China Makes 'Funds for Supply' Deal in Brazil

February 20, 2009

(WSJ- MarketWatch) -  The governments of Brazil and China signed accords Thursday under which the South American country will provide Chinese oil refineries with up to 160,000 barrels per day of crude.


Eight agreements were sealed during the visit to Brazil of Chinese Vice President Xi Jinping, who met in Brasilia with President Luiz Inacio Lula da Silva and Foreign Minister Celso Amorim.


One of the pacts calls for Brazilian state oil giant Petrobras to supply 40,000-60,000 bpd of crude to the refineries of the China National Petroleum Company, and as much as 100,000 bpd to a refinery belonging to the Chinese company Sinopec.


Petrobras, Sinopec and the China Development Bank also inked a memorandum committing the parties to create a formula under which the bank will underwrite Brazil's efforts to exploit huge new oil finds with a loan of around $10 billion.


Petrobras CEO Sergio Gabrielli told reporters that the accords "demonstrate the possible of obtaining new sources to finance" the development of Brazil's hydrocarbons.


In late 2007, Petrobras announced that it had found what could be the world's largest oil field, called Tupi, in the Santos basin, but the reserves are under the pre-salt layer, which is found beneath the sea bottom and contains a gel-like deposit of salt that could be up to two kilometers (1.24 miles) deep.


Reaching petroleum in such fields requires drilling down to the ocean floor and then through the salt layer, making such projects expensive and technologically challenging. The offshore fields contain some 14 billion barrels of crude, according to Petrobras.


Besides the oil deal, Brazil signed a contract with China's Donfang Energy for the purchase of 18 turbines for the Jirau hydroelectric dam now being built on the border with Bolivia.


China is one of Brazil's leading trade partners and the value of bilateral exchanges reached $36 billion last year.

Xi told Lula and Amorim that Beijing would like to see trade with Brazil grow even bigger and he said in speech that China views the South American nation as a "strategic partner."


Brazil is the last stop on a Western Hemisphere tour that has taken the Chinese vice president to Jamaica, Mexico, Colombia and Venezuela.


Xi Jinping, seen by many as heir apparent to President Hu Jintao, is to conclude his stay in Brazil with a trip to the Amazonian city of Manaus.


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