Tue, 07 Feb 2023

Caracas, January 21, 2023 (venezuelanalysis.com) - Venezuelan state oil company PDVSA has reportedly momentarily suspended oil sale contracts to Asian markets as the country's oil production remains stagnated and exports slip.

In December, Venezuela produced 676,000 barrels per day (bpd), according to secondary sources from the latest Organization of Petroleum Exporting Countries (OPEC) report, only 12,000 bpd above November's output. The figure is virtually on par with the 681,000 bpd produced 12 months ago.

For its part, PDVSA reported 669,000 bpd, slightly below the previous month's 693,000 bpd.

Caracas had set the goal to pump 1.5-2 million barrels in 2022 after Iran began providing diluents and other inputs the year prior, but recurrent operational disruptions and the need to prioritize fuel production made the target unreachable. Nonetheless, Venezuela's Central Bank reported that oil activity grew 27.09 percent in the January-September period.

Last year's struggling production caused exports to drop 2.5 percent compared to 2021, with the country shipping some 616,540 bpd of crude and refined products. The number is also slightly below the 627,000 bpd exported in 2020 when the weight of US sanctions crushed the nation's oil industry, its main source of foreign income, slashing output to less than 500,000 bpd by the end of that year.

In 2017, Washington imposed financial sanctions against PDVSA followed by an oil embargo in 2019 as well as secondary sanctions and other threats in 2020. As a result, Venezuela has been excluded from global energy and financial markets and blocked from acquiring diluents and key parts for repair work in the country's Western-designed oil infrastructure.

International analysts have ruled out that Venezuela will ramp up production in 2023, in the absence of significant sanctions relief, as the oil industry needs significant upgrades and repairs after years of disinvestment.

During his annual address to the nation on January 12, President Nicolas Maduro recalled that Washington's measures against the oil sector continue to "impede Venezuela from obtaining the resources that it should freely receive to invest in its economy and people's social rights." US sanctions have been largely responsible for Venezuela's ongoing economic crisis first triggered by the 2014 oil price crash.

In recent years, PDVSA has resorted to intermediary traders and ship-to-ship transfers to allocate its oil in the Asian market, where China has become the most important buyer. However, the hurdles to evade US sanctions have led to big discounts and payment problems, causing Caracas financial issues. Growing below-market-price Russian exports to China have also affected Venezuela's crude supplies to its primary customer.

Last week, PDVSA's new President Pedro Rafael Tellechea reportedly suspended most oil export contracts to Asian refineries until further notice in order to revise terms and look for solutions to payment issues. Tellechea, along with an eight-person board, was appointed on January 6 by President Maduro to "put PDVSA on the path of definitive recovery" in replacement of Asdrbal Chavez, who held the position since April 2020. The 47-year-old mechanical engineer also heads the state petrochemical company Pequiven since 2019.

According to Reuters, dozens of vessels have stopped loading crude at the Jose oil terminal, in the northeastern Anzoategui state, and are waiting for new instructions while ship-to-ship transfers in other ports have been interrupted as well. Some customers have allegedly been asked to start paying for shipments in advance. No official statement has been made by PDVSA or the Oil Ministry.

PDVSA's exports overhaul has not affected recently renewed cargoes to US refineries carried by US corporation Chevron after obtaining an expanded sanctions waiver from the US Treasury Department in November. The six-month license allows Chevron to resume pumping and selling crude from its joint ventures in Venezuela in exchange for debt settlement, although the exact conditions remain unclear.

While Chevron's return has been deemed "sanctions relief" by US officials, the Venezuelan government has clarified that the blockade against the oil industry has not been lifted. The Chevron license likewise comes amidst the global energy crunch caused by Western sanctions against Russian crude following the Ukraine conflict.

The oil giant executives have clarified that operations in Venezuela will focus on drawing oil from existing inventories and not on lifting production, which reportedly would entail rehabilitating some 18,000 wells in the country's Western region.

The California-based company has delivered at least one shipment of heavy naphtha to its Venezuelan joint oil ventures and has been assigned three crude cargoes by PDVSA so far. On January 10, the Sealeo tanker loaded 500,000 barrels of Hamaca extra heavy crude from the Petropiar oil project and departed from the Jose terminal to Chevron's Pascagoula, Mississippi refinery.

The Kerala tanker was next, carrying 250,000 barrels of Boscan oil from the Petroboscan joint venture in the western Zulia state en route to Pascagoula as well. A third cargo with 500,000 barrels of Hamaca crude carried by the Carina Voyager tanker departed from the Jose port.

These are the first US-bound shipments in four years and Chevron is set to export at least 1.5 million barrels this month. Most cargoes will feed the company's Pascagoula refinery while the rest will be sold to other US refineries in the Gulf of Mexico.

Anonymous sources told Bloomberg that 500,000 barrels of Hamaca crude were already purchased by Phillips 66, owned by US oil corporation ConocoPhillips, to be processed in Sweeny, Texas, while the Boscan crude was sold to another, unknown refinery.

Prior to sanctions, US refineries used to buy over 40 percent of Venezuela's extra heavy crude. Until recently, they had used Russian heavy crude to replace it.

Currently, Chevron is the only US company with a license to produce and sell Venezuelan oil but other corporations are looking to reach similar agreements. According to the Wall Street Journal, Washington granted ConocoPhillips a license to engage in talks with PDVSA to explore the possibility of taking Venezuelan oil in order to recoup debt. Neither party has confirmed the negotiations.


Italy's Eni and Spain's Repsol have obtained oil-for-debt licenses as well to ship Venezuelan crude to Europe, with several shipments taking place last year. Other PDVSA partners have opted to sell their shares in joint ventures and forgo payment for past debts.

 

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Andreina Chavez Alava | source: venezuelanalysis

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