Venezuela's state-owned PDVSA plans to reactivate the Isla Refinery on Curacao in July with imported crude from third parties, according to sources in the company, labor union and with Curacao's government.
The labor leaders of the refinery met in Caracas this week with Manuel Quevedo, [who is] president of PDVSA and oil minister," said a company official who was present at the meeting and who asked not to be identified. "PDVSA will have to make the decision to send some 3 million barrels of crude to generate cash flow to cover expenses from September to December 2019 or send $60 million to honor the contract and avoid claims,' the official said. "If not, Isla will have to declare force majeure and bankruptcy. The refinery is now totally paralyzed. PDVSA promised the reactivation and offered to supply crude in July but through an intermediary."
There were no details immediately available about the intermediary nor the quantify of crude promised by PDVSA to Curacao to reactivate the refinery.
Meanwhile, a labor leader at the Refineria di Korsou (RdK), the owner of the refinery and storage facilities in Curacao, told S&P Global Platts that "RdK will take charge of the operations in July, under the direction of PDVSA."
The Isla refinery has been operated by PDVSA since 1985 under a rental agreement with the Dutch Caribbean autonomous government of Curacao. The agreement has been renewed periodically and the current contract expires in 2019. The industrial services plant called Curacao Refinery Utilities (CRU) is property of the Curacao government.
The Curacao refinery has a capacity to process 335,000 b/d but in practice this volume is not possible because of infrastructure limits. The maximum throughput is estimated at between 270,000 and 290,000 b/d, depending on the type of crude. In 2017 and 2018 , the refinery was impacted by failures in its industrial services functions, by a fire that occurred in the CD-3 distillation unit and by the lack of crude availability.
In the last 12 months, the processing level has been nearly zero owing to the lack of the supply of vapor and embargos against PDVSA crude shipments . Also impacting operations has been the scarcity of light and medium crudes and heavy crudes, including Tia Juana and Merey 16.
The failure of PDVSA to live up to its contractually obligated investments in the refinery has forced Curacao to look for a new operator. Curacao offiicials have said previously there is little chance that PDVSA will renew its operational lease at the end of this year.
"There is nothing concrete or new with respect to a new operator of the refinery," the labor official added. "RdK has not reached any agreement with any of the international companies that it has talked to since 2016 when it began looking for a replacement for PDVSA. We believe that there are no agreements because the offers that have been made are not good for the Curacao government."
RdK has been actively looking for a new operator but without success up to now. Currently the refinery owner is in discussions with several companies with the goal of signing a new lease or sales agreement by October. Apparently, a factor impeding a new deal is that demands of RdK are very high, according to previous reports.
"For PDVSA the refinery has a low priority," said a PDVSA official in Caracas. "Crude production in Venezuela has decreased significantly. In this scenario, sending crude to Curacaco makes no sense, especially when you take in to account that PDVSA cannot sell products from Curacao because of the embargo."
Since 2018, the instability of production at Isla has forced the state Curoil oil company, which markets the Isla refinery's fuels, to import natural gas, gasoline and diesel. In 2019, Curoil stopped buying fuel oil from Venezuela because of a dispute over price and the difficulty of placing it with some customers because of US sanctions, according to a Curacao government official who spoke on condition of anonymity.
OPERATIONAL SITUATION
A technical report reviewed by SP Global Platts said the level of reliability and security at the Isla Refinery is high. Since 2018, maintenance goals have been met, except for the following issues in 2018 and 2019:
The planned stoppage of the fluidized catalytic cracking complex and the alkylation unit expected for end-2018 was postponed indefinitely. In its place, a small shut-in was made to attend to certain critical issues, permitting the units to run until 2019.
A plant turnaround plan for 2019 is not being executed for lack of funds.
The 2018-2019 plan for maintenance of storage tanks and docks has been deferred.
Routine maintenance has been carried out. However, the current cash flow situation is forcing a reduction or cancellation of contracts.
US sanctions do not permit the purchase of some materials, nor the contracting of services, from some US firms. Many of those companies expressed their decision to not work at Isla prior to the effective date of the sanctions.
According to the Curacao central bank, the refinery represents 14% of total economic output of the island nation. It is the second largest employer after the government and its economic impact influences almost all sectors of the economy.
PDVSA was not immediately available for comment.
