Colombia Seeks China Oil, Coal Deals

Colombian President Juan Manuel Santos struck agreements with Chinese officials Wednesday thay may help direct much of the nation's future oil and coal exports to Asia and away from U.S. and European markets.

The agreements, signed during a trade and investment promotion trip to China in which Mr. Santos met with Chinese President Hu Jintao, come as the U.S. ally rethinks its traditional reliance on markets in the north and west, Colombian Mines and Energy Minister Mauricio Cardenas said in an interview Wednesday.

With demand growing in China and elsewhere and the evolving energy market in the U.S., "we have to start shifting our markets to Asia," he said.

On Wednesday, state-controlled China Development Bank signed a preliminary agreement to provide financing for an ambitious project to pipe 600,000 barrels a day of Venezuelan and Colombian oil through the jungles of both countries and across the Andes to southern Colombia's Pacific coast, from where it would be exported to China and other Asian markets. Details have yet to be finalized.

Chinese and Colombian officials also agreed to start talks on bringing in state-controlled Sinochem International Corp. as a possible equity partner in the pipeline project. Mr. Santos said Mr. Hu and Chinese companies had shown a strong interest in joining the pipeline project.

The ministerial team accompanying Mr. Santos held talks to develop central Colombia coking-coal reserves, on building a railway to the Pacific coast to cut shipping coasts to Asia, on developing mineral deposits in the Amazon basin and on supplying solar panels to up to 2,000 schools not connected to power grids. Coking coal is used to make steel.

Colombia exported just 56,000 barrels a day of crude to China in the first three months of 2012, a drop in the bucket of China's overall crude imports of 5.69 million barrels a day over that period. About half of Colombia's oil normally goes to the U.S. Colombian oil output will hit the one-million-barrels-a-day milestone in a few weeks, and could rise to 1.5 million barrels daily by the end of the decade.

The country's relationship with China is very different from that of leftist neighbors Venezuela and Ecuador, both of which have huge debts with Beijing.

Colombia has market-friendly investment policies and warm political ties with Washington. Still, U.S. demand has slowed as the economy matures, trimming demand for sources such as coal, and as it shifts its energy mix more toward natural gas, a result of a boom in production from new sources such as shale gas.

"It is absolutely true, and not just with coking coal," Mr. Cardenas said. "It is also with thermal coal, as with the development of shale gas in the U.S. We know that there will be less demand there."

The pipeline project comes as China has increased its investment in oil exploration and production in the region.

Sinochem in 2009 took over Colombian and Syrian oil assets from Emerald Energy PLC for $867 million, and in February it bought Colombia oil and pipeline assets from Total SA. State oil giant China Petrochemical Corp., known as Sinopec Group, also has producing investments in Colombia.

Mr. Cardenas said results of bidding by domestic and foreign companies for 109 oil and gas concessions, in which "four or five" Chinese groups are interested, will be out in November. He also said Chinese officials told him China wanted to be a strategic partner for energy with Colombia, and that oil produced by Chinese companies in Venezuela could be sent through the pipeline.

The final route of the pipeline hasn't been decided. It will carry 300,000 barrels a day of Colombian and Venezuelan crude each when completed in 2018.

Mr. Cardenas said talks also have been held with state-run China Railways Materials Co. on building a railroad from the center of the country to the Pacific coast to permit the exploitation of large coking-coal reserves there and the cheaper export of the steelmaking fuel to China and Asian markets than via the Panama Canal. For now, all Colombia's coal exports go via its Caribbean ports.

He said talks also are under way with Chinese companies about joint ventures to tap reserves of the mineral coltan, which is used as a conductor in a number of consumer-electronic products. Given the ecological importance of the area where the reserves are located and the presence of indigenous peoples, any project decisions would be made with sensitivity, Mr. Cardenas said.