Venezuela’s PDVSA to Restart Production in Joint Ventures Despite Sanctions

Mérida, March 5, 2020 (venezuelanalysis.com) – Venezuela is set to resume production in two joint oil ventures in the country’s Orinoco Oil Belt, Reuters reports.

Petrocedeño, run by PDVSA together with France’s Total and Norway’s Equinor, as well as Petromonagas, run by PDVSA with Russia’s Rosneft, are scheduled to restart operations in May and July, respectively.

Both ventures operate heavy crude upgraders that had their operations shut down last year as inventories piled up in the wake of the US oil embargo imposed in January 2019. At the time, Venezuela’s heavy crude upgraders were supplying 500,000 barrels per day (bpd) to US refiners.

The facilities are being converted into blending plants in order to produce the Merey grade favored by Asian markets.

The announcements came in the wake of a new wave of sanctions and threats from the US Treasury Department against the Caribbean country’s oil industry. Following financial sanctions against PDVSA in August 2017 and a January 2019 oil embargo, Washington imposed a blanket ban on all dealings with Venezuelan state entities in August 2019.

The August executive order also authorized secondary sanctions against third party actors dealing with Caracas. After reiterated threats, the Treasury Department sanctioned Russia’s Rosneft for its purchases of Venezuelan crude. With sanctions driving away buyers, Rosneft has been reportedly purchasing up to 60 percent of the country’s output before rerouting it to other destinations.

The Petropiar project, operated jointly with California-based Chevron, was converted into a blending facility last year before being reverted to an upgrader in January. Chevron has been granted consecutive sanctions waivers by the US Treasury to continue its Venezuela operations.

Alongside the punishing effects of US sanctions, Venezuela’s main industry has also suffered from corruption, lack of maintenance, brain drain and underinvestment. Output has fallen precipitously from averages of 1.911 million bpd and 1.354 million bpd in 2017 and 2018, respectively, to 793,000 in 2019.

President Maduro recently created an all-powerful commission to overhaul the oil industry, headed by Economy Vice President Tareck El Aissami.

The commission has proceeded to request the resignation of all company vice presidents. The head of the company’s lubricants division, Oscar Aponte, was reportedly arrested on Wednesday on corruption charges. A statement issued by the restructuring commission accused Aponte of smuggling products and collecting bribes on overpriced contracts.

A few days earlier, two managers from PDVSA’s supply and trading division were also arrested and accused of leaking confidential information to US authorities.

The case sparked outrage among relatives and popular movements, who have claimed that the pair were being targeted for their efforts to root out corruption in the oil industry.

The restructuring comes as PDVSA reportedly moves to seize assets from shipping agencies over debts. According to Reuters, the agencies have unpaid charges to PDVSA and Venezuela’s maritime authority INEA related to the use of oil terminals and other services such as tugboats and anchorage.

US sanctions have increased companies’ reluctance to engage in direct transactions with PDVSA, while international banks have also shied away from working as intermediaries in payments involving Venezuelan state entities.