US may restore Venezuela diesel swaps, ease waiver

  • Spanish Market: Crude oil, Natural gas, Oil products
  • 20/01/21

The new US administration is considering whether to reinstate Venezuelan crude-for-diesel swaps and ease a key sanctions waiver, but policy reversals alone would not be enough to meaningfully revive the Opec country's oil production after years of neglect.

At his senate confirmation hearing yesterday, secretary of state nominee Tony Blinken said the administration broadly backs the policy of pressuring Caracas to hold new elections, but "I believe there's more that we need to try to do in terms of humanitarian assistance, given the tremendous suffering of the Venezuelan people."

That humanitarian bent is partly driving President Joe Biden's administration to weigh whether non-US companies can resume the diesel swaps, and whether to restore less restrictive waiver conditions on US companies with Venezuelan assets, industry officials tell Argus.

The steps would aim to alleviate Venezuelan suffering without altering the sanctions framework designed to oust President Nicolas Maduro, a goal the "maximum pressure" campaign of Biden's predecessor, Donald Trump, never achieved.

After the US imposed oil sanctions on Venezuela in January 2019, Spain's Repsol, Italy's Eni and India's Reliance engaged in diesel transactions with Venezuela's state-owned PdV on humanitarian grounds, with the US Treasury's grudging approval. Repsol and Eni loaded Venezuelan crude as payment from PdV for natural gas from their offshore Perla field and other debts, with low-sulfur diesel shipped back to settle their books. Top supplier Reliance lifted Venezuelan crude in exchange for diesel in straight swaps. The sanctions exclude US companies from all Venezuelan oil trade.

Unlike gasoline, the diesel transactions and the subsequent ban were never formally enshrined in the sanctions. US officials telephoned the three companies around August 2020 to say their tolerance for swaps had ended. Diesel supply wound down in late October, just before the US elections in which former president Trump lost re-election but prevailed in Florida, partly thanks to anti-Maduro policies favored by conservative Hispanic voters. Venezuela's US-backed opposition was tight-lipped about the diesel ban, reluctant to cross its White House patrons despite concerns about the humanitarian costs at home.

Transcendent sentiment

Topped off with some high-sulfur supply from PdV's dilapidated refining system, the low-sulfur imported diesel helps to run Venezuelan power generators, produce and distribute food, operate water pumps and run public transport. As gasoline grew increasingly scarce last year, Venezuela's modest private sector started to shift more toward diesel for light trucks, distribution fleets and tractors.

Since the diesel swaps ended three months ago, Venezuela has been mostly relying on inventories, but these are expected to dry up around the end of March, potentially aggravating power outages and food shortages.

Although Venezuelans tend to be divided over the sanctions issue based on their political inclinations, a majority of all stripes reject diesel sanctions, according to a September 2020 survey of 500 residents across the country conducted by Venezuelan polling firm Datanalisis that was shared with Argus.

"Diesel is the first product that is rejected in all of the clusters of self-described political identification, including the opposition," Datanalisis president Luis Vicente Leon told Argus.

The survey showed that 68pc of participants reject diesel sanctions, including 50.4pc of self-described government opponents and 72.5pc of independents, as well as 90.7pc of pro-government participants.

A restoration of diesel swaps for non-US companies could be balanced out with a return to the original conditions of a sanctions waiver that has allowed Chevron and four US oil services companies to remain in Venezuela. At issue are waiver restrictions imposed in April 2020 that permit the companies to preserve their assets but prevent them from conducting maintenance and paying hundreds of local employees. The waiver itself lapses in June.

Elusive rebound

The return of more flexible waiver conditions as well as the diesel swaps would breathe some life back into Venezuelan crude production. The country is currently producing around 400,000 b/d, half the level it was at a year ago, and far from the 3mn b/d it pumped in the 1990s.

The Orinoco heavy oil belt, once meant to catapult Venezuelan output to 6mn b/d, is only producing around 200,000 b/d as almost all of PdV's joint ventures with foreign partners are off line or stagnant. The exceptions are PetroPiar, with minority partner Chevron, and PetroSinovensa, with China's state-owned CNPC. PdV's mature eastern and western divisions that used to produce about 1mn b/d apiece are barely producing 100,000 b/d now. Most onshore gas production is flared.

Any significant upturn in Venezuelan production could be problematic for the Biden administration, which is sensitive to the future electoral repercussions of any perceived softening of US policy toward Maduro and his close ally Cuba. But regardless of the sanctions or any relief the Biden administration would implement, chronic operating problems such as electricity outages, equipment theft, impaired infrastructure and labor flight would keep a lid on Venezuelan output growth. Without structural changes and significant investment, Venezuela's oil industry has little chance of a turnaround.

As for exports, a restoration of the diesel swaps would allow PdV to diversify back into the Spanish and Indian markets. Others could open up if more non-US companies sign on to the swaps. Since the diesel ban took effect in October 2020, exports have mostly gone to China through obscure intermediaries in cash transactions benefitting Maduro, critics of the diesel ban say. US sanctions on tankers, including last-minute additions by the Trump administration, have only driven the trade further underground.

Argus has learned that US State Department officials are preparing to brief new decision-makers about the diesel issue. The emphasis is on unintended humanitarian consequences, including the risk to Perla gas production that supplies western Venezuelan power plants and residential demand. At the Perla gas field, Repsol and Eni are currently producing at capacity of more than 500mn cf/d despite the loss of the diesel-based payment mechanism. Instead, they are accumulating more PdV debt in anticipation of recouping payment through future diesel swaps.

Bolder action

The Maduro government is hoping the Biden administration will take bolder action on sanctions, especially after his chief rival, US-backed opposition leader Juan Guaido, lost effective control of the National Assembly in December. But Biden plans to maintain US recognition of Guaido's authority and views Maduro as a "brutal dictator," Blinken told the Senate panel.

While the new White House is focusing on the Covid-19 pandemic, Iran and other priorities over Venezuela, Caracas may be feeling upbeat in spite of persistent international pressure over its human rights record. The US stance could converge with the EU's stress on negotiations that would lead to elections, erasing the zero-sum policy espoused by Trump and Guaido.

In the UK, Maduro might expect a victory later this year when the Supreme Court is expected to hear Venezuela's case to access half of the country's gold reserves in the Bank of England to pay for UN-coordinated pandemic relief. Closer to home, Venezuela scored propaganda points this week by supplying oxygen to pandemic-hit northern Brazil.

The picture is more complicated in the US. The opposition's hold over PdV's refining arm Citgo — an arrangement blessed by the Trump administration — is slipping away, potentially handing Maduro a short-term political gain but a longer term commercial loss. Creditors have all but given up on a near-term comprehensive debt restructuring, but US bondholders are hoping the Biden team will eventually allow them to trade their instruments.


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14/06/24

Venezuela to require appointments at some gas stations

Venezuela to require appointments at some gas stations

Caracas, 14 June (Argus) — Venezuelan drivers will need to schedule appointments in order to purchase gasoline from retail outlets selling government subsidized fuel, oil minister Pedro Tellechea told Argus on Friday. The subsidized gasoline is still inexpensive, at 2¢/liter, and plentiful, Tellechea said, despite drivers often waiting in line for hours for the fuel. But under a plan to modernize the stations selling the subsidized gas with new pumps and flat screen monitors, an appointment system will soon be required for purchases. Venezuela raised gasoline prices to 50¢/liter in 2020, to what the government has called a "international price," but then set aside stations meant just for members of the ruling party and other groups, where they could buy gasoline for much less. Today about 60pc of the country's 1,800 retail gas stations sell at unsubsidized prices. Half of Venezuela's gas stations will be refurbished this year, with pumps that can fill up an SUV in 20 seconds, supply 700 vehicles a day, and accept all forms of payment, Tellechea told reporters at a model station in Altamira, east Caracas, on Friday. "There aren't in South America gas stations right now just like the ones you are seeing today," he said. "Drivers won't have to wait in line at subsidized stations, they will have their appointments programmed to the second." Tellechea said Venezuelans are now using 95,000 b/d of gasoline but he declined to say how much is being produced domestically. Tallecha said oil production was growing, reaching "above 950,000 b/d" on Friday, but that included about 40,000 b/d of condensates and natural gas liquids. By Carlos Camacho Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Q&A: Phillips 66 to balance fossil and renewable fuels


14/06/24
14/06/24

Q&A: Phillips 66 to balance fossil and renewable fuels

Houston, 14 June (Argus) — With Phillips 66's Rodeo, California, refinery expected to ramp up to over 50,000 b/d of renewable fuels production by the end of this quarter, all eyes are on the refiner for what is next. Zhanna Golodryga , executive vice president of emerging energy and sustainability for Phillips 66, talked to Argus at the refiner's Houston headquarters about how the company looks at investments, its focus on sustainable aviation fuel (SAF) production and why Texas might be the Silicon Valley of the energy transition. The conversation has been edited for clarity and length. When Rodeo reaches full capacity, it will represent about 3pc of your overall output. What will your fleet look like longer-term and what will be the renewables/petroleum split? Not all the refineries in our portfolio are created equal, and when we look at them what I call them is "lower-carbon energy hubs". Not low, lower, because it's going to be a combination of everything. We're looking at the assets we have in the portfolio and what we can do to help bring in lower carbon solutions and what can we build out. Our focus is going to continue to be SAF. We understand the limitations of feedstocks and we have a very strong commercial organization that is now working on providing feedstocks just for Rodeo. But we're also thinking about what we can do to bring in different feedstocks. Energy transition opportunities aren't going to replace our traditional fossil fuel refining. It's an "and", not an "or". You've highlighted a future focus on SAF. Does that mean a move away from renewable diesel (RD)? I think we have flexibility to do both and it will be market driven going forward. We have to look at demand but there is demand for SAF globally, not just in the US. Demand for gasoline is not as strong as demand for diesel and sustainable aviation fuel. That is what our focus is and then we want to diversify the feedstock. What is your outlook for RD? I think RD is here for quite some time. It's hard to predict what's going to happen by 2050 but I think we will have the demand. It's going to take a long time to electrify all future transportation. I think we have a much better opportunity for now to focus on what we're really good at. That's fuels, renewable fuels. You have faced activist investor pressure calling for Phillips 66 to focus on its core refining business. How do investors feel about the Rodeo conversion and your future plans? We have taken a pragmatic approach to the energy transition. We have criteria that we follow prior to taking any projects over the line, specifically the energy transition type projects. They must meet five key prerequisites: the right returns, the right technology that has been proven at scale, the right regulatory environment, preferably involve a partnership and be done at the right time. We have to prove with Rodeo that this is, as I call it, our license to continue to grow the business. This is our license to operate additional energy transition business. This one is going to be done extremely well. What are the policy tailwinds and headwinds to your renewables investments? When we look at our opportunities in our energy transition portfolio, we are building our economic model for them to produce the right returns without any incentives. That is our starting point. On the other hand, the IRA [US Inflation Reduction Act] has been a bipartisan initiative and we think it's going to stand for the greater good of the planet. We have to think globally, as we have the Humber refinery in the UK. It's interesting for us to see what's possible in the US with the IRA incentives, versus more of a stick in Europe. But the challenge for us is permitting and timing. We probably could have brought Rodeo online sooner if we didn't have to wait for some permits. Our headquarters are in Texas and Texas is the "energy transition Silicon Valley". I'm repeating someone's words and those are the words of Bill Gates. But I believe that. We're perfectly positioned on the Gulf coast to go to the next phase and build something here. You've mentioned Phillips 66's 265,000 b/d Sweeny refinery in Old Ocean, Texas, as a low carbon energy hub. Does that mean it is a candidate for renewable fuel conversion or co-processing? It could be an option, maybe not at Sweeny, but in the Gulf coast, maybe Lake Charles. It's driven by our hardware, just like what we've done at Rodeo. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

S Africa's ANC, DA agree to form government


14/06/24
14/06/24

S Africa's ANC, DA agree to form government

Cape Town, 14 June (Argus) — South Africa's African National Congress (ANC) and Democratic Alliance (DA) political parties today agreed to form a government while the first sitting of the new parliament was underway. The agreement, which includes the Inkatha Freedom Party (IFP), paves the way for ANC leader Cyril Ramaphosa to be re-elected president. The parties will assume various positions in government broadly in proportion to their share of seats. The government of national unity (GNU) agreement is the result of two weeks of intense negotiations after the ANC lost its long-held majority in the national election on 29 May. It secured 40.2pc of the vote, and the centre-right, pro-market DA retained its position as the official opposition with 21.8pc. The deal scuppers the possibility of an alliance between the ANC and the two largest left-wing parties, MK (uMkhonto weSizwe) and the Economic Freedom Fighters (EFF), which credit ratings agency Fitch warned could pose risks to macroeconomic stability . MK party unseated the EFF in the election to come third, winning 14.6pc of the vote. The EFF secured 9.5pc, and the IFP came a distant fifth with 3.85pc. The MK and EFF are populist parties that campaigned on agendas including wide-scale land expropriation without compensation, nationalisation of economic assets — including mines, the central bank and large banks and insurers — halting fiscal consolidation and aggressively increasing social grants. The GNU parties agreed the new administration should focus on rapid economic growth, job creation, infrastructure development and fiscal sustainability. Other priorities include building a professional, merit-based and non-partisan public service, as well as strengthening law enforcement agencies to address crime and corruption. Through a national dialogue that will include civil society, labour and business, parties will seek to develop a national social compact to enable South Africa to meet its developmental goals, they said. The GNU will take decisions in accordance with the established practice of consensus, but where no consensus is possible a principle of sufficient consensus will apply. By Elaine Mills Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Renewable natural gas not ‘major’ for climate: Chevron


13/06/24
13/06/24

Renewable natural gas not ‘major’ for climate: Chevron

New York, 13 June (Argus) — The growth of renewable natural gas (RNG) production is great news for the climate, but "to say that it is having a major impact by itself is difficult," the president of Chevron's global gas division said this week at an industry gathering. The US oil major, which has invested in RNG facilities in California , Michigan and elsewhere in recent years, has also boosted its conventional gas production on the heels of a crude-focused acquisition of a Denver-based producer. "I don't want to get called out (for) greenwashing or whatever because the volume is just very small compared to the overall portfolio," Chevron gas division president Freeman Shaheen said at the Northeast LDC Gas Forum in Boston, Massachusetts. Advocates for RNG hail the fuel, comprising methane from landfills and animal waste projects that is processed into pipeline-quality gas, as a boon for the climate. This is not only because its use displaces conventional natural gas produced in hydrocarbon drilling — so-called ‘fossil gas' — but because its production takes methane that would have been released directly into the atmosphere and burns it as fuel, releasing CO₂ — a less potent greenhouse gas — instead. But RNG today comprises just 0.5pc of the North American gas market. Even with continued policy support and technological development, Wood Mackenzie projects it will grow to just 4 Bcf/d (113mn m³/d), or 3pc of the market, by 2050. This is why some policymakers, such as Massachusetts' utilities regulatory, have rejected gas distributors' calls to decarbonize the gas system with RNG. The energy industry simply has not invested enough in RNG over the past several decades for it to reach the scale needed to play a bigger role in cutting emissions, Shaheen said. By Julian Hast Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

UK political parties repeat existing stances on energy


13/06/24
13/06/24

UK political parties repeat existing stances on energy

London, 13 June (Argus) — The two main UK political parties have set out their plans, including on energy and climate change, with just three weeks until the general election. Energy security and the cost to consumers is a recurring theme for both, but the manifestos present some marked differences in approach to the energy transition. Both the incumbent Conservative and opposition Labour parties doubled down on existing positions in their respective manifestos. The Conservative party said that it remains committed to the UK's 2050 net zero emissions target, but promises a "pragmatic and proportionate" route. The party's manifesto guarantees "no new green levies or charges while accelerating the rollout of renewables". The UK's net zero goal is legally-binding, and was passed with significant cross-party support under a Conservative government in 2019. The Conservatives have been in power since 2010, and fielded five prime ministers in that time. Recent polling data show a substantial lead for Labour, which performed well at local elections in May. Labour placed strong focus on the opportunity the transition offers, saying that it would place the UK at the "forefront of climate action by creating the green jobs of the future at home and driving forward the energy transition on the global stage". The party has committed to zero-carbon power by 2030, although it would "maintain a strategic reserve of gas power stations to guarantee security of supply", it said. The Conservative manifesto reiterates the party's plans to build new gas-fired power plants. The party had previously committed to a decarbonised power grid by 2035, in line with a G7 pledge, although that is not mentioned in its manifesto. The two main parties clearly diverge on their approaches to North Sea oil and gas production. The Conservatives aim to keep the windfall tax — which effectively results in a 75pc rate — on oil and gas producers in place "until 2028-29, unless prices fall back to normal sooner". Labour confirmed plans to lift the rate to 78pc and run the tax until the end of the next parliament, which is likely to be mid-2029. Labour is also clear that it "will not revoke existing licences" in the North Sea, but it will not issue any new licences — for oil, gas or coal. The Conservatives restated the party's aim to legislate for annual North Sea licensing rounds . Both parties back nuclear energy, including small modular reactors — though those are unlikely to be operational until after 2030. And both pledge to cut planning bureaucracy and tackle grid connections. Labour's plans to "double onshore wind, triple solar power, and quadruple offshore wind by 2030" would result in installed capacity of 31GW, 48GW and 59GW, respectively, from a baseline of end-2023. The Conservatives' target to triple offshore wind by the end of the next parliament would put installed capacity at 44GW in 2029 — below the 50GW target for 2030 set in 2022 — while it said it supports solar and onshore wind in some circumstances. Finance in focus Both parties are keen to pull in private-sector investment, while Labour took up an original Conservative pledge to "make the UK the green finance capital of the world". And both pledge to address the cost of energy for consumers — Labour through local power generation projects and home insulation upgrades, and the Conservatives by ruling out any further "green levies". The latter plans to reverse London's expansion of the ultra-low emissions zone — originally planned by Conservative then-mayor and later prime minister Boris Johnson. Labour said that it would restore a phase-out date of 2030 for new internal combustion engine cars — which prime minister Rishi Sunak in September pushed back to 2035 . On an international level, both parties mention climate leadership at summits such as UN Cops. The Conservatives pledged to "ring-fence" the UK's climate finance commitments, while Labour committed to restore development spending to 0.7pc of gross national income "as soon as fiscal circumstances allow". By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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