Venezuela's state-owned oil company PDVSA plans to indefinitely halt the production of upgraded Orinoco Belt synthetic crudes in August, and instead is converting its upgraders to blending facilities for the production of Merey 16 crude, according to an internal report reviewed by S&P Global Platts Wednesday.
However, as US sanctions have prevented imports of light crude and heavy naphtha into Venezuela, PDVSA is bracing for another fall in crude production and exports in August, according to the report.
PDVSA operates four upgraders in the Orinoco: the 190,000 b/d Petropiar joint venture with Chevron; the 120,000 b/d Petromonagas JV with Russia's Rosneft; the 202,000 b/d Petrocedeno JV with Total and Equinor; and the out-of-service 120,000 b/d Petro San Felix.
According to PDVSA's August crude report, Petropiar is operating at 58% of capacity, Petromonagas at 50% and Petrocedeno at 46%.
Synthetic crudes produced at the upgraders, such as Special Hamaca Blend and Zuata Sweet, were destined for refineries in the US before sanctions were imposed in January and have since been sold "under unfavorable market conditions" to Asia, the PDVSA report said.
The company noted it "has been forced to offer significant discounts that have affected the value of such crudes and complicated their placement since some customers have refused to accept delivery of the sale."
In January, the US unveiled sanctions on PDVSA which have served as a de facto ban on US imports of Venezuelan crude and an immediate ban on US exports of diluent to Venezuela. On April 28, the US prohibited transactions between non-US firms and PDVSA involving the US financial system, essentially banning the use of US dollars in all transactions with PDVSA.
In June, the US Treasury Department announced further prohibitions on essentially all diluent trade with PDVSA, which PDVSA uses in the production and marketing of its heavy crudes.
Three Orinoco upgraders have been converted to mixing facilities for the exclusive purpose of producing Merey 16. However, the upgraders are expected to operate below capacity, owing to the diminished availability of light crude and naphtha for diluent.
According to PDVSA, the upgraders "have significant technical operational weaknesses that are resulting in the production of upgraded crudes outside the quality specifications demanded by new markets, a situation that limits the possibility of marketing them, as much for exportation or to domestic refineries."
The PDVSA report estimates Venezuela's crude production could fall to 988,000 b/d in August from 1.2 million b/d at the start of June. However, the PDVSA production estimates exceed reports by secondary sources, and even other internal reports, as they most likely include diluents being blended with Venezuela's heavy crude.
The latest Platts OPEC production survey shows Venezuela produced 760,000 b/d in June.
PDVSA estimates that its August crude exports will fall to 685,000 b/d from 776,000 b/d in June. Exports will consist primarily of Merey 16, a mix of extra heavy crude from the Orinoco Belt and diluent.
Because PDVSA is unable to obtain light crude and heavy naphtha for diluent, however, the company will resort to using its increasingly scarce output of Mesa 30 and Santa Barbara light crudes as a blending diluent.
Output of Mesa 30 is estimated at 202,000 b/d for August, and Santa Barbara at 58,000 b/d. Both crudes are destined for the production of Merey 16 in the upgrader plants converted to blending facilities.
"To regain PDVSA production at levels above 1 million b/d, PDVSA must import every month 3.3 million barrels of light crudes of 44 API, such as Agbami, Akpo and Saharan Blend, which is impossible under US sanctions," a company official told Platts under condition of anonymity.
PDVSA also plans to extract naphtha used as a diluent to transport heavy crude from the Morichal field crude to blend into Merey 16. Morichal is operated by Sinovensa, a JV between PDVSA (60%) and CNPC (40%).
In order to boost production, PDVSA will also need to stabilize Orinoco output, which has fallen because of power outages. Orinoco production fell to just 124,000 b/d Wednesday, down from 835,000 b/d in June, according to a separate PDVSA report.
"PDVSA has few options to continue maneuvering," the PDVSA official said. "In August, the availability of export crude will fall to 637,000 b/d of Merey 16 and Boscan crude, of which 320,000 b/d are committed to repayment of debts and in exchange for refined products, in addition to small quantities of Laguna and Bachaquero crudes destined to the Nynas company in Europe."
According to the August Crude Plan, PDVSA will be able to offer the remaining 317,000 b/d to the international market.
According to previous reports, the Trump administration is strongly considering letting a waiver which allows Chevron and four US oil services companies to continue work with PDVSA to expire at the end of the month, potentially accelerating the collapse of the country's oil sector.
The waiver, a general license issued by the US Treasury Department on January 28, allowed Chevron, Halliburton, Schlumberger, Baker Hughes and Weatherford International to continue certain work with PDVSA. The waiver expires on July 27.
