Venezuelan business proposes merchant refining

Venezuelan business chamber Fedecamaras is promoting private-sector modular refineries to replenish the Opec country's depleted fuel supply.

The initiative, first floated last year by Venezuela's oil chamber (CPV), is among proposals that Fedecamaras presented this week as part of a tentative rapprochement with the government of President Nicolas Maduro.

The Fedecamaras document, titled "Proposals for the special commission for national dialogue, peace and reconciliation", was drafted after senior chamber officials met with National Assembly president Jorge Rodriguez last month to explore ways to revive Venezuela's shattered oil-based economy.

The document effectively sidelines the US-backed opposition led by Juan Guaido, who continues to claim the assembly presidency following December 2020 elections that most western countries deemed fraudulent. But only the US continues to recognize his authority. Guaido and his associates have rejected any dialogue with the Maduro government, except for narrow ongoing talks to access Covid-19 vaccines and medical supplies.

Venezuela's state-owned PdV is only producing around 50,000 b/d of gasoline and 40,000 b/d of diesel, far short of demand. The company has 1.3mn b/d of refining capacity in Venezuela, but nearly all of it is broken following years of neglected maintenance, a shortage of spare parts, labor flight, a breakdown in industrial services and US sanctions. Before the oil sanctions were imposed in January 2019, PdV sourced most of its product imports from the US.

In the refining proposal, privately financed and operated mini-refineries would be installed near mature light and medium oil fields in eastern and western Venezuela, taking advantage of existing pipelines and storage facilities. In the western state of Zulia, the units could be deployed near fields around Lake Maracaibo. According to a CPV official, Zulia is a top priority because of its broader logistical ties in western Venezuela, where fuel shortages are more acute. In eastern Venezuela, the modular refineries could be located outside Puerto La Cruz or near the Furrial and Punta de Mata upstream districts.

The modular units of up to 25,000 b/d of capacity would underpin "an orderly fuel supply plan directed mainly at resolving current problems of producing gasoline and diesel required by companies and individuals because of failures in the industrial complexes operated under PdV's monopoly," according to a draft of the document seen by Argus.

The CPV official says at least six mini-refineries would be needed at a projected cost of about $200mn apiece, not including inspections to ensure pipelines and other mid-stream infrastructure are in safe operating condition.

Reaching the pumps

The controversial initiative would require Maduro's explicit authorization and the cooperation of the oil ministry and PdV in providing detailed data on the availability and condition of existing upstream and midstream infrastructure that could be transferred to outside control.

Fedecamaras and CPV are simultaneously petitioning for long-term operating concessions that would include the legal authority to refine, store, distribute and market the fuel "under transparent conditions that would include the right to freely contract qualified personnel" to operate the ventures.

The government also would have to commit to measures aimed at eradicating a bustling black market for scarce fuel and "eliminate incentives for arbitrage or corruption in the sale of gasoline and diesel," the Fedecamaras document adds.

Aside from resistance inside the opposition and PdV, the initiative would be challenging to implement on several levels. It is not clear how it would be reconciled with the state's constitutional control of the oil industry. US sanctions on PdV would dissuade most companies from participating. And the many operational problems that thwart PdV refining would still affect private-sector initiatives.