In a sign of the depth of Venezuela´s economic crisis, its close political ally Cuba is looking for a partner to replace Venezuelan state-owned oil company PdV at its Soviet-era Cienfuegos oil refinery.
Havana will prioritize candidates that provide or source crude for the 65,000 b/d plant, an official at Cuban state-owned oil company Cupet tells Argus.
The partner would replace Venezuela's state-run oil company PdV whose 49pc stake in the Cienfuegos facility was quietly taken over by Cupet in August 2017.
The partner will be offered "a significant but not a majority" interest in the refinery, and lead a capacity expansion, the Cupet official said.
The initial search will encompass companies that have been supplying the island with crude and refined products, but prospects outside this group will also be considered, Cupet said.
Russian state-controlled Rosneft is widely seen as a top candidate to replace PdV. Rosneft chief executive Igor Sechin met Cuban president Raul Castro and Venezuelan president Nicolas Maduro in Havana on 16 December, and discussed co-operation in oil and gas, according to an official Cuban statement.
The Cupet official declined to comment on whether Rosneft will pick up the downstream stake. But the Russian company would be well-positioned to supply the facility from future crude production at its multiple joint ventures with PdV in Venezuela´s Orinoco heavy oil belt.
Rosneft and Cupet already announced a plan in October 2017 to upgrade and expand the refinery, saying discussion on the project would begin "before the end of this year."
Cienfuegos had been operated by Cuban-Venezuelan joint venture CuvenPetrol, and the takeover of the PdV interest was "a strategic business decision influenced by PdV's problems in meeting its commitment" to supply crude to the refinery, the Cupet official said.
The refinery is "too important" to the island's economy to be shut down or to be producing marginally, and needs to be "optimized," the official said.
It is not clear if there was a cost to the takeover of the PdV interest, or whether the move had been initiated by Havana or Caracas.
Officials at Venezuela´s energy ministry and PdV acknowledged the loss of the Cuban refinery stake because of substantial arrears. But they told Argus the matter was not revealed publicly in Venezuela because the timing coincided with politically sensitive local elections for a constituent assembly.
Venezuela and PdV have fallen behind on international bond payments in recent months, adding to substantial commercial arrears, a situation aggravated by US financial sanctions imposed in August.
Cienfuegos has experienced sharply lower refinery runs since 2015 because of reduced crude supplies PdV. The refinery processed an average 24,000 b/d in 2017, an official Cuban statement said last week.
PdV had traditionally supplied Cuba with 100,000-110,000 b/d of crude and products under preferential terms based on a bilateral agreement signed in 2000.
The oil supplies, part of a barter arrangement in which Havana provides medical, security and sports experts and products such as pharmaceuticals in lieu of cash, supplement Cuban oil production of around 50,000 b/d.
PdV´s steady decline in production capacity and its oil-backed loan commitments to China and Russia have diminished supplies to Cuba.
The Cuban government has been forced to ration fuel supplies to cope with an oil deficit of about 30,000 b/d, the Cupet official said.
Cienfuegos normally runs Venezuelan light crude and produces gasoline, diesel, LPG, naphtha, jet fuel and fuel oil.
Faced with a steep drop in Venezuelan supplies, Cuba has been importing unspecified quantities of crude and products from other countries such as Russia, Iran, Algeria, Angola and Trinidad and Tobago, but a hard currency deficit has thwarted a steady supply.
The Cienfuegos refinery was recommissioned in 2007 after PdV invested $236mn to complete and upgrade the plant, which had been mothballed since just after the 1991 collapse of the Soviet Union.
There have been several false starts to the refinery project in recent years. Chinese state-owned CNPC engineering subsidiary China Huanqiu was given a contract in 2010 to expand the refinery's capacity to 150,000 b/d.
The upgrade was to be financed by China's export-import bank, the island's government said at the time. The project never materialized.
The Cupet official denied that the takeover of PdV´s stake at Cienfuegos has soured relations between Havana and Caracas.
Castro and Maduro concluded a meeting on Cuba-Venezuela intergovernmental cooperation in Havana on 14 December. But in contrast to previous meetings, the communique did not list energy as an area that was discussed.
