The project, dubbed Pacific Refinery-CEM, will reportedly be majority-owned by state-run Petroecuador, which will have a 51 percent stake in the project; Venezuela's PDVSA will hold a minority stake.

Officials in Quito said the project would seek outside contractor bids to build the new facility, though no projected start date has been given for the project.

Ecuador has a limited refinery capacity for its 500,000 barrel-per-day output. President Rafael Correa has made clear he wants to refine Ecuadorian petroleum at home, making Venezuelan President Hugo Chavez, an advocate of improving the region's refinery capabilities, a suitable partner.

In recent years, Chavez has pledged Venezuela's vast oil and gas wealth and reserves to initiatives in the region, including sharply discounted oil exports to impoverished Caribbean and Central American nations. Critics say Chavez is using the state's natural resources as a political tool, which is costing Venezuela billions in lost revenue.

At the same time, PDVSA, once the crown jewel of South American oil companies, is considered by some to be in peril because of the lack of investment in infrastructure upgrades.

"The revenues coming in PDVSA have been directed more and more into the social programs �� it's unclear now whether enough is being spent on maintaining the company," said Larry Birns, director of the Council on Hemispheric Relations in Washington.

Chavez says he wants to reduce his dependence on his largest customer, the United States, and find new ones in emerging markets such as China. To that end, earlier this week PDVSA and PetroChina Co. announced their latest venture, to extract heavy oil from a block in Venezuela's Orinoco Belt, would cost $12 billion.

That announcement comes on the heels of another deal in which PetroChina and PDVSA will work together to build a refinery in the southern Chinese province of Guangdong. The refinery reportedly will use the alternative boiler fuel Orimulsion, derived from bitumen deposits, which are plentiful in Venezuela's Orinoco basin.

The proposed $2 billion deal is just the latest in a series of agreements between the nations.

In 2006 Chavez traveled to China to sign an $11 billion deal on mutual energy and transportation development that laid the foundation for close ties. A year later Venezuelan and Chinese state petroleum companies said they will spend more than $10 billion to develop the Orinoco basin, which has Venezuela's largest deposits.

Since assuming office in 1998 Chavez has courted China and even expressed willingness to sell fuel to North Korea. He also has cultivated closer ties with Iran, drawing sharp criticism from Washington and increased concerns about the foreign-policy leanings of the Venezuelan president.

Closer energy relations have resulted in a significant increase in fuel exports to China and a reduction of oil exports to the United States, which still remains Venezuela's largest customer.

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