US mulls ban on oil exports to Venezuela
Caracas, 14 February (Argus) — The Trump administration is weighing new sanctions on Venezuela that could start with restrictions on US oil exports and technology transfers to state-owned PdV, two US officials familiar with ongoing multi-agency discussions in Washington told Argus.
The US imposed financial sanctions on PdV and the government of president Nicolas Maduro at the end of August 2017 that effectively shut Caracas out of international bond debt refinancing markets. The Maduro government blames these sanctions for combined sovereign and PdV bond interest arrears of over $1.5bn accumulated since last September on 15 bonds, including 10 sovereign bonds and five PdV bonds.
The financial sanctions, which came on top of targeted US sanctions on scores of individual Venezuelan officials, do not impose any financial or supply restrictions on commercial operations, namely the oil trade.
Venezuela increasingly relies on imports of light crude and diluent needed to produce exportable Orinoco sour blends and diluted crude oil (DCO).
Support is now growing within the US administration for commercial sanctions as Maduro pushes ahead with plans to hold early presidential elections on 22 April in spite of mounting condemnation from the US, the EU and a swathe of Latin American and Caribbean countries that form the Lima Group. All say the accelerated poll cannot be held freely and fairly, virtually guaranteeing that Maduro will win.
Commercial sanctions blocking US crude and products exports to PdV would significantly impact the Venezuelan company's core upstream operations and exports, which now consist mostly of sour grades Merey, Hamaca, Morichal and DCO amid the collapse of its refineries.
PdV produces 16°API Merey and DCO by blending extra-heavy Orinoco crudes such as Zuata and Morichal with imported light crudes, unfinished oils and naphthas used as diluent.
The US since 2012 has increasingly supplied PdV's crude and products import needs as the company's own light crude output has dropped and local operational refining capacity has collapsed to about a fifth of its 1.3mn b/d nameplate capacity.
PdV imported an average of close to 77,000 b/d of refined products from the US in the 12-month period from December 2016 to November 2017, according to the US Energy Information Administration (EIA). Conventional gasoline and motor diesel imports averaged a combined 31,500 b/d in the same period, while unfinished oils and special naphtha imports from the US averaged 27,800 b/d and 10,600 b/d, respectively.
PdV since end-2017 also has resumed crude imports earmarked for delivery to the Bullen Bay terminal in Curacao where it operates the century-old 325,000 b/d Isla refinery under a lease that expires at the end of 2019.
From the last week of December 2017 to end-January 2018 PdV imported about 3.1mn b/d of crude at Bullen Bay, including 1.73mn bl of WTI and Domestic Sweet Crude (DSW) and 1.44mn bl of Russian Urals. The WTI, DSW and Urals are mostly earmarked for PdV's Orinoco blending operations, the energy ministry said.
Commercial sanctions that block US oil exports to PdV would disrupt its crude blending operations, likely reducing Orinoco upstream output, blending and exports by over 200,000 b/d until the company secures new sources for its crude and products import needs, former PdV upstream manager Diego Gonzales estimates.
Venezuela produced 1.769mn b/d in January, an increase of 148,000 b/d from December 2017's official output of 1.621mn b/d, according to figures communicated directly to Opec by the energy ministry. Estimates from secondary sources, including Argus, peg Venezuela's output in January at 1.6mn b/d, down 47,000 b/d from December 2017's output of 1.647mn b/d.
PdV's January exports averaged about 1.25mn b/d, including almost 400,000 b/d shipped to the US and 350,000 b/d to China, Gonzalez estimates.
PdV declined to comment.
Sanctions blocking US oil exports to PdV could spur the Maduro government to retaliate by shifting its crude exports from regular US Gulf Coast clients such as Valero and Chevron to others outside the US. But securing new outlets outside the US with refineries engineered for Venezuela's sour crude would take time and capital that PdV does not have, Gonzalez said.
Despite the momentum building up in Washington for further sanctions, the administration remains more focused on perceived threats from Iran and North Korea, leaving Venezuela in a backseat for now.