Latest market news

Venezuela gas at stake in debate over diesel swaps

  • Market: Electricity, Oil products
  • 27/07/20

A proposed tightening of US sanctions on Venezuela by cutting off diesel swaps could have unintended consequences for natural gas supply, particularly in blackout-prone western Venezuela.

Unlike gasoline that is a main sanctions target, Venezuela is drawing in a stream of diesel in US-authorized transactions conducted by Spain's Repsol, Italy's Eni and India's Reliance.

The latest cargo came in yesterday aboard the Bahamas-flagged Atlas, which docked at El Palito refinery after departing from the Sardinian port of Sarroch, Italy, on 9 July. Two other cargoes en route to Venezuela loaded in Cartagena, Spain. The Happy Lady completed loading on 22 June, and the Chance on 16 July. The three vessels are believed to be carrying a total of up to 925,000 bl of diesel. Three more diesel cargoes totaling 1.3mn bl are coming from India in late August and September.

The US government is currently reviewing the diesel exception, which critics argue was well-intentioned but has helped to prop up President Nicolas Maduro instead.

According to the Venezuelan electrical and mechanical engineers association (Aviem), about 300MW of baseload power generation relies on diesel, in addition to around 100MW of back-up generators, including units that supply hospitals. In all, the diesel-based power requires about 15,000 b/d of supply.

State-owned PdV produces some diesel from its decayed refining system, probably enough to meet the country's modest generation needs, according to Aviem. Other market participants are less sanguine. They say Venezuela needs diesel imports to ensure stable supply for electricity as well as public transport and food distribution. But Aviem is more concerned that a US cutoff of diesel swaps would end up driving down critical gas supply.

Pearl principle

For Repsol and Eni, the swap transactions are partly tied to their gas production from the Perla field, a 16.3 trillion cf offshore deposit which they operate under the Cardon 4 joint venture. PdV, the sole offtaker, pays the producers in kind with crude, which the EU companies balance out with diesel supply in return.

Depending on demand, Perla production fluctuates around 300mn-500mn cf/d, far from the 1.2bn cf/d that it was supposed to have reached in 2020 when operations kicked off in 2015.

If the US ends the diesel exemption, Repsol and Eni would have less incentive to maintain their gas production because there would be no clear way for Venezuela to pay for it, Aviem told Argus.

Repsol and Eni did not immediately respond to multiple requests for comment on the swaps or the implications for their gas production.

Currently consuming about 80mn cf/d of Perla gas is TermoZulia, a combined-cycle generation complex in the western state of Zulia that is dispatching 300MW, compared with its intended design capacity of 1.3GW. Even if state-owned utility Corpoelec managed to bring TermoZulia up to its full potential, the gas pipeline from the coast has insufficient capacity to supply it, Aviem says.

Aside from electricity, the Perla gas is absorbed by residential consumers in Maracaibo and by PdV's CRP refining complex, which is functioning at very low levels.

The wider market for the gas was intended to encompass petrochemical and fertilizer plants in western Venezuela, but these are all off line. Pipeline sales to neighboring Colombia originally offered another avenue to monetize the gas, but without a political breakthrough that possibility remains remote.


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
19/09/24

LNG-burning vessels well positioned ahead of 2025

LNG-burning vessels well positioned ahead of 2025

New York, 19 September (Argus) — Vessels outfitted with dual-fuel LNG-burning engines are poised to have the lowest marine fuel expense heading into 2025 when the EU will tighten its marine EU emissions trading system (ETS) regulations and add a new regulation, " FuelEU", from 1 January 2025. Considering both regulations, at current price levels, fossil LNG (also known as grey LNG) will be priced the cheapest compared with conventional marine fuels and other commonly considered alternative fuels such as biodiesel and methanol. The EU's FuelEU maritime regulation will require ship operators traveling in, out and within EU territorial waters to gradually reduce their greenhouse gas (GHG) intensity on a lifecycle basis, starting with a 2pc reduction in 2025, 6pc in 2030 and so on until getting to an 80pc drop, compared with 2020 base year levels. The FuelEU GHG intensity maximum is set at 85.69 grams of CO2-equivalent per MJ (gCO2e/MJ) from 2030 to 2034, dropping to 77.94 gCO2e/MJ in 2035. Vessel pools exceeding the FuelEU's limits will be fined €2,400/t ($2,675/t) of very low-sulphur fuel oil (VLFSO) energy equivalent. GHG emissions from grey LNG vary depending on the type of marine engine used to burn the LNG, but ranges from about 76.3-92.3 gCO2e/MJ, according to non-governmental environmental lobby group Transport & Environment. This makes a number of LNG-burning, ocean-going vessels compliant with FuelEU regulation through 2034. The EU's ETS for marine shipping commenced this year and requires that ship operators pay for 40pc of their GHG generated on voyages within, in and out of the EU. Next year, the EU ETS emissions limit will increase to 70pc. Even with the added 70pc CO2 emissions cost, US Gulf coast grey LNG was assessed at $639/t VLSFOe, compared with the second cheapest VLSFO at $689/t, B30 biodiesel at $922/t and grey methanol at $931/t VLSFOe average from 1-18 September (see chart). "In 2025, we expect [US natural gas] prices to rise as [US] LNG exports increase while domestic consumption and production remain relatively flat for much of the year," says the US Energy Information Administration. "We forecast the Henry Hub price to average around $2.20/million British thermal units (mmBtu) in 2024 and $3.10/mmBtu in 2025." Provided that prices of biodiesel and methanol remain relatively flat, the projected EIA US 2025 LNG price gains would not affect LNG's price ranking, keeping it the cheapest alternative marine fuel option for ship owners traveling between the US Gulf coast and Europe. LNG for bunkering global consumption from vessels 5,000 gross tonnes and over reached 12.9mn t in 2023, according to the International Maritime Organization (IMO), up from 11mn t in 2022 and 12.6mn t in 2021. The maritime port authority of Singapore reported 111,000t of LNG bunker sales and the port authorities of Rotterdam and Antwerp reported 319,000t in 2023 from all size vessels. Among vessels 5,000 gross tonnes and over, LNG carriers accounted for 89pc of LNG bunker demand globally, followed by container ships at 3.6pc, according to the IMO. The large gap between LNG global and LNG Singapore, Rotterdam, and Antwerp bunker demand, is likely the result of most of the demand taking place at the biggest LNG export locations where LNG carriers call, such as the US Gulf coast, Qatar, Australia, Russia and Malaysia. By Stefka Wechsler USGC bunkers and bunker alternatives $/t VLSFOe Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more
News

US court asked for third Citgo auction extension


19/09/24
News
19/09/24

US court asked for third Citgo auction extension

Houston, 19 September (Argus) — The court-appointed special master overseeing the auction of US refiner Citgo has asked the court to delay the announcement of a successful bidder to 26 September and a sale hearing to December. Special master Robert Pincus planned to make an announcement of the proposed buyer on or about 16 September followed by a November sale hearing, but last minute legal challenges derailed what have otherwise been "robust negotiations with a bidder," according to a court filing today. "The special master is continuing to negotiate sale documentation with a bidder," today's motion said. Pincus previously requested a second extension in August and a first extension in late July . By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Kosovo confident in winter 24-25 supply: TSO


19/09/24
News
19/09/24

Kosovo confident in winter 24-25 supply: TSO

London, 19 September (Argus) — Kosovar transmission system operator (TSO) Kostt is confident it can meet demand over the winter season through domestic generation and imports, Kostt told Argus in an interview ahead of the Energy Week Western Balkans conference. Domestic generation capacity is not enough to meet demand during periods of high consumption, such as during the winter season, and imports will be necessary during peak tariff periods to meet demand, the TSO said. Maximum demand over the upcoming winter season is expected to reach 1.45GW, and transmission capacity can reach 1.85GW under normal operating conditions, Kostt said. Kosovar distribution company Keds and energy supplier Kesko had to import up to 35pc of power during peak periods in December last year, when peak demand reached 1.1GW. Annual maintenance at the 680MW Kosova B lignite-fired plant was completed on 18 August, and the plant is scheduled to be fully available over the winter season. Constraints on the electric system should be reduced in the upcoming winter season, as Keds has started metering the four Serbian-majority municipalities located in the country's north in January . Kostt was responsible for supply in the region last year, but received payment through subsidies from the Kosovar government, rather than tariffs. But subsidies were sometimes delayed, which created challenges in balancing real-time deviations within Kostt's control area, the TSO said. An agreement was reached last year with Serbian state-owned utility EPS subsidiary Elektrosever to normalise power supply for the Serbian majority municipalities, which were not paying for the unauthorised withdrawal of electricity. Elektrosever is now responsible for supply in the region and submits daily nominations and adheres to balancing requirements, although Kostt still meets its financial requirement to cover losses in the transmission system. There have been no violations of the operational terms since the agreement went into effect on 1 January, Kostt said. "System operations have become more stable, and deviations are now within the Entso-e acceptable limits," Kostt said. And Elektrosever has agreed to Kostt's request to submit an electricity supply plan for the region for 2025. By Annemarie Pettinato Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Western Australia to allow some onshore gas exports


19/09/24
News
19/09/24

Western Australia to allow some onshore gas exports

Darwin, 19 September (Argus) — Western Australia's (WA) state government will allow onshore developers of gas fields to export about 20pc of their output as LNG during a five-year window, in response to a growing failure to bring on new supplies for the domestic market. WA previously banned onshore gas exports, except in the case of Australian independent Beach Energy's 250 TJ/d (6.7mn m³/d) Waitsia stage 2 project . Beach may be required to share its infrastructure with fellow Perth basin firms, the WA government said, to expedite market access for new projects. Australian mining firm Mineral Resources, which has argued for permission to export 85pc of the gas from its Lockyer project as LNG and fellow WA-based firm Strike Energy may benefit from the changes, as both hold significant reserves in the Perth basin. The changes apply to new onshore developments or existing projects seeking to expand production. Developers are required to reserve 80pc of gas produced for WA, with this rising to 100pc from 2031 onwards. The policy shift follows dire outlooks for WA's gas supplies as the state attempts to wean itself off coal-fired power generation. It currently contributes about a third of the electricity into the state's largest power grid. A parliamentary report last month warned WA cannot rely on sporadic appeals for more gas to meet demand. "These policy changes are sensible responses that balance the need for Western Australia to secure its energy future while encouraging onshore producers to bring on more gas supply as and when it is needed," mines and petroleum Minister David Michael said on 19 September. The 15pc reservation for offshore LNG projects will continue, while WA has promised more transparency on the policy with the publication of a yearly WA Domestic Gas Statement to reveal how producers are meeting obligations, with a review to take place after two years. An interim parliamentary report tabled earlier this year showed about 8pc of the state's offshore gas output has reached WA consumers since 2006, representing just over half the required volumes. Following public criticism of LNG producers' contributions, Australian independent Woodside Energy has since pledged an extra 32PJ (854mn m³) of domestic supplies by the end of 2025 . WA will also seek to strengthen laws designed to prevent companies banking prospective onshore oil and gas tenements, with a review into the "use it or lose it" policy to be led by the state's energy department. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Citgo auction result delayed amid last-minute motions


18/09/24
News
18/09/24

Citgo auction result delayed amid last-minute motions

Houston, 18 September (Argus) — The US court-appointed special master overseeing the auction of US refiner Citgo plans to object to a last-minute motion from the Venezuelan government to delay the sale process by four months. The Republic of Venezuela and state-owned oil company PdV filed a motion on Tuesday seeking a four-month pause in the sale of its refining subsidiary Citgo, which is being auctioned off to satisfy debts owed by PdV. Special master Robert Pincus said in a court filing today that he intends to object to Venezuela's motion for a pause. The last-minute motion from Venezuela comes days after the US District Court for the District of Delaware was expected to announce results of the winning bidder. The court asked for a second extension to the auction process in August, delaying announcing a successful bidder to on or about 16 September with a sale hearing on 7 November. But Pincus is now dealing with last-minute legal challenges filed last week outside of the Delaware courts by so-called "alter ego" claimants seeking to "circumvent" the Delaware court's sales process and "jump the line" for enforcing claims against PdV, the special master said in a filing last week. Bidders for Citgo's 804,000 b/d of refining capacity, terminals, retail fuel stations and other plants expect the assets to be sold free and clear of future claims by PdV creditors. Unresolved legal liabilities could lower the value bidders are willing to pay for Citgo, decreasing the pool of money available to those owed by PdV. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more