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Venezuela’s shrinking crude output nears 1mn b/d

12 Jun 2018 18:22 (+01:00 GMT)
Venezuela's shrinking crude output nears 1mn b/d

Caracas, 12 June (Argus) — Venezuela has begun to proactively shut in oil production to cope with nearly replete terminal storage, further accelerating an output decline and bringing the Opec country closer to the psychological barrier of 1mn b/d.

According to energy ministry official data communicated to Opec, Venezuela produced 1.533mn b/d of crude in May, up by 28,000 b/d from 1.505mn b/d in April.

Average production cited by secondary sources published by Opec pegged Venezuela's May output at 1.392mn b/d, down by 42,500 b/d from 1.434mn b/d in April. Argus estimates May production at around 1.45mn b/d.

State-owned PdV officials consulted by Argus privately dismissed the official tally showing an increase in Venezuela's output last month.

Two PdV upstream executives say that May production averaged about 1.44mn b/d or 93,000 b/d less than the energy ministry's official figure of 1.533mn b/d.

So far in June, the outlook for Venezuelan production is grimmer. Venezuela was producing about 1.5mn b/d at the start of May, including roughly about 800,000 b/d in the Orinoco oil belt and a combined 700,000 b/d in the company's eastern and western divisions. But output in early June has dropped to 1.1mn-1.2mn b/d, according to three PdV officials.

"Eastern division land-based storage of 11mn bl is at full capacity, and western division storage capacity of almost 48mn bl will be filled to its operational capacity in a question of days," the western division executive said.

It was not immediately clear where PdV is closing taps to manage the storage restrictions.

An output decline to about 1.1mn b/d in June, the lowest monthly level in nearly 70 years, is "not unrealistic given current circumstance and restrictions on PdV's operations," the executive added.

A senior energy ministry official, a frequent government critic, says the gaps with the official data in May are a "reflection of increasing presidential palace pressures" on energy minister and PdV chief executive Manuel Quevedo to reverse Venezuela's upstream decline.

PdV management is inflating Venezuela's official data "to hide the truth of PdV's production debacle from President (Nicolas) Maduro, the country and oil markets," the ministry official said.

The main driver behind Venezuela's sharper production decline in recent weeks is the cutoff of PdV's Dutch Caribbean logistical assets because of a set of debt-related liens imposed by ConocoPhillips early last month.

The dispute has led to a backlog of up to 30mn bl of crude exports which would normally flow through the Dutch Caribbean corridor, often for transshipment onto larger vessels for long-haul destinations. PdV's local terminal and assets of a combined 61mn bl are "filled nearly to capacity," the ministry official added. Another PdV executive confirmed that storage is almost full.

Another factor behind the latest decline is a cutback in activity by PdV and its foreign joint venture partners in the Orinoco oil belt, because of unpaid debt and fears of running afoul of US financial sanctions. A labor exodus at PdV has added to the toxic mix for Venezuela's upstream operations.

Venezuela produced more than 3mn b/d of crude in the 1990s.