Chavez's China Strategy - Forbes.com

The U.S. isn't the only country worried about energy independence. Venezuela's President Hugo Chávez does too. But, as in so many things, Chávez is looking down the other end of the telescope from the U.S. He frets about export, not import, dependency.

Now he's hoping China can become the alternative market Venezuela needs to reduce dependence on the U.S. market. Half of Venezuela's oil exports now go to America, which also buys petroleum products refined in the Caribbean from Venezuelan oil.

Though Citgo, a subsidiary of state-owned Petroleos de Venezela (PDVSA), Chávez also has three refineries and 14,000 gas stations in the U.S. PDVSA has direct joint-venture interests in two other U.S. refineries too.

China buys 4% of Venezuela's crude, but that's rising. At 330,000 barrels of oil a day, PDVSA is shipping twice as much as a year ago. Chávez wants to get that to 1 million barrels a day by 2012.

Two problems: First, the logistics of shipping the oil, which is on the Atlantic side of South America, to the Liaoyang refinery in northern China, are challenging. The Panama Canal is a bottleneck, and shipping around Cape Horn is expensive. There has been talk of building a pipeline to neighboring Colombia's Pacific coast, but that is unlikely anytime soon, given the state of relations between the two countries.

Second, Venezuela's crude is too heavy and too sulfurous for China's refineries once it gets there. U.S. Gulf Coast refineries are specifically configured to handle Venezuelan heavy crude varieties. For now, China has to blend Venezuela's oil with lighter crudes or sell it unrefined.

Chávez paid a three-day state visit to Beijing in late September, sandwiched between stops in Havana and Moscow, an itinerary intended to emphasize Chávez's enmity toward Washington, though in Beijing his hosts kept his visit low-key.

Beyond the usual Chávez bluster and geopolitical grandstanding, he struck deals for the two countries to build four oil tankers and to construct or upgrade more oil refineries in China capable of processing Venezuela's crude. PetroChina (nyse: PTR - news - people ) just upgraded the Liaoyang refinery to that end. China and Venezuela also agreed to buil a refinery in Venezuela's Orinoco Basin and launch a joint oil-development project there, potentially one of the world's largest oil fields.

Last year, as part of Chávez's nationalization drive, Venezuela forced Exxon Mobil (nyse: XOM - news - people ) and ConocoPhillips (nyse: COP - news - people ) out of their participation in exploration ventures there, while France's Total (nyse: TOT - news - people ), Norway's Statoil (nyse: STO - news - people ), BP (nyse: BP - news - people ) and Chevron (nyse: CVX - news - people ) were pressed into signing new deals giving PDVSA greater stakes. China's oil companies are now involved in 15 fields in the basin.

And there's the rub for Chávez. He may want a seat at the big boys' table, but China just wants his oil.