Venezuela’s PDVSA crude output down and deteriorating

PDVSA crude deterioration symptom of poorly maintained infrastructure

A number of refineries in the United States, India and China have found the quality of PDVSA crude to be deteriorating, resulting in complaints, cancelled orders and demands for discounts from the cash-strapped firm.

According to Reuters, these refineries say the cargoes of crude from Venezuela’s state-run oil company have high levels of water, salt or metals that can be problematic for the refineries.

Shortages of chemicals and equipment needed to properly treat and store the oil have impacted the quality of the crude.  The shortages have also caused shutdowns and slowdowns at some PDVSA facilities and hurried transporting to avoid late delivery.

Reuters reports Phillips 66 has cancelled at least eight crude cargoes due to poor quality during the first six months of the year.  The US refiner has also demanded discounts on other deliveries, according to PDVSA documents and employees at both companies.

The cancelled shipments were valued at $200 million.

Reliance Industries of India, another PDVSA customer and China’s China National Petroleum Corp. has reportedly also complained that excessive water and sediment levels in oil cargoes had reached up to five per cent, according to a Reuters source.  The contract between the companies stipulates that water and sediment levels should be less than 2 per cent.

“Reliance’s executives in charge of the supply contract are angry,” an employee told Reuters. “They have complained several times, and the issue has not been solved.”

A PDVSA source said the crude quality began to decline about two years ago and has recently accelerated.

“We’re refitting chemical injection points, recouping pumps and storage tanks,” the worker told Reuters. “But without chemicals, we can’t do anything.”

As well, a number of PDVSA maintenance employees have fled the country.  Food shortages, inflation and sometimes violent clashes involving police and political protestors have forced some people to leave Venezuela.

The deterioration of PDVSA crude shines a light on the company’s poorly maintained production infrastructure.  It also could worsen a severe cash crisis at a time when Venezuela is scrambling to pay about $3.4 billion to bondholders in the coming weeks.

As Venezuela counts on oil for over 90 per cent of its export revenue, PDVSA’s problems have a severe impact on the already beleaguered nation.

And, at present, PDVSA delivers about 40 per cent of its crude to Chinese and Russian firms as payment for over $50 billion in loans from the nations.

Reliance and Phillips 66 are some of PDVSA’s biggest cash-paying customers.

Reuters says Venezuela’s Oil Ministry and PDVSA did not respond to requests for comments.  Phillips 66 also declined comment.  An official with PetroChina Co, CNPC’s listed subsidiary told Reuters he was not aware of any complaints against PDVSA crude and a CNPC spokesman said he had no knowledge of the issue.