Venezuela increases oil production; external markets still blocked

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The Paraguaná oil refinery complex in northwestern Venezuela, one of the world’s largest, can process a million barrels a day, and is working at just a third of its installed capacity. Photo: PDVSA

By Youri Kemp
Caribbean News Now associate editor
[email protected]

CARACAS, Venezuela — State-owned oil company Petroleos de Venezuela SA (PDVSA) is taking action to increase crude production in the second half of 2018, said Venezuela’s oil minister, Manuel Quevedo.

During an expanded meeting with vice presidents and executives of the company, Quevedo also explained that the plan is to comply with a quota of 1.9 million barrels per day as part of the progressive increase in extraction levels.

However, the calls for an increase in production comes in the face of existing international disputes with Venezuela and its external partners, in addition to additional sanctions placed by the US on the country, which has seen oil shipments either seized at their destination point or stalled in Venezuela, unable to be delivered to the intended recipients.

According to the 15-member oil cartel, the Organization of the Petroleum Exporting Countries (OPEC) Monthly Oil Market Report (MOMR) for July 2018: “Venezuela’s Merey OPEC Reference Basket (ORB) price showed little changed amid tighter supplies of sour crudes to the US Gulf Coast (USGC), due to lower Venezuelan exports. Also in the month of June, Merey was up 96¢, or 1.4%, m-o-m at $69.25/b in June, 2018.”

In addition to the July 2018 OPEC MOMR, Venezuela also showed a year-on-year decrease in production overall, from 2,154 million barrels in 2016 to 1,911 million barrels in 2017; and conversely 48 million barrels lower between May-June 2018, as per OPEC’s secondary source confirmation method.”

However, in a joint -statement by PDVSA and Venezuela’s oil ministry, the governor of Venezuela to OPEC, Angel Gonzalez, confirmed that the production figure reported in June by PDVSA to OPEC rose to 1.57 million barrels per day, contrary to what is actually in the OPEC MOMR.

Gonzalez also clarified the extraction is even higher if the 70,000 condensate barrels and another 90,000 hydrocarbons obtained daily from the gases are added.

Analysts projected back in December 2017, at a time when oil prices are steadily rising globally, that Venezuela was expected to suffer a $3 billion shortfall on oil sales to just over $23 billion (down dramatically from the 2012 revenue peaks of over $93 billion) and was further projected to see production decreases, bringing them closer to one million barrels per month, well below the already modest projected estimates of over 2.5 million.

More importantly, Venezuela has lost nine oil rigs during 2016 to 2017, and an additional 23-plus rigs between 2017 to June 2018.

In May 2018, a Curacao court ordered the seizure of $636 million in assets belonging to PDVSA, thus awarding multinational oil giant ConocoPhillips a portion of its $2 billion settlement won in an arbitration ruling handed down by the International Chamber of Commerce last month – further putting pressure on PDVSA’s distribution chain in addition to the stiff US sanctions.

In a similar issue to the ConocoPhillips/Curacao seizure, further back in January 2017, more than four million barrels of oil carried on 11 vessels were held up between Venezuela and Curacao due to Venezuela’s failure to pay ship cleaning fees, as well as a failure to meet international shipping and safety clearances from several maintenance and cleaning businesses in the maritime industry, due to the fact that they either owed the said companies and/or the vessels being held were deemed unfit for transport.

Cash-strapped Venezuela has stopped payments of oil dues to ONGC Videsh Ltd (OVL), leading to a US$450 million pile-up, its managing director and chief executive officer, Narendra K Verma, said back in June, 2018.

OVL, the overseas arm of India’s state-owned Oil and Natural Gas Corp (ONGC), has 40 percent stake in Venezuela’s San Cristobal field, which produces around 18,000 barrels of oil per day.

As distribution channels and sanctions take their toll, and as Venezuela loses production capacity, the next step for Venezuela will be critical during the next few months as it tries to live up to the production increase promise.

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