PdV suspends PetroPiar blending, storage replete

Venezuela's national oil company PdV has suspended crude blending at its 210,000 b/d PetroPiar joint venture with Chevron because of storage constraints, according to multiple Venezuelan oil industry officials.

PetroPiar, one of four Orinoco upgraders built in the late 1990s to produce sweet synthetic crude mainly for the US market, had been producing around 130,000 b/d of 16ºAPI Merey since 27 July and was expected to reach 170,000 b/d around the end of August. But production was averaging less than 100,000 b/d in early September before the shutdown, an oil union official at PetroPiar said.

The plant had been blending Orinoco extra-heavy crude with light domestic grades Mesa and Santa Barbara to produce the Merey grade traditionally favored by Indian and Chinese refiners.

The suspension is tied to an export backlog and a lack of operational storage capacity. PdV has been struggling to market its heavy sour crude, offering cargoes at steep discounts, in the face of US sanctions that have alienated many buyers, with the notable exception of Russia's state-controlled Rosneft. Even the Chinese have temporarily paused liftings in an apparent commercial tactic related to Beijing's wider trade dispute with the US.

PetroPiar's shutdown comes ahead of the 27 October expiry of a US sanctions waiver that has allowed Chevron to continue operating in Venezuela in spite of the US oil restrictions that were imposed in late January.

It is unclear if the US major, which is one of PdV's last active foreign partners, will be allowed to carry on or will be forced to pull out along with a handful of oil services companies. The 14 September attacks in Saudi Arabia that have driven up oil prices today could strengthen a moderate approach that would keep Chevron on the ground for now.

PetroPiar had been the only one of the four upgraders in operation at the Jose terminal. PdV's 140,000 b/d PetroMonagas joint venture with Rosneft and the 200,000 b/d PetroCedeno project with European partners Total and Equinor have been in recirculation mode for months as PdV retrofits key units at both facilities to prepare them for blending instead of upgrading. They had been scheduled to start producing Merey in August.

PdV's wholly owned 102,000 b/d Petro San Felix upgrading plant has been mothballed since late 2017 and its core infrastructure is deteriorated for lack of maintenance, another oil union official at the Jose complex tells Argus.

After the sanctions cut off the US market, PdV decided to convert the upgraders into blending units in order to better align production with the Chinese and Indian markets.

But PdV's exports to China and India have slowed since the US escalated its Venezuela sanctions on 5 August, prompting buyers in both countries to downgrade their oil relations with Venezuela to minimize the potential risks implicit in the expanded sanctions, the Venezuelan officials said.

China's state-owned CNPC suspended planned cargo loadings at Venezuelan terminals in August and September, and shipments to India have declined both months. But CNPC remains a stalwart PdV partner at the PetroSinovensa crude blending plant, which is now the sole operating oil-processing plant at Jose.

Although Rosneft, which owns the Nayara refining system in India, has picked up part of the export slack, it has not absorbed all of the supply that had been going to China.

Part of PdV's shipments to Rosneft and CNPC are booked as payment on oil-backed loans from Moscow and Beijing.

The lower Merey shipments to China and India have backed up blend production in Venezuela where PdV's onshore and floating storage is filled to capacity.

"We're running out of storage capacity and have to cut output as a result," said an oil union official who works at PetroPiar.