PdV rethinks blending, weighs return to upgrading

Venezuela's state-owned PdV is considering a resumption of heavy crude upgrading at its PetroPiar joint venture with US major Chevron.

PdV has only partially succeeded in shifting its upgrading capacity at the Jose terminal to less complex blending operations as a way to mitigate the impact of US oil sanctions imposed in late January 2019.

The strategy was aimed at producing more 16°API Merey crude favored by Chinese and Indian refiners in place of the synthetic grades that used to go primarily to the US market, which is now closed off by the sanctions.

But shortages of domestic light crude grades needed to blend with its extra-heavy Orinoco crude have forced PdV to reconsider the blending strategy, company officials tell Argus.

PdV now hopes to restart syncrude production in early 2020 at its PetroPiar upgrader in which Chevron holds a 30pc stake.

The plant was designed to produce 190,000 b/d of 8-10°API Orinoco crude and upgrade it into 170,000 b/d of 26°API Zuata sweet crude for export.

It is unclear how much syncrude PdV expects to produce at PetroPiar and where the supply would be marketed. But the hope is that it would fetch higher prices than Merey, which has long suffered from quality problems. Among the options is to earmark the syncrude supply for Russia's state-controlled Rosneft to accelerate the servicing of PdV's outstanding oil-backed debt.

PetroPiar, one of four Orinoco upgraders built in the late 1990s by foreign oil companies and nationalized in 2007, started producing up to 130,000 b/d of Merey around late July after it was retrofitted to blend Orinoco extra-heavy crudes with domestic light grades Santa Barbara and Mesa.

PdV said in July that PetroPiar's blended output would reach 170,000 b/d by the end of August. But production dropped below 100,000 b/d before operations were suspended in September because PdV could not find buyers for the Merey and domestic onshore and floating storage capacity had run out.

PetroPiar's blending operations resumed last month after PdV cleared out domestic storage by shipping oil to Cuba from late September to early November. PetroPiar currently is producing about 90,000 b/d of Merey, according to a PdV Orinoco division official.

"We solved the storage problem, but we are having quality and tanker issues that are still affecting export operations," the official said.

Upstream, the main challenge to the blending strategy has been falling domestic production of the light grades. But the dual challenge of securing naphtha — formerly supplied by the US and now also blocked by sanctions — remains an operational obstacle with either blending or upgrading. Naphtha is required as a diluent to move the Orinoco crude out of the oil belt to Jose, where it is traditionally stripped out for reuse.

Chevron supports but did not influence PdV's decision to restart PetroPiar's upgrading operations, the PdV officials said.

"Chevron discusses operating decisions with the ministry and PdV but has no say in final decision," the Orinoco division official said.

Since the sanctions were imposed, Chevron and a handful of US oil services companies have been operating in Venezuela under US Treasury-issued waivers, which were renewed last month and now run until 22 January 2020.

Chevron's Caracas office did not respond to requests for comment on PetroPiar.

Elsewhere at Jose, PdV's 130,000 b/d PetroMonagas upgrading joint venture with Rosneft is currently producing about 70,000 b/d of Merey. PdV's 190,000 b/d PetroCedeno upgrader with European partners Total Equinor, has been in recirculation mode since first quarter 2019.

PdV's wholly owned Petro San Felix upgrader has been mothballed since 2017.

PdV's 110,000 b/d PetroSinovensa blending plant with China's state-owned CNPC is producing about 65,000 b/d of Merey. PetroSinovensa is the only Orinoco venture built as a blending plant rather than an upgrader.