Venezuela, a founding member of OPEC and at one time the largest oil-producing nation of Latin America, has seen this vital industry see a near-collapse triggering an economic and humanitarian crisis in the country.
Adding to the woes are the US sanctions, which have led to an 84% increase in its stockpiles as buyers are keeping away. This means that the state-run PDSVA refinery will have to shut production again, harming the fragile economy more.
The US government is putting pressure on President Nicolas Maduro to peacefully exit from power. Negotiations are ongoing and the sanctions are a way to force the president to reconsider his stance.
Importers of Venezuelan crude oil, including India’s Reliance Industries Ltd, Spain’s Repsol SA and Italy’s Eni SpA have all stopped purchases for the month, according to Bloomberg. In September, the three companies took a combined 9.7 million barrels, accounting for more than half of Venezuela’s exports.
The storage facility at the Jose terminal and nearby facilities have almost doubled to 10.6 million barrels since the end of September. The country now has no more storage facilities and the state-owned Petroleos de Venezuela SA might have to shut wells. The last fuel loading was done on October 16 at the Jose terminal, a sharp contrast from a loading a day.
The US sanctions against Venezuela were allowing crude-for-diesel swaps between PSVSA and Asian and European refiners for humanitarian reasons. But it now seems that the US administration is no mood to be accommodating and is considering additional measures to cut off these remaining fuel transactions.
Aware of these upcoming sanctions, Reliance has already shifted away from Venezuela crude and started transactions with Canada from where it bought nearly 12 million barrels of Canadian oil.
With the big-name companies from Europe and Asia keeping off, it is the small refineries that have become the lifeline for Venezuelan crude. Retino Maritime, Kalinin Business, Xiamen Logistic Grass and Wanneng Munay have taken over. So far 4.6 million barrels of oil have been bought by them.
Venezuela was producing an average of 345,000 barrels of crude daily in July which has just marginally gone up to 383,000 barrels daily now. According to the Baker Hughes September 2020 rig count, there are no operational drilling rigs in Venezuela. The stoppage of drilling activity and no new investments means that oil production could come to a complete standstill soon. Venezuela oil exports brought in only $22.5 billion in 2019 and it is sure to be much lesser in 2020.
Years of mismanagement, a tremendous lack of capital, and the steady outflow of skilled oil industry labor mean that the oil drilling infrastructure is collapsing.
Additionally, there are fears of an environmental disaster waiting to happen in the Gulf of Paria off the Caribbean coast, where floating storage and offloading facility jointly operated by PDVSA and Italian energy giant Eni is tilted and may sink any time soon.
There are fears the vessel could dump its load of crude oil into the Caribbean triggering an environmental disaster up to eight times worse than the 1989 Exxon Valdez oil spill in Alaska. Already four large spills have already taken place on the Venezuela Caribbean coast, destroying the environment and wiping out crucial tourism as well as fishing industries.
An oil boom is happening in the neighboring region of Guyana and Surinam, which will further erase the Venezuelan advantage. The Andean country anyways needs a tremendous infusion of capital, skill and infrastructure to rescue its failing oil industry.
The newly discovered crude is devoid of sulfur, which makes it easier to refine and will now be the preferred choice of Asian refineries. Venezuela crude is not so clean and carries a fair amount of sulfur.