He can't afford to alter the deal to a JV where he would have to put in any cash as demonstrated by the failed attempts to sell oil with advance payment:

BEIJING (Reuters) - China could be the near monopoly buyer of Venezuelan fuel oil after Beijing stepped up financial aid to cash-strapped Caracas, but it will be years before higher volumes of crude from the OPEC member begins flowing East.

Venezuela is struggling with multiple problems including a cash crunch caused by President Hugo Chavez's use of oil money to fund socialist projects, surplus fuel oil due to refinery outages and must seek alternative buyers for the crude it stopped shipping to Exxon Mobil Corp due to a legal row.

In an unprecedented move to ease its cash squeeze, state-run PDVSA had asked for $1 billion upfront payment in a tender to sell eight fuel oil cargoes of 1.8 million barrels each. The tender was scrapped when potential buyers balked, but PDVSA is still holding talks with PetroChina, traders said.

If a deal comes through, it would mean China soaking up nearly all the Venezuelan fuel oil exports to Asia and raise term imports by the world's second-largest oil consumer by a further 20 percent over a year, traders said.

"If prices are really attractive, yes, we do have the appetite to take more fuel oil. But that also means PDVSA cutting back supplies to other buyers as that is about all they can export," said a PetroChina trading manager, who declined to be named.

China, which is keen to secure long-term supplies to meet its surging demand, has more than doubled liftings of Venezuelan fuel oil, a heavy residue used to power ships and make road-paving bitumen, since fourth-quarter 2007.

The increased supply, now at 5.5-7.3 million barrels a month, started around the same time as Beijing-backed China Development Bank granted Caracas a $4 billion loan for which PDVSA said it would repay in fuel oil.

PetroChina, China's main proxy in energy deals with the Latin American nation, also aims to raise crude oil imports from Venezuela by a quarter or more this year to at least 100,000 bpd.

The combined supply of fuel oil and crude would be near Chavez's promise to supply China 350,000 bpd by the end of this year, roughly 5 percent of China's total oil demand.

Victor Shum, of Purvin & Gertz, said it would be economic suicide if Caracas were to significantly shift away its crude supply from the United States now, as China did not yet have the capability to refine its highly acidic and high-metal oil.

The U.S. buys most of Venezuela's exports to meet around 11 percent of its daily imports, but relations have been prickly and Chavez early this month halted oil sales to Exxon Mobil. The top U.S. firm recently won court orders freezing up to $12 billion in Venezuelan assets to ensure compensation for an oil project Chavez nationalized last year.

But Beijing and Caracas have the political and commercial drive to push forward Chavez's pledge in November to boost supply to China to 1 million bpd by around 2011, or 13 percent of current Chinese oil demand.

"China wants to diversify sources of supply. Venezuela is a partner with open arms," Shum said.

"We are going to see more investments in the coming years, such as a joint venture refinery in China, for Venezuela to increase crude exports significantly," he added.

PETROCHINA'S AIMS

A boost in fuel oil supply would provide ammunition to PetroChina's ambitions to become a leading player in Singapore, the world's largest marine fuel market where the Chinese state giant owns a 2 million-barrel storage facility.

The trader ships about half its Venezuelan imports into China's booming domestic marine fuel market.

China also appears to be in a position to press Caracas to lower prices for its crudes, which are of poorer quality compared to rival heavy grades from Saudi Arabia and Iran. Beijing has significantly boosted term supplies for 2008 from the two leading Middle Eastern producers.

But even at lower prices, China's ability to process Venezuelan crude would be limited.

"Most of the Venezuelan crudes are consistently high acid, high metals and high sulfur. Not many refineries can run these," says Al Troner, head of Asia Pacific Energy Consultancy.

Almost all the 82,000 bpd Venezuelan crude China imported for 2007 ended up in processing for bitumen, demand for which is growing under China's heavy spending on roads and bridges.

(Additional reporting by Maryelle Demongeot and Yaw Yan Chong in Singapore)