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Beijing has made it clear that its support to Caracas will last,
after the recently announced expansion of Chinese investment in
Venezuela's oil industry. The plan is to increase production by 120
thousand b/d. The investment, worth 3 billion USD, financed the
construction of "Jose", a new oil blending plant, located in
Barcelona, Anzoátegui State. This project will be run by the
Sinovensa joint venture, which is 49% owned by China's CNPC and 51%
by PDVSA. Extra-heavy grades from Venezuela's Orinoco Oil Belt will
be blended into Merey, which has been quite popular across Asian
importers.
The current production of Sinovensa stands at 110 thousand b/d
and is expected to reach 165 thousand b/d with the addition of the
new blending plant. After completion of the second stage,
production will stand at 230 thousand b/d. Meanwhile, The Petropiar
extra-heavy crude upgrader plant has been converted into a blender
facility earlier this month. Production will increase by 130
thousand b/d of Merey, which will make this grade the country's
primary export. Caracas is understood to be very active in
finalising maintenance contracts as well, with work to be taken
during the next six months.
The trade war between China and the US seems to be further
escalating, with Beijing getting prepared to provide more funds to
Venezuela to support its oil industry. Without a doubt, this will
prove a rather difficult task. Venezuela's oil industry has
collapsed and its output standing below 800 thousand b/d since
early 2019 Q2, well down from last year's production levels.
Venezuela's major difficulty has been satisfying domestic demand
for fuels, estimated close to 250 thousand b/d, with importing more
fuel left as the only solution. Fuel imports during July have been
estimated to have more than doubled since June, having reached 196
thousand b/d, with Russia's state-run firm Rosneft having supplied
most of that through STS movements across the Med.
Meanwhile, more Venezuelan barrels have been carried to India,
after the end of waivers on sanctions against Iran. New Delhi seems
to have been forced to diversify away from the Middle Eastern
supplier, but its response hasn't exactly been following US wishes,
as trade flows from Venezuela to Iran have been increasing rather
fast, something that Washington can't be happy about. Based on IHS
Markit's Commodities at Sea, crude shipments from the Latin
American country to India have remained strong, close to 450
thousand b/d since June.
US sanctions on Venezuelan crude oil have been simply ignored by
most private Indian refiners who continue to import oil from the
country, including both Reliance Industries and Nayara Energy. Both
companies have agreed to purchase crude from PDVSA for long, with
contracts signed years ago. Reliance has a 15-year deal, which
started in 2012, for volumes up to 400 thousand b/d.
Posted 27 August 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime, Trade & Supply Chain, S&P Global Market Intelligence
