"SUBJECT: Efforts to increase foreign investment in the Venezuelan oil sector.

SIGNIFICANCE : A series of agreements have been announced with Russia, Iran and China as putative multi-billion dollar investors in the Venezuelan oil business, with the major focus on Orinoco extra heavy oil.

ANALYSIS: The international oil market continues to be tense and tight, with prices at record levels. In such circumstances, developments in the relationships between major hydrocarbons exporters are of particular significance.

Venezuela needs foreign investment to develop its vast hydrocarbon resources, particularly its extra heavy oil and gas. High oil prices, and global competition to access material hydrocarbon resources, allow Venezuela to be selective in prioritising foreign investors to develop these attractive resources. It has chosen to look beyond the international oil companies and state oil companies who are established foreign investors such as Statoil of Norway and Petrobras of Brazil. This strategy is reflected in recent visits by President Hugo Chávez to Russia, Iran and China.

Investment plans. The state-owned and controlled oil and gas companies of Iran , Russia and China have obvious attractions for a country seeking partners to widen and develop its international relations

•  Iran. Iran has existing investments in Venezuela in energy, construction and tractor-building projects. Iranian Oil Minister Kazem Vaziri-Hamaneh has said that Petropars (a state-run company owned by the National Iranian Oil Company) is planning to invest up to 4 billion dollars in the exploration and development of two Venezuelan oil fields. This would be Petropars's largest investment outside Iran . Petropars is currently certifying some of Venezuela 's heavy oil reserves in the Orinoco belt, and looking to develop some of these, as well as seeking to provide training and services in offshore gas development in the Norte de Paria field. There have also been reports that Iran will construct an oil refinery in Venezuela .

•  Russia. Gazprom, the Russian state-controlled gas company, is reported to be studying the 20 billion-dollar gas pipeline project to supply Venezuelan gas to a number of countries in Latin America (a project now facing delays as a result of disputes between Brazil and Bolivia over the recent renationalisation of Bolivian hydrocarbons) (see LATIN AMERICA: Pipeline favours politics, not markets - March 27, 2006). The company also has two exploration licences in Venezuela . Gazprom's plans to expand its business outside of Russia have to date focused on Europe, Central Asia and China, and potentially the United States (via liquefied natural gas), with a particular focus on downstream integration into the major markets for Russian gas. It is unclear at this stage how Latin America could fit within this strategy.

•  China. China will invest up to 5 billion dollars in Venezuela 's oil industry over the next few years, according to Energy Minister Rafael Ramírez. The most significant deals signed during Chávez's recent visit involve the purchase by Venezuela of 18 oil tankers and 13 oil rigs, some of which will be constructed in Venezuela using Chinese technology. Venezuelan oil company PDVSA and its Chinese counterpart CNPC will also form two joint ventures in the Orinoco belt and the Zumano region, expected to produce a total of 400,000 barrels per day (b/d) within five years. Chávez has promised to increase oil exports to China from 150,000 b/d at present to 200,000 by year-end, and to 300,000 next year (...)".