A day after signing a $25-billion loan-for-oil deal with its former rival Russia, China has moved across swiftly  to the Latin American continent, to secure future oil supplies by negotiating a $10 billion loan-for-oil deal with Brazilian oil giant, Petrobas.

Brazilian newspaper O Estado de S.Paulo daily, said that Petrobas was holding talks with China state-owned China Development Bank to finalise a deal, where the Chinese bank would lend $10 billion at low interest rates in return for guaranteed oil supplies in the future.

China Development Bank had inked a similar deal just two days back with Russian oil companies in a loan-for-oil deal where Russia would supply 300,000 barrels a day for the next 20 years in return for $25 billion loan at 6 per cent interest. (See: China, Russia sign $25-billion loan-for-oil deal)

The paper also said that the Chinese vice president Xi Jinping would be visiting Brazil today to take part in the negotiations and the deal will be announced when Brazilian President Luiz Inacio Lula da Silva is scheduled to visit China in May.

Brazilian state-run oil company, Petrobras said in the beginning of the week that it was negotiating with three to four oil consuming nations on a possible deal where it can secure loans for financing its exploration costs in return for guaranteed oil supplies in the future.

Speaking at an event in Sao Paulo, Petrobras CEO Jose Sergio Gabrielli said "We're not making anticipatory sales. We are discussing the possibility of guaranteeing supply, given future market conditions where some countries consider this of strategic value, and could be interested in discussing possible financing."

Petrobras scouts for US, Mid East sovereign funds
Apart from China, Petrobras is reported to be talking with the US and sovereign funds in the Middle East to secure financing for its aggressive business plan announced in January of raising its five-year investment plan by an astounding 55 per cent from $112.4 billion announced a year ago for the 2008-2012 period to the now revised $174.4 billion for 2009-2013 period and investing $28.6 billion in the current year itself. (See: Petrobras to make $174.4-billion oil investments by 2013)

Despite the current financial crisis, the figures were based on potential impact in the short-term on oil demand, since in the long term the supply of oil is expected to be even lower than the projected demand due to the depletion in the existing production fields.

It had said at that time that the company expects to generate $120 billion in cash from its operations, at an average price of crude at $47 a barrel and the rest to be funded by debt.

In September, the oil major attracted global attention when it announced the discovery of the second-biggest oil find in 20 years in the Tupi basin that measures 800km by 200 km - off Brazil's southern coast that analysts say may contain a massive 5 billion to 8 billion barrels of untapped light oil. (See: Petrobras may emerge among top oil producers with new oil find in Santos Basin)

The unofficial estimated oil reserves contained in the subsalt band is between 50 billion and 80 billion barrels.

The discovery was made from the Iara well in the BM-S-11 block off the coast of Rio de Janeiro in which Petrobras owns 65-per cent of the field along with the UK's BG Group of Britain owns 25 per cent, and Galp Energia of Lisbon owns 10 per cent. Petrobas is the gas field operator.

Petrobras said that the Iara oil field find, can boost Brazil's oil production and turn the country into one of the largest oil producers in the world.

The Brazilian oil major plans to produce 2,680 thousand barrels of oil per day (bpd) in 2013, 3,340 thousand bpd in 2015 and 3,920 thousand bpd in 2020 and daily refining capacity in Brazil to 2.27 million barrels by 2013. Petrobras production of oil was approximately 2.4 million barrels a day last year.

China depends on the Middle East and Africa for oil imports and in the recent past has increased efforts to procure more oil from its neighbour Russia, with whom it shares a 4,300 km border, as well as from Kazakhstan and even as far as South America.

According to latest estimates, China will be dependent on crude imports by approximately 60 per cent by 2020, which means that it will have to source the globe for its future oil needs from oil producing countries.

This week, the Chinese government said that it was thinking of utilising its huge foreign exchange reserves, standing at $1.85 trillion, in creating a fund where its state-owned oil companies can go in for overseas energy exploration and acquisitions. (See: China to use forex reserves to acquire energy assets)

Armed with a massive $1.85-trillion foreign exchange reserves, China will make available ample funds at low interest rates to its state-owned oil companies to spend on overseas energy assets by either investing in, or acquiring foreign energy firms.

With oil prices having crashed by more than 70 per cent from a record high of $147 a barrel in July last year to $40 a barrel currently, China's plan is to negotiate deals now when the price is at near rock bottom to secure its long-term energy needs.

In 2008 China's oil imports rose by 9.6 per cent to 178.9 million metric tonnes (about 3.6 million barrels a day) paying $129 billion for it.

With low oil price China needs to build strategic oil reserve capacity, but it does not have enough tanks to store them and it wants to push forward its strategic stockpiling plans of using spare capacity to build commercial oil reserves as well as build more tanks for storage.
Under the new plan for the petrochemical industry, China wants to create 3 million tons of oil product reserves this year, which will increase to 6 million tons next year and it has planned eight new reserves, where it can hold 30 days of net oil imports stockpile, although IEA recommends a 90 day stockpile of oil imports.

China recently completed construction of four oil stockpiles with two of them in Zhejiang, one in Shandong and the other in Liaoning.

The Chinese-language China Business Journal, quoting unnamed sources, said that China was secretly constructing another strategic oil reserve base with a capacity of 5 million cubic metres.