Hugo Chavez has tried to maneuver the US to the sidelines in South America, and he saw China as an ally in those efforts.  Venezuela has limited options for refining its highly-sulfurous crude oil; almost all of the refineries designed to handle it are in the US.  Chavez bought millions of dollars of upgraded oil-production equipment from China in return for a commitment to build a new refinery in China to handle Venezuelan crude, but industry analysts think China just played Chavez for a sap:

A little-noticed piece of news: A few weeks ago, Venezuela announced an agreement with PetroChina to build a large refinery in Guangdong Province capable of refining Venezuela’s unique, heavy oil.

At first glance that looks like very bad news for the United States. Right now, Venezuela refines nearly all of its oil in the United States, about 1.2 million barrels a day, and then sells it here. What would happen if, one day down the road, Venezuela simply cut off the supply? At the least, that would cause severe market disruptions, leading to a large jump in the price of gas. …

In May, Venezuela and China announced a “preliminary agreement” to build a massive new refinery on Gaolin Island in the southern province of Guandong. They agreed to split the cost and ownership.

Since then, American oil experts and Latin America scholars have been debating the refinery deal, and a curious consensus has developed. Nobody seems to believe China will actually build it.

Why not?  For one thing, China’s second largest trading partner is the US.  While the two nations have opposing long-term strategic interests, both nations want the trading relationship to remain strong.  Beijing doesn’t have the expansionist political desires that fuels Chavez’ fantasies, and they don’t need to antagonize the US in order to expand trade.  They have tread carefully in South America, and they understand that actually building such a refinery would send red flags up in Washington DC.

Also, the Chinese have no need for such refineries.  They can buy oil on the global market in sufficient quantities without spending more to refine Venezuelan crude.  Why go to all that expense to provoke the US into a trade war that will damage China a lot more than the US, just to get its hands on oil that costs more to refine and to ship than what China already can get for itself now?

China wanted to make a deal for equipment and services with Chavez, exploiting an opening which Chavez’ nationalization of the oil industry has provided.  His regime has proven inept at production, and he needs experts to right the ship at PDVSA.  In order to get that business, Chavez has apparently demanded that his partners help diversify the refining capacity for Venezuelan crude.  China made the promise to get the business, but has no real intention of honoring the commitment.

Chavez probably already knows this.  At this point, he needs as much propaganda material as he can acquire, and just blustering about the refineries is sufficient.  His agreement shows his desperation with falling oil production since he nationalized his one major export market.