Supplies of Key US Import Drying Up for PDVSA
(Bloomberg) -- Venezuela has relied on the U.S. for a bespoke refined product it desperately needs to keep its oil flowing. Now it needs to find someone else -- fast.
The product -- known as heavy naphtha -- is a custom-made product that comes only from certain refineries. Most of the time, it’s fed into reformer units to make more-valuable gasoline and hydrogen. Another use is to dilute sludgy Venezuelan oil so it can move in pipelines to the coast for export.
Venezuela imported about 90,000 barrels a day from the U.S. last year. Once its stored supplies run out, state-run Petroleos de Venezuela SA may have a hard time finding more, after the Trump administration in its sanctions targeted exports of diluent to PDVSA, most of which is heavy naphtha.
Unless it can bring in more supply, the South American nation may be forced to shut-in oil fields, hurting its ability to bring in cash and pay back loans. That would deal a further blow to the country’s oil production, which fell to a 69-year low of 1.339 million barrels a day last year and is already expected to drop below the one-million barrel mark in 2019.
Last year, all of the cargoes that Venezuela imported came from the U.S. While all refiners produce naphtha, not many make the quality -- between 50 degrees and 63 degrees API -- that is dense enough to bind with the nation’s extra-heavy oil, the people said. This bespoke naphtha is produced by a few U.S. refineries and condensate splitters, which partially refine an extra-light oil.
In the past, Trafigura Group Pte Ltd.’s condensate splitter in Corpus Christi, Texas, and Royal Dutch Shell Plc’s Deer Park, Texas refinery have supplied PDVSA, the people said. Finding suppliers in Europe or in naphtha-deficit Asia may prove hard, given the setup of the refineries in those regions.
PDVSA has been calling around to traders to buy naphtha and gasoline, according to a person familiar with the matter.
The naphtha was typically bought by PDVSA’s U.S. refining unit Citgo Petroleum Corp., which invited a few suppliers in private deals. The last time Citgo sought supplies, it was looking for 1.5 million barrels of heavy naphtha for delivery in February. After the sanctions, PDVSA may go to the open market directly via tenders, the people said.
The pressure to find suppliers only increased as President Trump’s National security adviser John Bolton told oil traders to stop doing business with Venezuelan president Nicolas Maduro in a tweet Wednesday. And if the European Union follows the U.S. lead, the pressure could intensify. Some traders have temporarily stopped dealings with PDVSA, awaiting the U.S. Treasury to release details and clarification about the implementation of the sanctions.
Now that America is prohibited from supplying naphtha to PDVSA from April 28, Europe is the next-best option, but at a higher cost. Equinor ASA’s Mongstad refinery in Norway has supplied to PDVSA in the past, according to the people.
Suppliers in Asia would be another option, although distance, freight and the problem of buying enough to fill larger tankers would be an issue. Asia is also a net importer of both light and heavy naphtha, although a price window has made exports to the Atlantic possible in the past, the people said.
--With assistance from Fabiola Zerpa.
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