Venezuela scrambling to load oil ahead of China tax

Venezuela's state-owned PdV is scrambling to load crude cargoes before China imposes a new import tax that has blindsided management in Caracas, Argus has learned.

Most of the Opec country's exports wind up in China's Shandong province, where independent refiners are girding for a new $30/bl tax on diluted bitumen, the product category under which Venezuela's 16°API Merey blend is imported after quietly transhipping through Malaysia and other intermediate destinations to mitigate the risk of US sanctions.

Top PdV officials were caught off guard by the new tax, which would effectively squeeze out heavy sour barrels from the strategic Shandong market. The sanctions sharply limit Venezuela's market alternatives. And if trading firms reclassify the Venezuelan supply as crude to avoid product taxes, imports would rapidly deplete refiners' crude import quotas.

A shrinking Chinese market also implies that Venezuela's oil-backed debt to Beijing would take much longer to pay off, accumulating more interest in the meantime.

The tax takes effect on 12 June, and PdV is hoping loadings before 11 June will be clear of the new levy. In the meantime, it is hoping Beijing will reconsider the measure.

Haste makes waste

PdV's efforts to rush out cargoes from its main Jose terminal are hamstrung by loading equipment breakdowns and oil quality issues such as high metals content and sediment.

In the first half of May, PdV loaded about 5.7mn bl or 380,000 b/d of its Merey blend crude bound for Asia, short of its plans.

Among the VLCCs that loaded in the period are Shandong-bound Ceres 1 on behalf of Montmagastre Ventures with the shipping agent identified as Desarrollo 1405, and the Joy and Princess Moore heading to Singapore on behalf of Yunshu Maritime, according to PdV terminal reports seen by Argus.

The company is working to repair loading arms, pumps and hoses but the equipment is mostly patched up because of a shortage of spare parts and skilled workers to conduct full-blown maintenance, company officials say.

A fresh backlog of tankers is starting to build at Jose, a recurring trend that reverberates upstream in the Orinoco heavy oil belt, the main source of Venezuelan production.

While the VLCC Comuna is currently loading, the Maya started loading Merey on 13 May but paused the next day because of quality issues. Zarby finally loaded after a bout of equipment problems at the terminal.

The tankers themselves are an opaque mix that tanker-tracking services list as out of range, decommissioned or unknown altogether. Transponders are routinely switched off to avoid detection.

The US imposed oil sanctions on Venezuela in early 2019 in a bid to dislodge President Nicolas Maduro. Mainstream shipowners and insurers steer clear of Venezuelan oil trade to avoid the risk of sanctions themselves.

Negotiating edge

The new Chinese tax is taking effect just as the Maduro government and the US-supported political opposition flirt with another round of negotiations. Narrower oil export options threaten to erode some of Maduro's advantage heading into talks.

Aside from the Asia-bound VLCCs, PdV has loaded several tankers at Jose this month for storage or cabotage to its eastern terminals, and for Cuba, which relies on Venezuelan crude and heavy products mainly for power generation.

Other crude grades on the export roster include Special Hamaca Blend, a synthetic grade from PdV's PetroPiar upgrader at Jose. The plant went off line earlier this week because of a gas flow line blast. Chevron has a 30pc stake in PetroPiar, but its activities are restricted by a sanctions waiver that the US is likely to renew in coming days.