Brazil's President, Luiz Inacio Lula da Silva, left Beijing on Wednesday having secured a $10 billion loans-for-oil agreement to Petrobras with the China Development Bank (CDB).
In exchange for the sum, China Petroleum & Chemical Corporation, Asia’s largest refiner will benefit from a long-term agreement granting access to guaranteed supplies of crude from the South American nation. Under the agreement Petrobras will repay the loan facility with revenue from oils sales to China, and not directly in barrels of oil itself.
The agreement calls for a sales volume of 150,000 barrels per day (bpd) during the first twelve months, and 200,000 bpd in the subsequent nine years.
An additional Memorandum of Understanding (MOU) was also signed between Petrobras and Sinopec for cooperation in several other areas of mutual interest, including: exploration, refining, petrochemicals, and the supply of goods and services.
China Petroleum (also known as Sinopec), at current rates only produces around 20% - and declining – of the oil it requires – partly because a number of its oil fields are relatively old.
Back in March China overtook the United States to become the Latin American nation’s biggest trading partner. China is constantly increasingly its consumer desire for energy, a desire which can be helped met by Brazil’s vast natural resources.
The government in Beijing announced on May 18 that it is planning to boost its refining capacity by 18% by the year 2011, in order to meet rising future domestic demand. The country consumed 360 million tones of oil in 2008 – equivalent to 7.3 million bpd.
The loan and oil supply deals were part of a number of agreements signed between the two nations on Tuesday.
In addition, last month China agreed a similar deal with Russia, which guaranteed a supply of oil for the next 20 years in exchange for loans to state firms.
In a similar vein Petrobras has been actively branching out, negotiating for finance with other heavily-dependent consumer nations, in exchange for guaranteed future supplies. The Brazilian state-owned company is essentially seeking alternatives to bond issues and international borrowing in an attempt to finance its spending plans, amidst the backdrop of the global credit crisis.
Gordon Kwan, at Mirae Asset Securities, Hong Kong, said: “This is a win-win deal for China and Brazil.
“China can enhance its national energy security by mitigating dependence on the Middle East, while Brazil has now got the money to ensure proper development of its deepwater oil resources,” he continued.