Annals of Lede-Burial: China Development Bank Edition

/ June 19, 2015

china-development-bank_0Today, the Wall Street Journal has an interesting piece on China Development Bank’s ballooning, questionably-performing Venezuela engagement with Hugoslavia: $37 billion in loans that may or may not end up getting repaid, some 14% of its foreign currency loans.

Yikes. Sure, CDB is state-owned, so it would almost certainly get bailed out rather than collapse if Venezuela doesn’t pay up.

Still: yikes.

The really interesting bit, though, is buried wayyyyyy down in the 20th (I counted – twentieth!) graf:

Despite its torrent of lending, China’s crude-oil imports from Venezuela dropped 11% in 2014 as a whole, remaining more or less flat year on year so far in 2015, according to Chinese customs data. China imported 296,000 barrels a day of oil from Venezuela in April.

This – and not the financial performance of the loans – is the real measure of the failure of Chinese engagement with Venezuela. Because the point of all the relationship wasn’t to make money on the loans. It wasn’t to prop up the regime. And it sure as hell wasn’t to build a “high speed rail” line between Tinaco and Anaco.

The point of the loans was to bankroll development of the Orinoco extra-heavy crude belt, expanding production and opening up a new route of energy supply for the Chinese market.

And it’s just not happening.

What’s shocking is that despite the torrent of cash, Venezuela just can’t get its act together to bring online any significant sources of new production from the Faja. None of the new Syncrude upgraders that have been announced again and again since 2007 are anywhere near coming on stream.

We’re now down to signing long-term supply deals to buy oil from Russia to refine in Curaçao just so we have some Maracaibo Lake crude left over that we can mix with the gunk that comes out of the Orinoco. Shameful!

This – and not the financial performance of the loans – is the real sign PDVSA is the ultimate Leaky Bucket: it doesn’t matter how much project finance you pour into it, none of it translates into increased production.

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37 thoughts on “Annals of Lede-Burial: China Development Bank Edition”

  1. More great news. The faster Kleptozuela Defaults, with China and everyone else, the less money they have to steal, bribe and for propaganda.

    Kinda disappointed by our friends at Dollar today. Was hoping the $ would be at $600 already, more escasez too and inflation too, just to speed Chavismo’s debacle a bit more.

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      • You just don’t get it, Mr. Luers. No one said anything about medicine or other serious stuff. The point is clear: the more escasez – abastos of course, the more pissed off people will get in the colas, the better the chance to knock off Chavismo before it’s too late. Spare me the crocodile tears, this is just a blog, dude.

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        • BTW, yesterday they celebrated Waterloo in France and Europe. What many people, including Venezuelans often don’t know is that most regimes are usually Knocked out of power, (decapitated, in French Revolution terms), only when the people experience harsh economic conditions, notably erosion of their purchasing power to the point of Hunger. That’s what Really happened in France, the masses went out to the Bastille right in the middle of a Bread famine. Crying for bread. The Romans, similar revolts all the time, complaining about too many taxes, less food, less circus. In Vzla we have plenty of Circus, and right now, too much money. The Colas are obviously not long enough, yet, and the Thieves in the Kleptozuelan “Government” still have too much money to spend on Bribes, Propaganda, etc. Thus, the less Chinese loans, the better.

          Better to have longer colas and more escasez so people finally wake up and revolt, than to endure another 16 years of Cuban Chavismo, and another Half a Million people dead, 25000 year. I am afraid that’s exactly what it’s gonna take in Vzla, more lack of Bread, after a couple more stolen elections, for people to kick the Dictatorship out.

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        • In all the annals of idiot postings, yours, Mr. Sembrando Petroleo, surely ranks right in the top 100, if not the top 10.

          The one who doesn’t get it is you.

          Do you really believe that food may be in short supply but that we’re drowning in medicines?

          People who depend on serious, one of a kind treatments are getting hosed regardless of political affiliation.

          Call any of the AIDS/HIV support groups in Venezuela, and ask about anti-retroviral supply, paid or free.

          Look at what Yordano, who most likely is not scraping the bottom of the money barrel, went through to get the Chemo he needed. And his news got lots of play because of who he is.

          It’s one thing to wish for this nightmare to be over, and quite another to wish for pain and suffering for those who don’t control how sick they get.

          You really do need to think before you post, Sledge.

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          • Retarded ad hominem personal insults are the mark of your own stupidity, Betico. You, of course have said absolutely nothing about the specific post at hand. Thanks to retards like you doing the colas, Kleptozuela is where it is.

            I never wrote anything about Medicine. Of course, no one wants a lack of that, Retard. Read, next time, and try to do more with it than the “alphabetized” Chavistas do.

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  2. It’s also refreshing to know that the Chinese Dictatorship is gonna get royally screwed by Cubazuela. They deserve every good fuck they can get.

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  3. “What’s shocking is that despite the torrent of cash, Venezuela just can’t get its act together to bring online any significant sources of new production from the Faja.”

    Things like this tend to be associated with brain-drain/lack of a skilled workforce. Money alone can’t work miracles.

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    • nah, it’s lack of maintenance, spare parts, proper supervision and accountability, the normal functioning of any decent company. Since the Oil industry was Nazionalized, the Top Thieves only care about stealing as much a s possible as quickly as possible. They know this Thievery Bonanza can’t last too much longer. Maintenance is an expense, takes hard work, planning, exploration, and there’s no money to steal there. The Brain-Drain doesn’t help, but running PDVSA, after all these years, ain’t that hard,

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      • Well, given that robotics are still not that advanced to run a company without human supervision, you will still need a fairly skilled workforce to have decent maintenance, a steady supply of spare parts, proper supervision and accountability.

        An incredibly big oil company like PDVSA is not something that can be properly run by Chavista amateurs who can barely speak English. Do you think those idiotic people read specialized literature in the field of Oil and Gas? Do you think they are in touch with what are the new best practices or state of the art equipment? I don’t think so.

        You can invest billions of dollars on a rock, but the rock will still not deliver. That’s what’s this article is all about.

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        • More important than the hardware is the software i.e the organization with its people , its work culture , accumulated expertize etc That no longer exists and will be very difficult to create unless you start by creating joint ventures with good competent companies one of whose jobs is to recreate an organization capable of running the company under the joint venture in optimal corporate technocratic fashion. It will take some 10 year or more to restore organization such as the old Pdvsa used to be .

          It doenst mean forming huge numbers of people , perhaps some 5 or 10.000 in total , being very selective as to who you hire and promote , in the creation of work protocoles and norms that are technically optimal and efficient .

          You dont have to train everyone just those that work in strategic organizations and in key groups and teaching a bit of discpline and responsability on a larger group .

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  4. The real question here is what percentage of the monthly oil shipped to China goes to paying off the actual debt incurred, not just the interest rate charges. With the recent sharp drop in oil prices, that percentage would have dropped as well. But by how much? The China Development Bank has got to be nervous about that new number.

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  5. Russia and China have just agreed to inject some $15 billion more into PDVSA, in an effort (destined to fail) to make the Faja take off. The problem is that the chavista operation of the faja is almost artisan like: Producing, blending, marketing.
    Each new well in the Faja comes in at some 400 barrels per day. The amount of wells to create, say, a new one million barrels per day production is enormous., especially since these wells decline at around 20% rate per year. So, roughly speaking, you have to create 1.2 million barrels a day of new production every year to remain at the one million mark. This is, similar, in a way, to Sisyphus eternal punishment or to Humpty Dumpty’s running harder and harder to stay in the same place.

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    • Gustavo, IF the Chineses/Russians put any new money into the Faja, with the current economics as stated above, a $65/bbl. or so Faja production cost, U. S.shale production waiting to ramp up at $65/bbl., the Saudis taking the long view maximizing current production to protect their total Country income, carbon alternatves increasingly cost-competitive, and international carbon-restraining agreements an imperative in the face of global warming, then the Chinese/Russians are crazy (and, they are not).

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      • Hi NET:
        The Chinese Development Bank, says the WSJ, is in serious trouble due to their loans to Chavez/Maduro.. Maybe they are not crazy, just poor financial managers.

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      • The Chinese have megatons of cash and are traveling the globe, franticly looking for places to invest. Just like the Japanese a generation ago.

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    • Perhaps we ought to re-name the Orinoco Basin.

      I’m thinking Gallo Pelon Fields makes most sense!

      The story always repeats and it never ends.

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    • 400 barrels a day? Is that a typo? If it comes in day one production of 400 barrels a day with a 20% annual depletion, it’s not even worth spud ding in.

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      • Not a typo. 400 barrels of oil per day is the average initial production in many areas of the FAJA. They are rather shallow wells, take just 2 weeks to drill, but still we would need maaaany wells to create a significant new production base. Plus the natural declination, of course, which would require continuous drilling to keep in the same place.

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        • Just wondering , nowadays one drills not one well but several wells using one same drilling location which sub surface drills sideways to enter the deposit at different points each of which could count as a separate well , creating a spoke of points from which the crude flows , when we speak of 400 bls are we speaking of each spoke in the wheel or of the whole wheel ??

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          • Mr. Coronel is arguably right. A brand new faja well would make between 1200-2000 bbls per day and declines to about 800-1000 bbls/day the first year getting into final depletion at about 200 bbls/day. However, water cut, sand and GOR (gas to oil ratio) will quickly drop the net yield. Further to that, about 80% of the gross oil recovery gets into a refined product (the other 20% goes to coke, sulphur, gas and ashes). Declination curves are quite stiff in the first year or two and the total life of the well is more or less 5 to 8 years assuming that the reservoir does not get damaged.

            In numbers: 800 bbls/day x 30% water cut (typical) = 560 bbls/day x 80% yield = 392 bbls

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  6. There are some projects which dont involve the faja directly and which can help improve Pdvsa revenues, for example areas where the crude is there ready for extraction but the pipelines taking it out have corroded through lack of maintenance , the basic infrastructure is there but needs maintenance and upkeep to bring it back on stream , if the gas in eastern venezuela can be taken to central west Venezuela were the thermopower plants are then it can be used to replace the fuel now used to keep them in operation ( Guri as we all know is in critical shape) allowing for such fuel to be exported bringing in more income etc etc. Nonetheless the future is already knocking on the door as regards the need to increase the faja crudes to replace the conventional crudes steeply falling production and thats a real challenge because to do that either you create a reliable mechanism to mix the faja crude with lighter crudes to make it saleable or you build new upgraders ( at 18 bln $ each for 200kbd of processing) and the latter option is very very expensive and time consuming . The oil prices are such that ordinary investors will balk at putting up the money , specially in Venezuela were the govt has created conditions which make it a nightmare for any one to engage in any profitable busines activity . So the outlook is not pretty .!!

    I am very doubtful that the Russians will ultimately put up any money , they are our COMPETITORS , if production increases it affects prices and their own interests , The Chinese will put money in their own existing investments but the conditions wont be so generous , they are fully conscious of the risks and difficulties of doing business in Venezuela .

    Ultimately our fate will depend on what happens with the oil industry , every one just sort of figured that it would be easy to run and maintain and that the prices would hold high forever , by dismantling the career cadres in 2003 the govt triggered a slow fuse on a time bomb that is now starting to explode . They were looking at the horizon with starry gazes and stopped paying attention to the ground on which they stood .

    The earth is starting to shake and they really dont know what to do except blame it on their enemies.!!

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  8. Maybe theyve fallen into the sunk cost trap , you make an investment and keep making it in the hope that you will be able to come out ahead even if you know that the prospects of such recovery are bleak . People hate losing and will go to inordinate lenghts to avoid the recognition that something is going to be lost even to the extent of continuiing to put some money into it.

    What we do know is that the chinese are becoming increasingly wary of continuing with the loans. In fact of the two entities they use to channel loans linked to chineses business abroad , the entity who has been most involved in Venezuelan transactions is no longer doing so and new transactions are being done thru the second entity whose exposure to Venezuela is much smaller. !! Tells you something of whats happening inside their heads.

    Theyve given the regime some slack in terms of the time they have to pay the pending debt , of course if there is a default they ve been to the lawyers and made sure that future Pdvsa supplies ( made on behlf of the govt using govt royalties) are on the hock to pay any pending debts . Dont know how or whether that would work in all situations !!

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  10. “I find this kind of comment execrable. There are real people going without fucking cancer treatment and anti-retrovirals. Celebrating this is simply disgusting.”

    I have the unfortunate but clear point of view of both the medical and petro sectors because I have immediate family working in both. The situation in the hospitals – even renown cardiac and pediatric centers in Caracas – is so grave and tragic that words can’t describe it. Kids are dying from dehydration simply for the lack of IVs. That should NEVER happen, even in 3rtd world countries. Doctors are bailing for anywhere because one, they are being paid, and two, people think they have money so they are being targeted for kidnapping and murder. That’s sounds impossible and overstated but I assure you it is not. Couple weeks back a renown pediatric oncologist was killed in his home and his few possessions looted. At least half of new doctors coming out of med school regret ever studying medicine. And the oil sector is totally gutted of experienced personal. The rigs are all failing for lack of maintenance and spare parts. But as mentioned, the show stopper might well be the Guri turbines, which are in bad shape. Once those go down (I believe they supply upwards of 60% of our electrical power), and it’s just a matter of time, it’s lights out.

    JL

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    • Well, unfortunately that’s what I might take. A more complete economical meltdown, or “lights out” if you prefer.

      Every time I hear about more apagones, especially up in the Barrios Chavistas, I wonder if they will ever realize the Billions stolen through Monumental, Gargantual, Galactical Derwick Guisos, where Chavismo has gotten Used, defective “power plants” sold as new. That’s what gets people pissed off.. Can Masburro blame it on the Imperio when there’s no water or electricity? Sure! And they’ll believe it too, for a while…

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  11. Sometimes I wonder, if any of these die-hard, dyed in the wool Chavistas, in the late night when peaceful sleep is not coming, secretly, quietly come to the conclusion that this entire mess is Hugo’s fault? Their revolution is unraveling because of loans Hugo made, one after the other. The suits are coming because the expropriations, made one after the other, to purchase popular support, when actually they were illegal and Hugo, and any half educated hack KNEW they were illegal and it would come back to bite them in the ass. And always at the worst possible time, when oil prices fell, as oil prices always do. Now family and friends are dying in hospitals and in the streets. And family and friends are leaving the country to far off places, that have food and doctors and medicine and electricity. And the difficulty of finding food and basic goods for their family still here. And they all know PDVSA is a disaster, because he fired +20k professionals. And he sold the country to the Chinese, and the Patria to the Cubans. And all the other plagues that have settle on the country. But wore of all, as his last gift to el pueblo before departing this world, he put Maduro in charge, knowing the disaster coming to their pretty revolution. And deep down, they know it is all Hugo’s F’ing fault! I only hope they come to despise him over time.

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  12. It does not matter how much money they invest in anything.
    Incompetent people are running the show.
    The results will always be the same.

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