US Gulf coast refiners that invested long ago in the capacity to run Venezuelan crude could see a quick boost from redirected Venezuelan cargoes in the aftermath of the capture of the country's president, Nicolas Maduro, by US forces.
The US administration has signalled its intent to prioritise supply to US refiners by issuing a waiver to a global trading firm to resume purchases of Venezuelan crude, with the terms of the licence requiring that a specific volume must be sold to US buyers, sources told Argus. The US is in talks with leading trading firms and banks to immediately move 30mn-50mn bl of Venezuelan oil held in floating and onshore storage, US energy secretary Chris Wright said on 7 January. The US must first lift sanctions that since last year allow only Chevron to lift limited volumes of Venezuelan crude. But the sanctions waiver by the Treasury department's Office of Foreign Assets Control offers a workaround.
Increasing production from Venezuela could take many years and considerable investment. But supplies that have been heading to China and other destinations could be directed toward the US and compete with Western Canadian Select (WCS) crude that is currently consumed in Gulf coast refineries, US refiner Phillips 66's chief executive, Mark Lashier, says. Phillips 66 owns and operates two large Gulf coast refineries that can process about 200,000 b/d of Venezuelan oil if the supply is available and the economics support it, chief financial officer Kevin Mitchell says. They are the 265,000 b/d Sweeny refinery in Old Ocean, Texas, and the 264,000 b/d refinery in Lake Charles, Louisiana. Phillips 66 is running about 500,000 b/d of heavy crude across its system and is a "heavy buyer" of western Canadian crude, Mitchell says.
Any increase in imports from Venezuela should benefit US refiners with Gulf coast assets such as Phillips 66, PBF Energy and Valero, analysts at US bank Tudor Pickering Holt say. Venezuelan crude could be a welcome alternative to Mexican Maya for some Gulf coast refiners. Venezuelan grades tend to price at a discount to Maya, as they have lower gravity and higher acid content, Tudor Pickering says.
Many US Gulf coast refineries were built originally to run heavy Latin American crude. But the development of Canadian heavy oil sands led to higher imports from that country, while the advent of domestic shale oil pushed many US refiners to change slates, adding capacity for lighter crude. Phillips 66 completed a project last year at the Sweeny refinery that enables it to run up to 60,000 b/d of light crude from the Permian basin. The firm has purchased Venezuelan crude from Chevron "on occasion", Lashier says. Chevron operates in Venezuela with state-owned PdV under a special waiver from US sanctions and imported about 120,000 b/d of crude from Venezuela to the US in December.
The future of Citgo
Other possible US takers of increasing Venezuelan crude availability include the three PdV-owned Citgo refineries — the 460,000 b/d Lake Charles refinery in Louisiana, the 165,000 b/d Corpus Christi plant in Texas and the 188,000 b/d Lemont refinery in Illinois. All three refineries have a high coking capacity and can handle heavy crude slates. The refineries, in addition to Citgo's lubricant plants and its midstream and retail assets, are being auctioned to satisfy debts owed by PdV.
A US federal judge in November affirmed as the winner a $5.9bn bid from Amber Energy, an affiliate of US hedge fund Elliott Investment Management. The sale is pending and subject to regulatory approvals including by the US Department of Treasury's Office of Foreign Assets Control. Elliott declined to comment on the recent US actions in Venezuela and whether they could impact the sale.
