WikiLeaks: How China Screws Chavez

Venezuela Sold China Oil as Cheap as $5 Per Barrel, Which China Then Sold at Profit to Other Countries, Leaked Cable Claims

• Among the many embarassing revelations in WikiLeaks leaked diplomatic cables about Hugo Chavez, one states that China has been reselling the cheap oil it got from Venezuela at a profit to other countries.  (CBS/AP)
  

(AP)  President Hugo Chavez's government has sold China oil for as little as $5 a barrel and was upset that China apparently profited by selling fuel to other countries, according to a classified U.S. document released by WikiLeaks.

The report about Chinese companies diverting oil was one of several newly released documents that also describe falling crude output in Venezuela caused by a host of problems within the national oil company Petroleos de Venezuela SA, or PDVSA.

The documents, posted online Monday by the Spanish newspaper El Pais, also showed that American officials have managed to cultivate sources within the state oil company in spite of Chavez's antagonism toward Washington.

The confidential memo from the U.S. Embassy in Caracas on Feb. 26 said a PDVSA director revealed that the state company "had analyzed its crude sales to China and determined that China had only paid $5/barrel of crude on a couple of deals" - a small fraction of the market price.


The document said that according to the official, Chavez's government was "extremely upset with Chinese companies due to the discrepancy between Chinese petroleum import statistics that suggest (China) is profiting from Venezuelan oil purchases by diverting the crude to third markets and earning a sizable margin."

The Venezuelan official, whose name was not released, "intimated that tankers had been diverted to the U.S., Africa, and elsewhere in Asia."

There was no immediate reaction from the Venezuelan government or PDVSA. Calls to the Chinese Embassy in Caracas went unanswered Tuesday.

Chavez relies on oil sales to his No. 1 client, the United States, to help fund his socialist-inspired programs. But he has been building up oil sales to China, and in October said oil shipments to China had reached about 500,000 barrels a day, in spite of higher transport costs to reach Asia.

Jorge Pinon, an energy expert and visiting research fellow at Florida International University in Miami, said he doubts that Venezuela's heavy crude would have been resold by China elsewhere because specialized refineries are needed to handle it. He said if there was any reselling by China, it would have been fuel oil and could have gone to Africa, Asia or the Caribbean "for blending and further re-export" to other markets.

China, meanwhile, has also agreed to invest billions of dollars in a joint project to pump crude in Venezuela.

Another Embassy report on Sept. 23, 2009, said a U.S. diplomat had interviewed "PDVSA's senior executive director" when he was spotted in line at the Embassy waiting for a U.S. visa, and that the official revealed Venezuela has been manipulating its oil price index.

It said the official, whose name was not divulged, confirmed that Venezuela "manipulates its Venezuelan Crude Oil basket index by including refined products in the mix." That method of calculating oil prices, which the official said "accurately reflected revenue from all of PDVSA's sales of crude petroleum and refined products," was responsible for narrowing the gap between prices for Venezuela's heavy sulfur-laden crude and benchmark light, sweet crude.

The document, which was signed off on by then-Ambassador Patrick Duddy, said the official's admission "reinforces suspicions about the Chavez administration's willingness to manipulate official government statistics."

A later Embassy report on Dec. 17, 2009, described a deterioration in the country's refineries and quality problems in some shipments that had required PDVSA to offer foreign clients discounts on future sales.

The document said according to a PDVSA executive, about 70 percent of the company's 100,000 employees aren't involved in the "core petroleum business." Chavez has assigned PDVSA tasks including distributing subsidized food, leading to criticism that the oil business is being neglected.

A confidential document from the Embassy on Jan. 6, 2010, analyzed problems in the oil industry, concluding that "by all accounts ... PDVSA activity levels are down." It said government seizures of oil service companies, combined with maintenance and labor problems, would likely "result in further crude oil production erosion."

While Venezuela says it produces about 3 million barrels of oil a day, the U.S. Energy Information Administration estimates the amount at 2.2 million barrels a day in 2009, down about 190,000 barrels from 2008.

The U.S. Embassy predicted that Venezuela's declining oil output and years of inadequate investment will eventually force "hard economic choices." It said "President Chavez will react when he can no longer ignore the problems in the oil sector."