Brazil to supply oil to China for loans

Financial Times

By Jonathan Wheatley in São Paulo and agencies
Published: February 19 2009 23:44 Last updated: February 19 2009 23:44
Brazil and China signed a landmark agreement on Thursday that will ensure long-term supplies of oil to China while delivering much-needed financing to help Brazil develop enormous reserves of oil and gas recently discovered in its coastal waters.
The deal was announced after Xi Jinping, China’s vice-president, met President Luiz Inácio Lula da Silva in Brasília.
Petrobras, Brazil’s publicly traded but state-controlled oil company, will supply China with between 100,000 and 160,000 barrels of oil a day. In return, China will supply loans of up to $10bn (£7bn, €8bn) to help Petrobras and its private-sector partners develop the so-called “pre-salt” fields.
Petrobras said it signed a contract to sell between 60,000 and 100,000 barrels a day to Unipec Asia, a subsidiary of China Petroleum and Chemical Corporation (Sinopec), and a memorandum of understanding with PetroChina to sell between 40,000 and 60,000 barrels a day. It also signed a memorandum of understanding with the China Development Bank and Sinopec to provide up to $10bn in finance to Petrobras. The agreement also covers potential joint development of oil industry projects and supply of goods and services to Petrobras by Chinese companies.
Sérgio Gabrielli, president of Petrobras, said details of the agreement would be settled in time for a May visit to China by Mr Lula da Silva.
Celso Amorim, Brazil’s foreign minister, said: “This is the most important South-South relationship.” It comes as part of China’s efforts to secure long-term supplies of raw materials such as oil, minerals and agricultural commodities.
On Tuesday, the China Development Bank signed a $25bn financing deal with Rosneft, Russia’s government-controlled oil company, and Transneft, the Russian monopoly pipeline operator, in exchange for oil from the East Siberian fields over the next two decades.
Petrobras has been seeking financing from a variety of non-traditional sources to help fund planned investments of $174.4bn between 2009 and 2013. The plans include about $29bn to begin developing the pre-salt fields, discovered over the past three years under several kilometres of seawater, rock and a hard-to-penetrate layer of salt.
Petrobras is developing the fields in partnership with foreign oil companies including ExxonMobil and Amerada Hess of the US, BG of the UK, Galp of Portugal, Repsol of Spain and Royal Dutch Shell.
It has refused to speculate on the total size of the reserves, although government officials have said they could add more than 100bn barrels to Brazil’s proven reserves of 14.4bn barrels of oil and natural gas equivalent.
Petrobras said on Monday it was negotiating with up to four consumer countries to secure financing in exchange for oil supplies, as traditional sources of finance have dried up in the global economic crisis.