Recently in China Category

While the Obama administration is focused on windmills and solar power, China is betting that oil will be the dominant energy fuel for many, many years. As a consequence, it is doing all it can to nail down future supplies.

Brazil is a prime Chinese target: It not only is the biggest single source of iron ore in the world and the second largest exporter of foodstuff, its national oil company Petrobras has discovered perhaps the biggest new oil field found anywhere in the world in many years offshore Brazil that promises to vault Petrobras and Brazil into the top tier of oil producers.

Some may rightfully grumble that China by entering into huge contracts for future supply is interfering with the global system of free trade. What China ties up never enters into the world trading system. That means less world oil for the United States and other nations to compete for, thus guaranteeing higher prices for what's left.

Brazil is launching a multi-year offshore oil development program estimated to cost $175 billion. As a result, rating agencies have sniffily dropped Brazil's bond rating to the lowest investment grade. No worry. China is stepping up.

To finance much of this development, Brazil has turned to China. With the active support of the Chinese government, many Chinese banks are lining up to extend loans to Brazil's energy sector. Right now, there is an agreement for a Chinese consortium to lend Petrobras $10 billion. In exchange, Petrobras will eventually ship 200,000 barrels of oil per day to Chinese refineries. There are more such long-term finance supply deals in the works. . . .
The Chinese are looking well ahead into the rest of this century, and even into the 22nd century. They want to ensure their future access to a diverse global supply chain, as well as win entrée into resource-rich regions of the world for Chinese industries and support firms. . . .
Why are the Chinese receiving such a warm welcome in Brazil? According to Sergio Gabrielli, CEO of Petrobras, "The U.S. has a problem. There isn't someone in the U.S. government that we can sit down with and have the kinds of discussions we're having with the Chinese."

The present U.S. administration isn't interested in oil. The U.S. has untapped reserves that could make the U.S. independent of oil and gas suppliers outside the Western Hemisphere. But it is denying itself development of those reserves -- the only country in the world to be doing so.

It isn't even interested in oil resources in our hemisphere that it can help develop for its own future purchase potential.

Also, the U.S. has plunged itself so deeply into debt to expand government programs it has no money to invest in strategic opportunities that arise elsewhere, even in relatively friendly places such as Brazil. (Brazil, as the largest exporter of ethanol in the world, is annoyed that it cannot economically sell to the United States since the Democratic Congress maintains the 50 cents per gallon tariff on foreign ethanol imports, which kills imports from Brazil.)

For those who think oil will be of no interest ten years from now, what is happening in Brazil is of no consequence.

Brazil's National Commitment to Energy - Bankrolled by China Jun 12th, 2009 | By Byron King

Brazil is making a national commitment to develop energy resources located far offshore in the South Atlantic. Indeed, no nation has ever advanced such an ambitious plan for long-term comprehensive offshore development. And it's being bankrolled by China.

Much of Brazil's South Atlantic development will require drilling wells in waters up to two miles deep, through four-five miles of rock beneath the seabed. The prize at the end will be oil deposits with reserves estimated in the tens of billions of barrels. With access to this offshore bounty, Brazil expects to take its place among the first ranks of energy-producing nations in the world.

Brazil's state-controlled national oil company (NOC), Petroleo Brasileiro SA (Petrobras) plans to spend over $175 billion in the next five years just on offshore development. The immense investment involves buying and building dozens of new drill ships and seagoing platforms, along with many dozens more support and servicing vessels. Petrobras will lay thousands of miles of pipelines on the seafloor, connecting massive complexes of subsea equipment that will sit atop hundreds of oil wells.

To finance much of this development, Brazil has turned to China. With the active support of the Chinese government, many Chinese banks are lining up to extend loans to Brazil's energy sector. Right now, there is an agreement for a Chinese consortium to lend Petrobras $10 billion. In exchange, Petrobras will eventually ship 200,000 barrels of oil per day to Chinese refineries. There are more such long-term finance supply deals in the works.

The Chinese government has established strategic guidelines for its national firms. That is, the Chinese government has set goals for Chinese firms to supply China's long-term needs for energy and other natural resources. The Chinese are looking well ahead into the rest of this century, and even into the 22nd century. They want to ensure their future access to a diverse global supply chain, as well as win entrée into resource-rich regions of the world for Chinese industries and support firms.

Why are the Chinese receiving such a warm welcome in Brazil? According to Sergio Gabrielli, CEO of Petrobras, "The U.S. has a problem. There isn't someone in the U.S. government that we can sit down with and have the kinds of discussions we're having with the Chinese."

In other words, there is a new geopolitics of oil at work. In the olden days, it would have been large international oil companies (IOCs) like Exxon Mobil, Shell and BP walking into a room to meet with the Brazilians. The IOCs were the only game in town. They controlled the financing and the technology for large developments.

But today, the biggest deals begin with a political understanding at the top, hammered out between the highest levels of the respective governments. This top-down political deal making cuts out the IOCs, except where they have technical expertise that can be hired on a contract basis.

In essence, we are witnessing the end of the post-World War II economic construct of the world's financial system. That construct always had a Western bias. But the 2008 crash of the Western business and financial model has changed everything. It has left a barren worldwide financial landscape for large development projects. Most traditional Western financing is simply not available for large projects. And as French author Francois Rabelais (1494-1553) once noted, "Nature abhors a vacuum."

Thus has the Western financial crisis handed well-capitalized, government-backed Chinese banks and industrial firms an unmatched competitive advantage. With the traditional credit markets dry, Chinese banks have transformed into key lenders for the resource developments that will fuel the next generation of humanity. Indeed, for now, the Chinese are the world's ONLY lenders for large resource development projects.

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