Puebla, Mexico, August 26th 2016 (venezuelanalysis.com) – Venezuela is now failing to cover collapsing domestic oil production with foreign imports, according to dire reports Friday.
Despite holding the world’s largest proven crude oil reserves, for years Venezuela has been increasingly importing petroleum products to cover domestic demand, amid slumping local output. However, in recent months imports have collapsed, according to documents obtained by Reuters.
According to the documents obtained from anonymous sources, state oil firm PDVSA’s capacity to import crude and oil products fell by 21% in the first seven months of 2016. At the same time, domestic output is predicted to see its worst dip in over a decade, Reuters reported.
The unnamed source of the leak blamed the import downturn on a lack of international confidence in PDVSA’s ability to pay its bills, forcing the state firm to negotiate oil swaps on a case by case basis.
“We have no more access to purchases under any type of credit. We are importing under two mechanisms: prepayment and swap,” the source told Reuters.
Venezuelanalysis has not seen the documents, though importers routinely complain of adverse conditions in Venezuela. Just hours before the Reuters article was made public, the US based Journal of Commerce (JoC) published a scathing investigation into conditions at Venezuelan ports. The investigation revealed container shipping to Venezuelan ports has slowed to a crawl. Tom Paelinck, the vice president of shipping firm CFS, told JoC, “Overall volumes are down, so we keep having to reduce the size of the ships.”
“We still provide service to six ports in Venezuela and in some of those, we are the only container carrier to serve that port. It is very bad,” he said.
Other importers complained of poor conditions at docks, including pilot boats unable to move due to fuel shortages, tug boats that mysteriously disappear for days on end, and drug inspections where the inspectors themselves are caught with drugs.
“After we had an inspection, the authorities came in and told us that they had found drugs in the office of the drug inspectors, so they had to do the drug inspection all over again — and we had to pay for it all over again,” one carrier executive complained.
SeaLand CEO Craig Mygatt told the journal it’s become almost impossible to carry anything to Venezuela.
“What they need very badly is food, and we can’t even get food in right now,” he said.
Along with everything from food to medicine, Venezuela is also struggling to get hold of chemicals needed for petroleum refining. Much of Venezuela’s crude reserves are heavy or extra heavy, making refining a costly process.
According to Reuters’ source, payment issues have resulted in PDVSA’s imports of naphtha falling by 35% this year. PDVSA uses naphtha as a diluent. Reuters reported naphtha shortages alone account for a 5% drop in PDVSA’s crude exports.
The documents obtained by Reuters also reportedly showed the only oil product to see rising imports in 2016 was liquefied petroleum gas (LPG). LPG is widely used in Venezuelan households for cooking and heating water. However, according to Reuters, until recently Venezuela’s domestic LPG output covered local demand.
PDVSA is yet to comment on the latest reports. However, in July Venezuela’s oil minister and PDVSA president, Eulogio Del Pino conceded power outages had put a dint in productivity.
Along with producing much of the country’s oil, PDVSA is the Venezuelan government’s largest single source of revenue. Yet weak international oil prices have prompted concern in the past year the Venezuelan government could be forced to default on its debt obligations. A Bank of America report earlier this year put the odds of a Venezuelan default in 2016 as unlikely. However, a more recent report from Moody’s Investors Service concluded the country is “highly unlikely” to have enough cash to cover its debts this year. The report suggested PDVSA would be the first domino to fall, with the government suffering a credit event shortly later. However, the report suggested there’s still a good possibility the country could avoid default.
Moody’s analyst Jaime Reusche told Bloomberg rises in international oil prices, debt relief from China and other sources of additional funding could allow the government and its oil firm to dodge default.
“Everything remains in flux, changing all the time,” he said.