship that will continue to expand for several reasons.

First, the U.S. shale oil and gas revolution is forcing major changes on Latin American producers. Not only do these exporters have to adjust to lower sustained prices, but they must also adapt to continual reductions in energy exports to the United States due to the shale boom.

With the U.S. rapidly slashing its dependence on imported oil, the market for Latin American oil producers has shrunk considerably.

According to EIA data for the five years leading up to 2014, Argentina, Brazil, Venezuela, and Mexico have all seen their exports to the U.S. fall.

The reduction in oil exports to the United States will force Latin American suppliers to look elsewhere with vigor, in a bid to diversify away from the U.S. market, and China seems the logical destination.

Second, due to reduced exports to the U.S. market and the small Latin American share of Chinese oil imports, there’s room to grow on both sides of the ocean. This trend has been underway for several years already, but shale growth has accelerated the growing energy relationship between China and Latin America, as China picks up the extra barrels that the U.S. is no longer interested in.

In fact, nearly all of the Latin American oil exporters have boosted exports to China over the same period, and this includes countries like Venezuela, where despite declining production, exports to China have grown three-fold. The dependency in this relationship is severely lopsided, with Venezuela depending on China for 16% of its oil exports and Brazil for a whopping 30% of its oil exports, while China receives only about 10% of its total oil imports from all of Latin America.

Any production increases or exports that are shifted from North America to Asia will be handled by the growing Chinese tanker fleet, where leading companies like China Merchants Energy Shipping and China Ocean Shipping Company have tripled tanker capacity over the past decade. Additionally, new refining facilities are being constructed in Latin America and the Caribbean with Chinese joint ventures, in addition to a new refining facility being constructed in mainland China, built specifically to process Venezuelan crude.

This shift benefits Chinese national security as well. Energy import diversification remains one of the most effective methods to ensure security of supply to a consuming country. Although diversification measures show that China has greatly improved its import diversity, there is still much left to be desired.

In particular, if China could establish routes for seaborne imports across the Pacific, this would give them a new, relatively more secure trade route to transport crude, bypassing the one or two chokepoints their supplies typically must travel through along their traditional energy import routes. The Strait of Hormuz and the Strait of Malacca pose perennial difficulties to Chinese security, since large portions of their imports must pass through the former, and over 80% of crude oil imports to China pass through the latter.

This has become such a major issue for China that China National Petroleum Corporation resorted to commissioning the Myanmar-China oil and gas pipelines, which is capable of carrying 440,000 bbls per day, or 6 to 7 percent of China’s daily import volume. But importing from Latin America will open up chokepoint-free routes of trade.

Finally, China leverages many of these dependencies and unbalanced relationships to reap annual discounts in the area of 10 to 15 percent, below the discounted costs expected for varying crude grades. For instance, in 2013, China’s average cost per barrel globally was $106, whereas their average cost per barrel from Venezuela was $89, a 16 percent discount from the average.

And, these arrangements have been quite profitable to the China Development Bank (CDB) and China’s top three national oil companies, CNPC, Sinopec, and CNOOC. The CDB has been repaid at least two-thirds of the nearly $50 billion lent to Venezuela over the past decade, and lower costs per barrel have helped boost the returns on capital employed by the oil companies themselves as they sell the discounted oil on the open market. Contrast these discounts with China’s current overreliance on Middle East crude, where they typically pay above the world average. The economic problems in places like Venezuela work to China’s benefit – it can extend a financial lifeline to an economically embattled regime in exchange for cheap oil.

For these key reasons, Chinese energy investments in Latin America should be expected to grow further, continuing to eclipse other sectors, except for select agricultural items. This combination of geopolitical imperatives, profitability, diversification, and the slow evaporation of a key Latin American export market, all point to increased Chinese energy investments to the region, resulting in potential outsized gains to companies positioned there. The region’s oil producers have little alternative other than to continue to shift to Asia.

*Unless otherwise noted, the calculations in this article were completed by the author using data sourced from the Energy Information Administration and United Nations databases.

Print Friendly, PDF & Email


  1. PlutoniumKun

    Reading this after reading the Archdruids latest (linked to in water cooler) I think this is one more example of how US policy seems unable to comprehend that actions have consequences. When Obama was elected, I assumed that one obvious ‘no brainer’ policy for him to follow was to change course from Bush and improve relations with the many mildly reformist governments in South America, from Bolivia to Venezuela and Brazil. He had a perfect opportunity to do it, and even on purely pragmatic grounds it made sense as it was perfectly obvious those countries would look to China to investment. But if anything (with the very minor exception of Cuba) Obama has if anything been worse than Bush in pursuing old style banana republic policies south of the border.

    I know some progressives in South and Central America see interest from China as a good thing. I’m not really so sure – the Chinese are pretty ruthless when it comes to national interest. Latin America may be better off in a position to play off competing major powers than being wholly dependent on the US, but it might just be a case of being caught between a rock and a hard place. In particular, consistent low oil prices combined with full reserves (the Chinese are creating a massive oil reserve at the moment) in the major users could severely weaken Venezuela and Brazil in particular. Brazil has gone massively into hoc investing in deep off-shore pre-salt oil deposits – this could potentially be a major millstone for the country if oil doesn’t return to close to $100 a barrel (costs are around $60 per barrel or more to produce). Venezuela is in deep financial trouble. They may find that rather than being an investor, China will be yet another vulture picking at the remains of their economies.

    1. Armchair Revolutionary

      I do not see how having an additional customer can be a bad thing. Your concept that China would act like vulture could be true, but even so Latin America will certainly be better off have two customers competing as vultures rather than one.

      1. PlutoniumKun

        China is not a conventional ‘customer’ in that they are simultaneously investing in the oil infrastructure without necessarily guaranteeing that they will purchase all the oil (or other mineral). It is rational for China for open up multiple possible suppliers for vital materials, but it also means they will be able to play off suppliers against each other (which is increasingly likely if oil prices stay very low). What we are seeing with Brazil and Venezuela in particular is that they seem to have heavily over invested (encouraged by China) in productive supply without having a guaranteed market. If demand goes up and prices go over $100, then they will win out. If it doesn’t, then they will end up with a lot of debts and overcapacity.

    2. different clue

      China will spread ( or cause to be spread) the same sort of sack-and-pillage scorched-earth pollution throughout “its” oilfields in Latin America the same as it did/does/will keep doing in Tibet. For example, the oh-so-populeftist President of Ecuador has greenlighted Chinese oil drilling in a very clean Amazon-headwaters not-National-Park-anymore. All that oilfield pollution will go wherever the water goes. If downstream nations feel threatened enough by it, they might invade militarily to bust that shit up. Or they might not.

      Did America do any better in its day? Probably not. Will China be a better polluter than America was?
      Will Chinese oil slicks be better for streamside water users than American oil slicks were? Maybe so.
      And aren’t those Latin American progressives the lucky laddies? They will get to find out! Within their very own lifetimes.

  2. Nick

    Anyone who thinks dumping billions on Venezuela is a good long term bet will most likely be severely disappointed, they are primed for a democratic revolution. They may have huge oil reserves, but it does no one any good if there is no one to pump it out.

    1. Armchair Revolutionary

      Certainly the situation is not very stable in Venezuela. The question from China’s point of view should be if they invest in infrastructure and create agreements with Venezuela for the purchase of their oil, would they be at risk in the event of a change in leadership? I believe they can structure agreements that can survive a change in leadership without adverse affects.

      Additionally, should there be a change in leadership, would that leadership want to renig on such agreements? At least in the short term, I believe the answer is that they would not want to interrupt any source of revenues during a period of change as it would risk their ability to stay in leadership.

    2. RabidGandhi

      How exactly is a country where a clear majority has been consistently voting for the current regime over the last 12 years suddenly primed for a “democratic” revolution? Yes there may very well be violent regime change but it would be anything but democratic.

    3. Brooklin Bridge

      RabidGandhi is right, this would be an engineered revolution, not a democratic one. And from China’s point of view, it makes sense to develop multiple sources of supply. As long as the supply makes up but a fraction of its requirements, the risk is negligible. And they are approaching our back yard which also has benefits. The longer they exploit our mad rush to exhaust our water supply and ruin our protected natural resource areas for crazed fracking profit, by quietly developing relations and infrastructure in South American countries, the harder it will be for the US to re-chain those countries to do our bidding when the fracking craze busts.

    4. different clue

      The truly huge “oil” reserves that Venezuela has are not really “oil”. They are really “tar”. They are tar locked in sand. They are the Orinoco Tar Sands along a part of the Orinoco River. They are the same basic thing as the Athabasca Tar Sands up in Alberta are. And they are just as big or bigger than the Athabasca Tar Sands. And if the Orinoco Tar Sands are mined and refined, it will be yet another Game Over for the climate in addition to the current Game Over which the Athabasca Tar Sands already represent. Go Venezuela Go! Get that People’s Revolutionary Bolivarian Tar up out of the ground, into the marketplace and into the atmosphere of the world! Do it for Hugo! It’s what he would have wanted.

      1. MRW

        Peter Burn, who served as a senior advisor in the “Greenhouse Gas Reductions Directorate” in Environment Canada, and as advisor to Environment Minister Jim Prentice, wrote (7/14):
        How clean is our ‘dirty’ oil? You’d be surprised.

        Researchers for California’s Low Carbon Fuel Standard have recently released new data measuring the carbon intensity of various crude oil blends, including diluted bitumen (a.k.a. ‘dilbit’)—[which you insist on calling “tar”]—and upgraded synthetic crude oil (‘SCO’) from the Canadian oilsands. The Californian findings will not be well-received by anti-oilsands activists.

        Among the findings that may surprise:

        • There are 13 oil fields in California, plus crude oil blends originating in at least six other countries, that generate a higher level of upstream greenhouse gas emissions than Canadian dilbit blends;

        • Crude oil from Alaska’s North Slope, which makes up about 12 per cent of California’s total crude slate, is actually “dirtier” than the Canadian dilbit known as “Access Western Blend”;

        • The “dirtiest oil in North America” is not produced in Canada, but just outside Los Angeles, where the Placerita oil field generates about twice the level of upstream emissions as Canadian oilsands production; and

        • The title of “world’s dirtiest oil” goes to Brass crude blend from Nigeria, where the uncontrolled release of methane during the oil extraction process generates upstream GHG emissions that are over four times higher than Canadian dilbit. [This oil formed 10% of US imports until 2014 when domestic shale production reduced it]

        The California Low Carbon Fuel Standard report is here.

        1. different clue

          If the report you link to is correct, it will be very worthwhile reading. I will have to take the time to go ahead and read it. If it is correct, then the main part of the carbon skydumping with the Athabasca Tar Sands ( a name I did not make up, by the way), is the sheer vastness of the amount of tar in the sands. ( Isn’t “bitumen” just a fancy word for “tar”?. How about “pitch”?. If I called them the Athabasca Pitch Sands, would you feel better? Regardless, I believe that what the tarpitch bitumentar is diluted with is benzene. Am I wrong?)

          It is that sheer vastness of the amount of the bitumen-tarpitch in question that means burning it all would add a sheer new vastness of CO2 to the dumped-carbon skyload. And that is a problem.

          Also, do these other oils create the same broadscale land-damage and water-damage that the Athabasca pitchumen bitar imposes? It will be interesting to see if the report addresses that facet of the “upstream” problem.

          1. MRW

            Isn’t “bitumen” just a fancy word for “tar”?.

            No. Bitumen comes from heavy crude oil. Tar comes from coal. Completely different chemical formulae. I don’t know if bitumen is diluted with benzene—I know it’s a natural gas condensate, naphtha or a mix of other light hydrocarbons– but if it were, it is a very clean diluent, and may account for the fact that ‘dilbit’ (diluted bitumen) is far less corrosive in pipelines than regular sweet crude oil. Bitumen BTW is a mixture of heavy oil, sand, clay and water. It is separated from the sand and water in a centrifuge prior to dilution for transportation.

            Eons ago the tectonic plates slammed up against each other and created the Rocky Mountains. The plates also created a massive oil field deep in the bowels of the earth at the level of the mantle from the pressure of calcium carbonate (CaCO3), solid iron oxide, and water (Alberta was a sea; Devonian Age). The oil has been oozing up to the surface from the depth of the mantle ever since. The Athabasca River starts in the Rocky Mountains near Jasper, Alberta. At shallow depths the river is a clear crystal pale-blue water, and it flows toward Fort McMurray, the hub of the Oil Sands activity. If you put a canoe in the water before the rapids upstream outside Fort McMurray—between Fort McMurray and the Rocky Mountains–and paddle for 20 minutes, then pull over to the bank of the river and turn your canoe over, it is covered in a film of oil. It oozes out of the ground, as it has done for eons. It oozes out of the banks of the river. And it is a film on the Athabasca River that makes it glisten in the sunlight. Mother Nature’s greatest oil spill.

            In 1924, a geologist, Dr. Karl Clark, at the University of Alberta determined the composition of the oil sands–that it wasn’t tar–and determined how to extract the oil from the sand using water, which is what they use today.

            The first recorded mention of this oil spill reaching the surface of the land is the early 1700s. The Indians told the Jesuits about it, who wrote it down.

            It is that sheer vastness of the amount of the bitumen-tarpitch in question that means burning it all would add a sheer new vastness of CO2 to the dumped-carbon skyload.

            No more than Saudi, Iraqi, or Iranian oil.

            Also, do these other oils create the same broadscale land-damage and water-damage that the Athabasca pitchumen bitar imposes?

            Alberta has land reclamation laws that we would do well to adopt in the US. Oil companies have to stay 15-20 years after they have cleaned the sand of all oil to restore the land to the same or better condition, or they are fined, lose their escrow deposit (multi-millions), and the brass face a jail sentence. The reclamation plan is part of the one-year lead-up and requirement before an oil extractor can go into operation after they receive provincial approval, and they have to prove that they have removed the flora and replanted it on leased land with biologists protecting it daily, often for 20-30 years, and that they have the personnel in place to do the restoration. We have nothing similar in the US. Nothing. BTW, this applies to all natural resources in Alberta. So if you’re going to strip mine a mountain, you have to recreate the mountain after you’ve extracted the resources. And, in addition, royalties accrue to the people of Alberta, not a company or land owner.

            This article features images of Alberta government-enforced land reclamation efforts at the oil sands. The problem is that journalists won’t tell you this, and I have a problem with that. [If we’re going to fry by 2100 AD, I can accept that. But I want it based on solid science not 500 km grids that can’t measure clouds or ocean activity, as the grids were when Hansen made his prediction. The grids are down to about 300 km now. But they still can’t use cloud and ocean variables.]

            1. different clue

              ” Eons ago the tectonic plates slammed up against each other and created the Rocky Mountains. The plates also created a massive oil field deep in the bowels of the earth at the level of the mantle from the pressure of calcium carbonate (CaCO3), solid iron oxide, and water (Alberta was a sea; Devonian Age). The oil has been oozing up to the surface from the depth of the mantle ever since. The Athabasca River starts in the Rocky Mountains near Jasper, Alberta.”

              So that oil was produced abiotically? Is this the abiotic oil theory?

              What can Albertans or maybe other Canadians say about the reality of landscape reclamation in Alberta after the hydrocarbon-sands mining operations? Do the facts match the laws?

              A quick web-check of definitions shows you are technically right according to the web-definitions. “Tar” comes from wood or coal. “Bitumen” comes from petroleum. But they are both referred to in the given definitions as “black and viscous”. So are they different from eachother except as to the source they are derived from? And still I note . . . those sands in Alberta are called “Tar” sands, not “Bitumen” sands. Why is that?

              1. MRW

                Since the thread is over and done with I have some space to answer you more fully.

                So that oil was produced abiotically? Is this the abiotic oil theory?

                Dunno’. Could have been. I had a friend who went up to the University of Toronto around 1968/9 to take undergraduate courses in geology. I like to ski (I was racing then) and hike in the Canadian Rockies, find them more majestic than Denver’s. I met her up there the summer after her first or second year to go hiking. She was positively giddy telling me how the Rockies were formed; I mean wide-eyed joy on her face, and her explanations were fascinating and detailed. Seems her prof at UofT was one of the three guys who ‘discovered’ tectonic plates and confirmed that Alfred Wegener was right after all the decades of being tarnished and disgraced about his Continental Drift (tectonic plate) theory—her prof’s work on tectonic plates work was recognized and accepted while she was attending his classes. I used to remember his name, started with a “D” I think.

                As I recall, this prof and his colleagues used particular isotopes of calcium carbonate, solid iron oxide, and other substances (Graphite? Granite? can’t remember) to determine that the plates had crashed into each other (I forget the subduction, etc stuff) and created the Rocky Mountains. These particular isotopes are important because they exist at the level of the mantle. The ‘critical temperature of water’ (technically salt water) occurs at 374C at a pressure of 3,208 psi, where liquid water and steam become indistinguishable. No biologic molecule can survive past the ‘critical temperature of water’ (374C) at a pressure of 3,208 psi—basic geologic fact–and that is reached at a depth of 3 to 5 km [1.86 to 3.12 miles], depending on whether you’re in a continental or marine environment. All those little fishees and dinosaurs didn’t get down that far, survive as biologic material at that temperature, and exist as detritus for eons to create oil. When the plates crash into each other—creating mountains is a supremely violent act–the pressure of the magma in the mantle is released to the surface, or at least upward through the rocks of the crust, and that pressure according to abiotic theory combines with certain rocks and water to produce oil. (Don’t forget that scientists discovered a reservoir of water three times the volume of all the oceans near the earth’s core last year.

                Maybe these three guys did use the Russian abiotic oil theory discoveries in their work. After all, the Russian scientists who discovered it were noted geologists, and the theory had been around for 15 years by then. It wasn’t unusual for Canadian and Russian scientists to work together during the Cold War, unlike us.

                What can Albertans or maybe other Canadians say about the reality of landscape reclamation in Alberta after the hydrocarbon-sands mining operations? Do the facts match the laws?

                It is my understanding that Alberta was the first province in Canada—in fact, all of North America–to introduce these laws. They’re called Land Reclamation Laws by the province of Alberta. You can look them up and compare them to the pictures I linked to above. (There are some pretty amazing youtubes about it.) I don’t know whether the other provinces have them or even know about Alberta’s strict regulations. I know most eastern Canadian reporters don’t, ditto American; they’re parrots who don’t read and rarely investigate beyond lunch. We certainly don’t have them down here. We’ll strip a mountain for minerals and leave it looking like God bought a new jackhammer, got bored, and left it a mess. In Alberta, they recreate the goddam mountain. I saw one of them on the way to go skiing in Banff. Blew me away.

                And still I note . . . those sands in Alberta are called “Tar” sands, not “Bitumen” sands. Why is that?

                Probably for the same reason that the use of the word “assets” can mean financial instruments, stocks, cash, currency, diamonds or houses. It’s convenience, but not particularly definitive. But I can tell you that if you ever go up to Alberta and call them Tar Sands, everyone over the age of five and under 85 looks at you like you have four eyes and you’re pissant ignorant. They’re just too “Canadian” to call you an asshole to your face. They’re called Oil Sands. (For all I know the Orinoco Tar Sands are coal (wood)-derived; the area is forested after all.)

                When I see pavers on the road laying down a blacktop, I think ‘tar’ and to me it smells like tar should smell like, but it’s not, it’s asphalt: oil-derived.

  3. MyLessThanPrimeBeef

    As one scenario of alternative history, would Latin America be the sphere of influence of the North or the South, had the outcome gone the other way?

  4. susan the other

    So this makes me wonder why we are so belligerent about China’s behavior in the South China Sea. They are just claiming the resources in their continental shelf. (?) Veneuela is our back yard and they have always been our biggest supplier. So we think a China-Venezuela business partnership is ok? But we don’t want China exploiting its own South China Sea? And we just bought into PEMEX What’s with that? on the q.t. Here’s the oil thing I almost understand: Why is it so important for us to push Russia into China’s arms and give Qatar and the Saudis Europe as their prize. As soon as Syria relents. To control Europe and prevent it from aligning with Russia. To do that we will shuffle the oil market. Make China transport oil across the Pacific. Crazy. And besides, we really do need to stop using oil. I also can’t imagine that PetroBras will last very long.

    1. Brooklin Bridge

      The actions of Washington AND Wall Street make less and less sense except as crooks piling up the loot in an increasingly irrational rush to beat the unbeatable. Our attempts to manipulate the scene in Europe and the Mid East alone are so patently short sighted and risk such obviously catastrophic side effects (nuclear war, for instance) as to beg credulity. And the madness is everywhere. That there are some places a little less affected than others offers thin gruel in the way of hope.

      Of course the US is a huge economy, a gigantic society with huge remaining wealth to plunder and a historically unprecedented military to protect (and join in) the looting and so will continue circling around well enough for propaganda to paint the picture that we are still Number One for a long time before the final crash. On top of that, too many are too afraid, even traumatized, or feel too vested in the charade which is why we keep getting collective yawns or weird silence over torture, presidential assassinations, ruthless suppression of whistle blowers, and legislation with barely a peep that 90% of the public (that part of it that will still take surveys) is strongly against to name but a few mind twisters that only Baghdad Bob or Tokyo Rose could explain to the establishment’s satisfaction.

  5. different clue

    Considered in the widest scope, whatever else Chinese investment in Latin America oil extraction may mean, it certainly means this: China is committed to vast broadscale oil burning and therefor carbon skydumping for decades to come.

    Well . . . China itself will endure the same global heating climate d’chaos decay that the rest of us will endure.

  6. Benlu

    China exports half of its manufacturing to ROW, shouldn’t those consuming countries bear some pollution blames?

    1. different clue

      I don’t know about blame for countries other than America, but America, or should I say the American 99% deserves zero blame for Chinese carbon skydumping. Why would I say that? Because 99% America did not support the systematic dismantlement of American industry and the careful shipping of that industry to China and its reconstruction in China. That was strictly a project of the International Free Trade Conspiracy and its agents such as Bill Clinton in this country who sought MFN status for China and got it from a Free Trade Conspiracy majority of the Reps and Senators. I doubt these Free Trade Conspirators’s voting constituents back home in the state or the district would have approved of the mass factorycide and mass jobicide which MFN for China was carefully and deliberately engineered to produce.

      Perhaps this country will experience a vast and massive “Peoples Fascist” uprising complete with a thorough-going program for rounding up and killing all the high-level Free Trade supporters in this country. With those filth out of the way, perhaps an Economic Patriot government can then abrogate every Free Trade agreement America is currently trapped in and restore the militant belligerent protectionism necessary to begin the long term project of progressively banning imports of goods or services from hostile enemy economies if those goods or services can be produced here for less carbon output per unit of goods or services production than in China or Bangladesh or wherever today. Then we would finallly be in some sort of control over being able to address the carbon skydumping produced by our economic activity.

      Not a pretty picture is it? A “Peoples’ Fascist” uprising, I mean. I hope there is a nicer way to do it.
      Maybe there are enough economic patriots in the electorate to get Sanders nominated D-candidate for Pres, and maybe those economic patriots and Sanders will all realize together that , win or lose the election, they (we) would have to conquer long-term power over the Democratic Party long enough to purge it of its Free Trade Agreement supporters. Then the Dparty could be used as a weapon for waging and winning the Political-Economic Civil War in this country which would be the precondition for abolishing every Free Trade agreement going back to GATT Round One if necessary to create the Wall of Protection needed behind which to develop a carbon efficient economy.

Comments are closed.