Oil-hungry China moves to strengthen Ecuador ties

QUITO (Reuters) - Oil-hungry China is moving to strengthen ties with OPEC member Ecuador, part of a global trend in which the Asian giant is providing billions of dollars in financing to producer nations to guarantee energy supplies.

Ecuadorean President Rafael Correa said on Saturday the country will receive $1 billion as advance payment for future oil sales to China. Ecuador sends most of its oil to the United States, and is trying to diversify its market.

Details remained unclear on Monday. But China, the world’s second biggest petroleum consumer after the United States, is striving to cement better ties with resource-rich Ecuador.

Chinese company Sinohydro is bidding for a contract with Ecuador to build a $2 billion hydroelectric plant in the country.

In addition, the leftist Ecuadorean government says it is in talks with Chinese companies interested in investing in the Manta air base, which the U.S. Army is due to leave in September. Ecuador wants to build a commercial airport in Manta.

According to the Chinese customs office, China imported 326,000 tonnes of crude oil from Ecuador in the first four months of 2009.

Ecuador is the fifth largest producer of crude oil in South America after Venezuela, Brazil, Argentina and Colombia. It produced 486,000 barrels of crude oil a day in May.

Impoverished Ecuador faces a liquidity crunch due to low oil prices. The government’s recent debt default has shut the country off from the international capital markets.

“The Ecuadorean authorities seem bent on deepening trade and financial ties with China,” said Alberto Ramos, who analyses Ecuador for Goldman Sachs in New York.

“According to the authorities the government is also negotiating a separate $1 billion four-year loan with China,” Ramos added. “The decline in oil prices has generated a visible cash crunch and the government is striving to find alternative ways to secure financing.”


China has sought to secure oil supplies from South America in recent months.

Earlier this year, the China Development Bank CHDB.UL signed a deal to extend a $10 billion line of credit to Brazilian state-owned oil company Petrobras PETR4.SAPBR.N for future supplies.

In February China agreed to give $4 billion in financing to Venezuelan state oil company PDVSA, which has increased shipments to China to reduce Venezuela’s traditional reliance on U.S. energy markets.

And despite the global economic slump, China has also strengthen ties with other oil-producing countries in other parts of the world.

China's CNCP confirmed a $5 billion financing deal with Kazakhstan's state oil company KazMunaiGas KMG.UL in April.

China's largest oil company has also agreed to lend $15 billion to Russia's state oil champion Rosneft ROSN.MM and $10 billion to pipeline monopoly Transneft TRNF_p.RTS in return for supplies from huge new East Siberian oil fields for the next two decades.

Additional reporting by Hugh Bronstein in Bogota; Editing by David Gregorio