PDVSA’s crisis: The oil company notifies customers it is unable to meet its full crude supply

China has granted a $5 billion loan to Venezuela

By Erika Hidalgo Lopez

04/06/2018

PDVSA’s crisis is growing strong, as the state-owned oil company is being hit by the sharp drop in its production. On Tuesday, June 4, the company notified eight of its international customers that it would be unable to meet its full crude supply commitments in June, according to S&P Global Platts.

It also indicated that "among the affected clients due to the low availability of crude to export are Nynas, Tipco, Chevron, CNPC, Reliance, Conoco, Valero, and Lukoil, which will partially receive the volumes established by the contracts."

PDVSA is contractually obligated to supply 1,495 million bpd to said clients in June. However, it only has 694,000 b/d available for export. Therefore, it will be short by 801,000 barrels.

Most of the affected crude is Venezuela's Merey 16 grade, a mix of light crude and extra-heavy crude from the Orinoco Belt. "[PDVSA is] committed to supply contracts with a volume of 1.271 million bpd of Merey 16, but will only have 578,000 bpd available," the source said.

Crude production has plummeted by 900,000 bpd over the past two years to 1.41 million b/d in April, an OPEC survey revealed.

According to the report, US-based Conoco is due to receive 165,000 bpd of Merey 16 this month, but PDVSA will only be able to provide 100,000 bpd. "If Conoco does not want to [take] that volume, PDVSA will assign it to another client," the source said.

On the other hand, PDVSA is due to provide Russia's Lukoil with 222,000 bpd of diluted crude oil in June. But it only has 116,000 bpd available, said the source.

PDVSA’s crisis evidences years of lack of investments

Petroleos de Venezuela is undergoing a severe crisis brought about by years of lack of investments and the loss of its human resources. This has resulted in a lethal cocktail. The director of consulting company Ecoanalítica Alejandro Grisanti stated that PDVSA’s crude production has dropped dramatically. According to his estimates, it has declined by over 1,500,000 bpd over the past 4 years. Taking current prices into account, the losses stand at more than $33 billion.

Grisanti stresses that “with production levels similar to that of 2014, Venezuela could have exported more than $56 billion this year. However, after the production fall, it will export less than $24 billion this year.”

Maduro, unsuccessfully, orders to raise production by one million barrels

Venezuelan President Nicolas Maduro is aware of the production decline affecting the state-owned oil company. PDVSA has blown up in his face and, therefore, he has ordered PDVSA’s president Manuel Quevedo to increase output by one million barrels.

Nonetheless, instead of increasing, production has further declined. Transnational companies partnered with PDVSA could not be persuaded to finance its projects. The resource-rich Orinoco Belt and the Western light crude fields continue to wait for financing.

This bleak scenario now adds the financial sanctions imposed by the Trump administration in August 2017 and recently hardened. It is also impacted by Russia and China’s refusal to continue to continue to finance Maduro’s government.

Analysts sustain that Venezuela is the only OPEC member currently not benefitting from high crude prices. The South American country’s production is even below its quota.

According to OPEC estimates, Venezuela had pledged to cut 95,000 bpd, from its average 2,067 million bpd. Its production quota, therefore, stood at 1,972 million bpd. Nevertheless, its production now stands at 1.4 million bpd. Thus, Venezuela has become one of the factors driving oil prices.

For more information, visit Energía16.

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