Venezuela: Oil production drops as shipments to Europe are suspended

Caracas, August 12, 2022 (venezuelanalysis.com) — Venezuela’s oil production and exports have fallen after a series of operational setbacks, while recently renewed shipments to Europe have reportedly been halted.

According to the latest report from the Organization of the Petroleum Exporting Countries (OPEC), Venezuela’s production in July was 661,000 barrels per day (bpd), down from 710,000 bpd in June, as measured by secondary sources. This is the lowest score this year. For its part, the Venezuelan state oil company PDVSA reported 629,000 bpd, below the 727,000 bpd of the previous month.

The Caribbean country’s oil exports also fell with 460,323 bpd of crude and refined products shipped in July, down significantly from 630,500 bpd in June, Reuters reported. Most of the shipments were destined for China, the main destination for Venezuelan oil.

Caracas oil operations have been affected by mechanical disruptions caused by alleged attacks on oil facilities. On July 16, a gas pipeline explosion and power outage cut off PDVSA’s supply to its main crude production and export hub, the José Antonio Anzoátegui Industrial Complex in eastern Venezuela.

The José facility has three heavy oil upgrading plants: Petrocedeño (owned solely by PDVSA since last year), Petromonagas (partly owned by Russia’s Rosneft) and Petrosanfelix (owned by PDVSA). The emergency forced two upgraders to close, reducing production of exportable raw mixes.

During a live television broadcast, Venezuelan Oil Minister Tareck El Aissami denounced that the fire was caused by a terrorist attack and show material allegedly used to sabotage oil infrastructure. “These are the same terrorist groups that have always acted against the national interest to affect the lives of our people,” he added. tweeted.

The José industrial complex was reportedly returned to service after a several-day operation to extinguish the fire and repair the affected pipeline.

As the operational disruption depletes Venezuela’s lighter oil stocks, Iran has recently begun to increase its supply of 29.5°API blend, a lighter alternative to Venezuela’s Merey 16°API, to boost the fuel production and release improved domestic blends for exports.

In July, PDVSA received 4 million bpd of Iranian crude, an increase from the 1.07 million bpd imported in June, as well as some 2 million barrels of Iranian condensate to boost blending operations. The shipments are part of the Allied Energy Cooperation Agreement which saw Venezuela swap its heavy oil for Iranian gasoline, condensate, lighter crude, refinery parts and technical assistance.

The Caracas and Tehran cooperation also includes repair work at PDVSA’s 146,000 bpd El Palito refinery in Carabobo state and at the Amuay (645,000 bpd) and Cardón (310,000 bpd) refineries in the state. of Falcon. In early June, President Nicolás Maduro visited Iran to sign a 20-year cooperation agreement with his Iranian counterpart Ibrahim Raisi.

Iranian aid has helped revive Venezuela’s oil industry after years of US sanctions that have crippled production and exports, cutting off the country’s historic main source of foreign revenue. In 2017, Washington imposed financial sanctions on PDVSA and imposed a full oil embargo in 2019, followed by secondary sanctions, a crackdown on swap deals and a series of other measures throughout 2020. .

As a result, foreign companies have gradually ended their activities as well as oil agreements with Venezuela. The country’s crude production fell to historic lows, from 1.9 million bpd in 2017 to less than 500,000 bpd at the end of 2020. Caracas finally halted the free fall in its oil production to reach an average of 636,000 bpd last year. The number has generally remained stable with some slippage throughout 2022.

Venezuela’s oil outlook has received a boost following the restoration of the Latin American country’s crude imports to Europe after a two-year suspension caused by U.S. sanctions. In May, the US Treasury Department granted limited licenses to Italy’s Eni and Spain’s Repsol to implement oil-for-debt swap deals with Caracas.

Since June, Eni has received a total of 3.6 million barrels of diluted Venezuelan crude oil (DCO), a less exportable quality due to its high sulfur and water content, Reuters reported. For its part, Repsol transported around 3 million bpd in July. Resuming oil shipments to Europe helped PDVSA boost sales with overall exports reaching 545,000 bpd over the 60-day period.

However, unnamed sources revealed that Caracas may suspend crude shipments to Europe while the industry recovers from recent setbacks. PDVSA is reportedly negotiating the terms of oil-for-debt deals with Eni and Repsol to receive fuel while settling long-standing debts owed to the two companies.

Neither the Venezuelan Ministry of Petroleum nor PDVSA have issued statements confirming the alleged halt in shipments to Europe or the renegotiation of swap agreements.

For its part, the American company Chevron has also made headlines lately regarding the negotiations with PDVSA. In June, Bogotá-based US Ambassador James Story traveled to Caracas alongside a representative from the US Treasury Department’s Office of Foreign Assets Control (OFAC). They would have met the chief operator of Chevron in Venezuela, Javier La Rosa.

According to sources, the OFAC official was briefed on the current status of talks between Chevron and the Maduro government regarding the company’s return to Venezuela and the resumption of oil-for-debt swap deals. Chevron is expected to receive an answer by September or October on whether or not it can begin shipping Venezuelan crude to U.S. refineries.

Chevron currently maintains a minimal presence in Venezuela under a Treasury license that allows it to preserve its assets after it was banned from drilling, processing or selling Venezuelan oil since April 2020. The energy giant based in California has interests in four joint ventures with PDVSA that have approximately 200,000 bpd of crude production capacity.

Edited by Ricardo Vaz in Caracas.

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