[UPDATED] Venezuelan Oil Sector Continues Slump Amid Pandemic, US Sanctions

The Maduro government is working to repair refineries with Chinese and Iranian assistance to tackle fuel shortages.


Mérida, May 13, 2020 (venezuelanalysis.com) – Venezuela’s crude production has fallen for a second consecutive month as the COVID-19 virus batters global markets.

Newly released figures from the Organization of the Petroleum Exporting Countries (OPEC) placed the country’s April output at 637,000 barrels per day (bpd), down 38,000 bpd with respect to March, according to secondary sources.

The production reported directly by state oil company PDVSA shows the opposite trend, with April’s output at 737,000 bpd, slightly up from 718,000 in March.

The Caribbean country’s oil output has declined steeply from averages of 1.911 million and 1.354 million bpd in 2017 and 2018, respectively, following the imposition of crippling US financial sanctions in August 2017.

Production fell further in the wake of a US oil embargo in January 2019 and a blanket ban on all transactions with Venezuelan state entities in August. Venezuela’s oil output averaged 796,000 bpd by the close of 2019 having stabilized in the last trimester.

The US Treasury Department dealt further blows to Venezuela’s main source of foreign currency by imposing secondary sanctions on two subsidiaries of Russian energy giant Rosneft over their dealings with PDVSA. Rosneft had been carrying as much as 60 percent of PDVSA’s output before rerouting to other buyers that had ceased to purchase directly from PDVSA due to sanctions. In March, the Russian firm ended its operations in Venezuela and transferred its assets to a company directly owned by the Russian government.

The recent drop in production comes as the global coronavirus pandemic rattles the world petroleum market. Despite an agreement between major producers to reduce output, oil prices remain below US $30 a barrel, having traded over $60 for most of 2019.

The collapse in prices has paralized several of PDVSA’s operations and joint ventures, particularly heavy oil extraction projects in the country’s Eastern Orinoco Oil Belt.

Venezuela has seen intensified fuel shortages in recent weeks as falling output and US secondary sanctions take their toll. Transactions with Rosneft, as well as other multinational corporations such as India’s Reliance Industries, often involved crude for fuel swaps as a way to sidestep US sanctions.

However, Washington threatened Indian companies into winding down their dealings with Venezuela, while also telling companies not to ship fuel to the South American country.

California-based oil giant Chevron was likewise ordered to shutter its Venezuela operations last month alongside several US oilfield contractors. Chevron ran four joint ventures with PDVSA producing around 200,000 bpd.

In response to US measures, Swedish refiner Nynas announced on Wednesday that it was no longer subject to US sanctions after PDVSA sold 35 percent of its shares in the joint project to Swedish foundation Nynässtiftelsen, relinquishing its majority stake. Nynas, which relied on light crude from western Venezuela’s oil fields, can now access financing and resume oil purchases.

Likewise on Wednesday, Reuters reported that the FBI has opened a joint investigation with the Treasury Department into several Mexican and European firms over their dealings with Venezuela’s oil sector. The two Mexican companies, Libre Abordo and Schlager, exchanged food and water trucks for oil shipments, and were already being investigated by the State Department, the Treasury Department and the US Embassy in Mexico.

Falling output has led Venezuelan president Nicolas Maduro to order a shake-up in the oil industry, with Economy Vice President Tareck El Aissami taking over the oil portfolio and former CITGO head Asdrubal Chavez as president of PDVSA. Both posts were previously occupied by National Guard General Manuel Quevedo.

Fuel shortages have also driven the Maduro government to try and jumpstart refining plants, which have been offline since last year. Last month, PDVSA announced the reactivation of the El Palito refinery in Carabobo State, which has a capacity to refine 80,000 bpd.

More recently, repair work has begun at the Paraguana Refining Complex (CRP), the second largest in the world, with support of Iranian and Chinese technicians. Twenty flights from Tehran have reportedly arrived since April, bringing in over 700 tons of material and technicians from Iran and China. According to Argus Media, a subsidiary of Chinese state oil company CNPC is supplying catalysts, shipping compressors and refinery parts, while Iranian state-owned engineering company Khatam al-Anbiya is also supplying refinery parts.

The initial priority is the reactivation of the Cardon refinery, which can process 305,000 barrels daily. Cardon together with the 635,000 bpd capacity Amuay refinery form the CRP.

Edited and with additional reporting by Lucas Koerner from Santiago de Chile.