PDVSA to Stop Orimulsion Output Within a Year

Venezuela's state oil firm PDVSA will stop producing its patented boiler fuel orimulsion within one year, PDVSA president and energy and oil minister Rafael Ramírez told reporters.

The extra-heavy crude previously used to manufacture the fuel will be treated as oil. Orimulsion production has been reduced from about 80,000 barrels a day (b/d) a few years ago to 40,000b/d these days and even that volume will soon disappear and be merged with crude production, Ramírez said.

The government announced in September last year it would not sign any more orimulsion contracts and would absorb the operations of its Bitor subsidiary into PDVSA East because producing orimulsion unprofitable at today's high oil prices.

PDVSA sells orimulsion at less than US$4 a barrel plus 1% royalty when the product could be sold with conventional blends or processed by Venezuela's four heavy crude upgrade projects and sold at over US$17/b, according to a previous BNamericas report.

PDVSA will develop the Morichal area in eastern Venezuela, where the extra-heavy crude used to make orimulsion comes from, as a "Faja" area, Ramírez said. This means crude will no longer be used for manufacturing orimulsion but blended or upgraded for export.

PDVSA could blend the extra-heavy crude with Santa Barbara benchmark light-to-medium crude to create a 16-degree API crude similar to the BCF benchmark 17-degree API export crude, PDVSA vice-president of exploration and production, Luis Vierma, told reporters.

Another possibility is that PDVSA could upgrade the crude at one of its four existing crude upgraders in the Orinoco belt or process it at a deep conversion refinery, Vierma said. There are no such refineries operating in the country today, but PDVSA recently announced plans to spend US$2.2bn to upgrade its two existing facilities, El Palito and Puerto La Cruz, into deep conversion refineries.

Production of orimulsion will continue for the time being "to satisfy the volumes committed by contract," Ramírez said. "Some contracts are about to end and others have a year to go," according to Vierma. However, PDVSA's plan to stop orimulsion production has met with outcry from foreign power companies, including Canada's NB Power and Italy's Enel, which were betting on cheap orimulsion to fuel their power plants.

Both companies have taken legal action against PDVSA. NB Power is suing PDVSA for US$2bn for breaking a 20-year agreement to supply orimulsion to its Coleson Cove plant, while an international arbitration court recently accepted a request against PDVSA from Enel for US$200mn.

About Business News Americas: Business News Americas is a multilingual news and business information service that covers the most important original stories in 11 different business sectors throughout Latin America everyday. Visit BNamericas to access our real-time news reports, 7-year archive, Fact File company database, and latest research reports.

Click here for a Free two week trial to our Latin America Oil & Gas information service.