Venezuelan oil exports may hit ceiling quickly

Chevron aimed to export almost 50pc more crude from Venezuela in February than in January after the US eased sanctions to allow its shipments, an in-country company source told Argus.

But plans to ship 4mn bl (140,000 b/d) a month may near the ceiling for what is possible in Venezuela because of logistical constraints. Only 1mn bl crude has completed loading from Venezuela to the US so far in February, compared with 2.4mn bl in January, based on estimates from ship tracking data in Vortexa.

US sanctions for years prevented oil company Chevron, partner state-owned PdV or other companies from sending crude to the US. That started to change in early 2022 when the Russian invasion of Ukraine triggered renewed interest in Venezuelan oil, and the US allowed Chevron to resume some work.

Chevron's four joint-venture projects in Venezuela have increased production to about 110,000 b/d, and the company is aiming for up to 200,000 b/d this year, the source said.

From 7 January-23 February, Chevron-affiliated ships have offloaded 12 cargoes totaling 2.7mn bl in Pascagoula, Mississippi, and other US ports of Venezuelan Boscan, Hamaca, Merey and Zuata grades, according to Vortexa data. Chevron also maintains some 2mn bls of Venezuelan crude in floating storage waiting to be transferred to tankers.

Venezuela has been slowly increasing production to around 700,000 b/d, but some Venezuelan oil observers say output has hit a ceiling because of structural constraints, including a need for dredging at Lake Maracaibo. This includes damaged or destroyed equipment from years of neglect, aging pipeline and port infrastructure.

"We might barely reach 1mn b/d [of production], but I do not believe that we will exceed 900,000 b/d, not even with the help of Chevron," oil economist Rafael Quiroz told Argus.

President Nicolas Maduro's goal of 2mn b/d this year is not realistic, Quiroz said.

Chevron also still faces some limits on its ability to invest in Venezuela under its licenses from the US Treasury Department's Office of Foreign Assets Control.

Much of Venezuela's oil output has relatively high production costs and lower quality, meaning it needs significant — and costly — processing. Quiroz estimates some production costs at $29-$34/bl, including blending. PdV has said its costs are a low as $5/bl, but that would not include upgrading and related costs.

Security is another issue that adds to production costs. The oil capital of Maracaibo has been ranked as one of the most dangerous cities in the world, including two mass shootings last week.

By Carlos Camacho