PdV opens Moscow office, deepens Russia ties

Venezuela's national oil company PdV has opened its new Moscow office, highlighting the deepening ties between Caracas and its Russian patron.

The PdV Russia office, located on Arbat Street in downtown Moscow, will engage in "business and management consulting," according to registration documents seen by Argus at the oil ministry in Caracas.

PdV filed documentation on 6 August with Russia's Unified State Register of Legal Entities (USRLE) to register its new subsidiary PdV Russia as a limited liability company (LLC) in which PdV-EuroAsia holds a 98pc stake and Havana-registered PdV Cuba holds 2pc.

PdV in March shut down its longtime European office in Lisbon after the US government toughened sanctions to include the Opec country's oil industry, effectively cutting off the US market for Venezuela crude. The sanctions are aimed at forcing out President Nicolas Maduro in favor of Juan Guaido, the head of the opposition-controlled National Assembly whom more than 50 countries recognize as Venezuela's interim president.

In the more than seven months since the US levied the oil sanctions, Russia's state-controlled Rosneft has emerged as the main lifter of Venezuela crude. The supply partly services oil-backed loans, and mostly flows into Rosneft's Nayara refinery system in India. Rosneft's liftings have increased further in recent weeks, as China's state-owned CNPC pauses loadings.

The new office in Moscow is "commercially logical because Rosneft is now PdV's main oil client, loading two-thirds of Venezuela's oil exports in August," a senior oil ministry official said. Venezuela exported over 775,000 b/d of crude in August, the official said.

Russia supports the Maduro government and maintains that US sanctions violate international law.

Speaking in Brussels yesterday, the US State Department's Venezuela envoy Elliott Abrams said Rosneft was opportunistically "squeezing" Venezuela by reselling its oil, and hinted at the possibility of expanding US sanctions on Russia to include the oil company. "At some point, we will have to consider the question of Rosneft's conduct and what kind of reaction we want to have to it," Abrams said.

Rosneft's main Venezuelan asset is the 140,000 b/d PetroMonagas integrated project that upgrades Orinoco extra-heavy crude into a lighter synthetic grade. But the upgrading plant at Jose has been shut down for months on operational problems.

Other assets include minority stakes in the 250,000 b/d PetroMiranda and 400,000 b/d PetroVictoria Orinoco joint ventures which are not in commercial production yet. Rosneft also has minority stakes in the Petroperija and Boqueron ventures operating small legacy oil fields in Zulia state and eastern Venezuela.

Venezuela's abundant natural gas rather than oil could prove to be a more attractive pursuit for Rosneft. In early 2016, the Russian company and PdV signed a Heads of Agreement to establish a 50:50 joint venture to produce, treat and market natural gas at the Patao, Mejillones and potentially Rio Caribe offshore fields.

Russian arms help

Russian weaponry features prominently in the Venezuelan armed forces' controversial military exercises on the border with Colombia that started yesterday. The equipment on display includes Russian-made Igla-S portable missile launchers and S-300 surface-to-air anti-aircraft missile systems. And Russian as well as Cuban military advisers and technicians are outfitted in Venezuelan fatigues in strategic border states, including Tachira, Venezuelan military sources tell Argus.

Venezuela's government has been lobbying Moscow for more credit and exploring the use of a Russian payment mechanism. But Russia's response to the petition for more financial support has been cool so far. And Rosneft said early this week it would welcome an "open dialogue" with the US over its liftings of Venezuelan oil.

Caracas is counting on Russia to maintain high-level support at the UN, which will hold its General Assembly in New York starting on 17 September. The UN continues to recognize Maduro's presidency, but the Washington-based Organization of American States (OAS) does not.