One of the largest in China, the refinery would secure OPEC-member Venezuela a new outlet for its crude oil as leftist President Hugo Chavez wants to cut dependence on its main buyer and political rival, the United States.
A venture of state energy giant PetroChina and Venezuela's state oil company Petroleos de Venezuela SA, the plant will process 400,000 barrels of oil per day, or roughly 8 percent of China's current crude oil imports.
The approval comes three months after Venezuela approved the involvement of PetroChina's parent, CNPC, in a joint venture to produce the same volume of oil from the Junin 4 block in the Orinoco region of Venezuela.
The refinery will be built in Jieyang in Guangdong province. It is among a handful of joint venture refineries the world's second-largest oil user plans to add after 2011, after a wave of capacity build-up in the past two decades to power its economy.
As its crude import dependence soars, Beijing has openly favored resource exporters such as Venezuela and Middle Eastern oil producers to international oil companies as investors in its fast-expanding refining business.
The approval was announced on the website of the Ministry of Environmental Protection (www.mep.gov.cn), which just a few months ago gave similar clearance to a refining and petrochemical complex venture between state-run Sinopec Group and Kuwait with a similar price tag of $8.7 billion.
"Both are likely to be built around 2014/15, but the Venezuelan one could run ahead of the Kuwaiti project as it seems to carry a heavier political weight," said an official with an international oil major who declined to be named.
The environmental approval means the Venezuelan venture appears to have dodged a problem that hit the Kuwaiti plan. It was forced to find a new site after complaints about the environmental importance of the initial location.
The site of the Chinese-Venezuelan refinery, Jieyang, will also host a liquefied natural gas terminal for imported gas, run by China's No.3 oil firm CNOOC.
The environmental approval for the refinery specified that 14.4 percent of the total 57.3 billion yuan ($8.65 billion) investment would go toward environmental protection. The plant's pollution quota, measured in sulfur dioxide and chemical oxygen demand, would come from closures of small thermal power plants and paper mills in the same city, the ministry said.
For China, which imports some 55 percent of the crude it processes, a refinery with the Latin American producer helps it diversify away from the dominant Middle East producers.
China's involvement in Venezuela has deepened since the country lent Chavez's government $20 billion in April 2010 to finance oil projects.
In the first 11 months of 2010, China raised crude oil imports from Venezuela by two-thirds and doubled purchases from Brazil, official Chinese customs data have shown.
While PetroChina has pushed into Venezuela, its rival Sinopec Group has beefed up its Brazilian presence, buying 40 percent of Repsol Brazil for $7.1 billion last October to form a $17.8 billion joint venture.
The two companies this week vowed to build on that cooperation and pursue more ventures beyond Brazil.
The Chinese investments in Latin America will help feed its growing refining base as its economy grows. Industry officials expect the world's second-largest economy to add about 3.7 million bpd of new refining capacity between 2010 and 2015, an increase of nearly 40 percent.
China boosted capacity in 2010 and China's energy chief Zhang Guobao said on Thursday he expects it to add another 2 million bpd by 2015.
PetroChina, the country's second-largest refiner after Sinopec Corp., appears to be more aggressive in adding greenfield plants, boosting its presence in the key consuming regions in the southern China.
"PetroChina is pushing it very hard to further beef up its refining business," said the official at a major oil firm.
Sinopec, Asia's largest refiner, on the other hand, has been focusing on expanding its plants.
Apart from the Jieyang plant, PetroChina is also rushing to add a 200,000 bpd refinery in southwest Yunnan to process oil from a Myanmar pipeline.
