PdV may shutter three local refineries soon

Venezuelan state-owned PdV could be forced to shutter three of its four domestic refineries soon because of critical shortages of crude feedstock and skilled refinery workers, two senior officials with the federation of oil unions (Futpv) told Argus.

The refineries that may face closure include the 305,000 b/d Cardon refinery, the 140,000 b/d El Palito refinery, and the 190,000 b/d Puerto La Cruz refinery. Combined they account for nearly half of PdV's 1.3mn b/d domestic refining capacity.

Futpv senior official Ivan Freites said it's possible the 635,000 b/d Amuay refinery also could be shuttered indefinitely since the majority of its crude processing units currently are inoperative from equipment breakdowns and worsening crude supply and worker shortages.

The Cardon and Amuay refineries on the Paraguana peninsula comprise PdV's 940,000 b/d CRP refining complex and operate as an integrated facility. If PdV decides to shutter either of the CRP's two refineries the entire complex likely would be forced offline, oil union officials said.

PdV's four local refineries currently are operating at roughly 30pc of their combined nameplate capacity, or about 390,000 b/d .

PdV is weighing the shutdown of its local refineries after year-old negotiations with Russian state-controlled Rosneft and China's state-owned PetroChina for ten-year leases to operate the Amuay and Cardon refineries ended in failure last month. PdV's proposed leasing agreements with Rosneft and PetroChina would have required the companies to cover 100pc of the costs of repairing and upgrading both refineries.

PdV would have retained full ownership of the CRP's refineries under the terms of the proposed lease agreements. PdV also offered guaranteed crude supplies for both the Amuay and Cardon refineries. But Rosneft and PetroChina declined PdV's offer to lease the CRP's refineries after concluding that the projected $10bn combined costs of repairing and modernizing Amuay and Cardon were too high, Futv officials said.

Rosneft and PetroChina also were discouraged by PdV's likely inability to deliver crude supplies consistently given the ongoing steep decline in Venezuela's upstream crude output, union officials said.

Venezuela's official crude production sank to 1.586mn b/d in February, a drop of 183,000 b/d from the January level of 1.769mn b/d. Venezuela's crude output in February slightly surpassed the average of 1.548mn b/d for the month reported by secondary sources, including Argus, widening the gap with Venezuela's Opec production quota of 1.977mn b/d.

Venezuela's official crude output in February was the lowest for the same month since the 1.548mn b/d registered in February 1987, not including a sharp decline during a 2002-03 oil sector labor strike, according to historical data from the energy ministry. Venezuela's crude output as of 15 March was running below 1.5mn b/d, a senior PdV executive told Argus last week.

Negative political risk perceptions also killed PdV's negotiations with Rosneft and PetroChina, union officials added. The government-controlled constituent assembly (ANC) would have approved agreements leasing Amuay and Cardon to the Russians and Chinese, but under Venezuela's 1999 Bolivarian constitution those agreements would have been illegal and likely would not survive a change of government if President Nicolas Maduro is voted out of office in May's presidential elections or if the military forces him to give up the presidency.

PdV and the energy ministry declined to comment.