PdV starts PetroPiar blending, offers royalty cut

Venezuela is kicking off the transition of its dormant heavy crude upgraders into blending sites with the first operation scheduled for today at state-owned PdV´s PetroPiar joint venture with Chevron, Venezuelan oil industry executives said.

Hobbled by US sanctions, Venezuela is seeking to implement a structural shift away from synthetic crude that the upgraders were designed to produce for the now-closed US market, in favor of Merey blend coveted by refiners in China and India.

The stakes are high for Chevron, which owns 30pc of PetroPiar. The US oil sanctions imposed in late January require the company to withdraw from Venezuela by 27 July unless it receives a waiver from the US Treasury Department to remain. As an incentive to lobby for a waiver and participate in the Merey blending plan, PdV is quietly offering to slash Chevron´s 30pc royalty payment to 20pc, a senior PdV executive told Argus.

"This is the best deal on the planet, especially for Chevron because the investment is minimal or nothing, and the royalty would be cut," the executive said.

Chevron regularly refers media queries on its Venezuelan joint venture operations to PdV. The company says it continues to comply with all US laws and regulations.

PdV´s three operational joint venture upgraders — PetroPiar, PetroCedeno with Total and Equinor, and PetroMonagas with Rosneft — have been in recirculation mode since mid-May. A fourth upgrader, PdV´s wholly owned San Felix, has been out of service for more than a year.

Under the new production scheme, PetroPiar would strip naphtha from diluted 8°-10°API Orinoco extra-heavy crude and blend it with domestic Santa Barbara light crude to produce 16°API Merey crude blend for export to Asian markets.

On paper, PetroPiar would blend 120,000 b/d of extra-heavy crude with 50,000 b/d of light crude in adjacent storage tanks to produce 170,000 b/d of Merey. The extracted naphtha, which the sanctions prevent PdV from sourcing in the US, would be returned to the oil belt for reuse as the upgraders were originally designed to do.

The main challenge to the blending operations is the availability of domestic light crude such as Santa Barbara and Mesa. PdV plans to top off limited domestic light crude production with imports, such as the Nigerian light sweet Agbami crude it brought in earlier this year. But Venezuela has little cash flow or credit to pay for it.

PdV already carries out blending at its PetroSinovensa joint venture with China´s state-owned CNPC. The facility has been operating partially for months, partly because of the light crude shortage.

According to a 1 July PdV operations report obtained by Argus, PetroPiar received Santa Barbara crude "in preparation for applying Blending Plant mode". PetroMonagas and PetroCedeno remained in recirculation mode, and Petro San Feliz was still shut down.

The four upgraders were built in the 1990s as joint ventures with big foreign oil companies that were eager to tap Venezuela´s vast Orinoco heavy oil belt. Each project operated independently, producing crude at the oil belt, blending it with naphtha for transport to Jose, stripping out the naphtha for reuse at the oil belt and upgrading the heavy crude into different qualities of lighter synthetic crude for export, mainly to the US.

The government of late president Hugo Chavez nationalized the upgraders in 2007. Three of PdV´s partners — Chevron, Total and Equinor — agreed to stay under new terms, while ExxonMobil and ConocoPhillips pulled out and won compensation awards that Venezuela has yet to pay.

ExxonMobil was the main actor in Cerro Negro, now known as PetroMonagas. ConocoPhillips held interests in Ameriven, now PetroPiar, and PetroZuata, now Petro San Felix.

Washington imposed oil sanctions on Venezuela in late January 2019, compounding financial sanctions levied in 2017. The White House is backing the Venezuelan opposition´s campaign to unseat Venezuelan president Nicolas Maduro, who is no longer recognized as head of state by most western countries.

"We have done nothing wrong and do not deserve the oversight of any government outside of our own," Venezuelan oil minister and PdV chief executive Manuel Quevedo told reporters today upon leaving today´s Opec meeting in Vienna. He acknowledged the sanctions have eroded production but the company is adopting new strategies to recover it, including adapting the upgraders for blending to produce more Merey.

"We are going to continue blending with our own crude and import as well," Quevedo said.