Logistical bottleneck choking off PdV oil exports

Risk-averse tanker operators are resisting state-owned PdV's efforts to compensate for the partial loss of vital Dutch Caribbean logistical assets by offering offshore ship-to-ship (STS) transfers in Venezuelan deep waters off the Paraguaná peninsula.

The lack of industry confidence in PdV´s logistics is aggravating the effects of the Opec country´s steep decline in production, which is now below 1.5mn b/d, less than half of the 1990s level. Around 500,000 b/d has been lost in the past year.

The firm is pressing buyers to accept sharp volume cuts to avoid a declaration of force majeure in June.

PdV is bereft of the advanced technical skills, support services and key equipment such as fenders required to safely transship crude and refined products in Venezuelan waters, local and international shipping sources tell Argus. Its terminals, including the main outlet at Jose in Anzoategui state, are in poor condition because of a lack of maintenance and investment.

PdV needs to load large tankers to reach long-haul destinations, particularly India and China. The company is similarly impeded from importing naphtha and light crude that it needs to transport and blend its Orinoco extra-heavy crude.

The firm has inquired about securing specialized offshore equipment from the Dutch Caribbean islands such as Aruba, but it has no cash to pay for it.

As a result, PdV is telling some buyers to bring their own equipment or face force majeure.

STS transfers require that tankers be in very close proximity "in which their hulls are almost in physical contact, raising the risk of collisions due to currents, winds and operator error that could result in ruptured hoses, breached hulls, major oil spills, explosions and fires at sea that PdV doesn't have the personnel or equipment to control and contain," a local tanker broker told Argus.

PdV's inability to persuade its clients to engage in STS transfers has "created significant tanker congestion near Venezuela's export terminals, with at least 70 tankers currently clustered near Jose and the Amuay and Cardon terminals," a second broker said.

Overall, more than 90 tankers currently are anchored in Venezuelan waters or navigating between PdV's terminals.

"PdV's crude exports are collapsing because VLCC and ULCC tankers can't be loaded and imports of light crude and naphtha that previously were unloaded at PdV's assets on the islands cannot be unloaded at the Jose terminal because Pozuelos Bay is too shallow," the second broker said.

PdV has traditionally carried out these sophisticated freight operations off Dutch Caribbean islands such as Curacao where it leases the Bullen Bay terminal and Isla refinery. But the Venezuelan company lost access to these facilities as a result of debt-related liens imposed by US independent ConocoPhillips in early May. The liens were partially eased on 18 May to allow the firm to supply fuel for local consumption, using stored oil as a start and sustaining Isla operations with imported cargoes that it has yet to deliver. Under local court rulings, the revenue from the local sales will go into escrow accounts out of which ConocoPhillips will be gradually paid.

A key problem for PdV is precedent. The firm´s many other creditors could follow ConocoPhillips´ lead and seize cargoes. The risk prompted PdV to pull back scores of tankers into Venezuelan waters in mid-May, some of which are now stationed there as floating storage. Exports were shifted to an fob basis in a bid to avoid more seizures.

Progress under the new export terms has been slow so far. Buyers and ship operators are cautious. Among other issues they face is spilled oil in Venezuelan waters that contaminates tanker hulls. PdV will not pay the cost of cleaning them.

Storage capacity at its Venezuelan terminals and tank farms is nearly at full capacity, a PdV executive said. "If we don't restart our Dutch Caribbean operations this month, PdV will be forced to start shutting down upstream production that would be very expensive to restart."