HOUSTON/CARACAS Aug 21 Venezuela's shipments of
crude oil and fuel to its allies have fallen to a five-year low
as a weak economy hits its ability to uphold accords that former
President Hugo Chavez struck to lower energy costs for friends
and expand his diplomatic clout.
Total shipments under cooperation deals with Latin American
and Caribbean countries dropped 11 percent in 2013 to 243,000
barrels per day (bpd), the lowest level since 2007, according to
recent data from Venezuela's state-owned oil company PDVSA.
Several factors are behind the decline: lower oil output and
weak economic growth at home, a domestic refinery network that
has not fully recovered from a severe accident in 2012, and
financing agreements with China that divert much of the OPEC
nation's oil production to Asia.
Some of the beneficiaries of the cheap oil are now being
forced to turn to other sources.
In the eights months through August, countries from Jamaica
to Argentina that have supply pacts with Venezuela have bought
140 cargoes of crude, components and fuel for transport and
power generation on the open market, according to tender
information compiled by Reuters.
More than two thirds of those were for Ecuador, one of
Venezuela's closest allies.
The purchases, which have left tankers in short supply, are
far costlier than oil obtained through long-term pacts.
Chavez, who was Venezuela's socialist president for 14 years
before his death from cancer in March 2013, used the country's
oil wealth to help allies and extend his political influence
across Latin America and the Caribbean.
His 2005 Petrocaribe accord required members to pay cash for
just 40 percent of every shipment, and let them finance the rest
for 25 years at low interest rates, or make in-kind payments
with products ranging from rice to blue jeans.
Twenty-one countries are party to oil pacts managed by
Venezuela, including Petrocaribe, the Caracas Energy Agreement
and other bilateral deals.
But mounting economic problems in the South American country
have strained the programs. As far back as 2010, Venezuela had
started buying fuels from third parties to meet quotas for the
Since then, fuel exports has slipped further and PDVSA's
financial position has weakened, limiting its ability to assist
allies even though Chavez's hand-picked successor, President
Nicolas Maduro, backs the deals.
"It is importing a lot to cover its own domestic demand, so
buying extra volumes to assist those countries is
unsustainable," said an official from a top global commodities
trader involved in supplying fuel to Venezuela.
While Venezuela struggles to maintain its agreements, U.S.
companies flush with natural gas are poised to pounce on new
energy market opportunities that might be created by
The U.S. government can also benefit as it looks to regain
its influence in Latin America and the Caribbean.
U.S. Vice President Joe Biden last month announced the
Caribbean Energy Security Initiative, a plan to reduce the
region's reliance on "high-cost imported fuel and electricity",
promising financing for projects to revamp power generation.
And the Overseas Private Investment Corp., a U.S. government
agency that finances development, is in discussions with
investors interested in building new energy projects in the
Caribbean, according to a senior State Department official.
BARRELS TO CHINA
Venezuela now sends 485,000 barrels per day (bpd) of crude
and fuels to China to service oil-for-loan deals, up 98 percent
from 2010, as President Nicolas Maduro's government has become
increasingly reliant on Chinese financing.
That has left fewer barrels available for regional friends.
The current quota or maximum volume that Petrocaribe members
could receive is 377,000 bpd, according to PDVSA, though in 2013
it sent 134,000 bpd less than that.
Dominica, Honduras, Paraguay and Bolivia did not receive a
single barrel from Venezuela last year, PDVSA data released in
late June showed.
Argentina, which emerged from a deep economic crisis
following its 2002 debt default in part with the help of cheap
Venezuelan fuel oil, saw shipments from Venezuela cut in half
Oil Minister Rafael Ramirez has denied Venezuela is offering
less to Petrocaribe partners, insisting that shipments fluctuate
based on the needs of each country.
"These are monthly requests and the countries have quotas.
Sometimes they ask for all of it, sometimes they don't need to,"
he told reporters in June. "It changes, and the countries know
But that does not appear to be the case for countries
turning to the open market, some for the first time in years,
according to documents seen by Reuters.
Though governments and state-owned companies do not publish
data from tenders held in the opaque world of crude trading,
intermediaries say the purchases - which tend to be very
expensive - are on the rise.
PDVSA and other state-run companies in the region did not
respond to requests for comment.
RISE IN PURCHASES FROM ELSEWHERE
State-run Argentine energy firm YPF is now buying
on the open market a significant portion of its diesel and fuel
oil needed for power generation, tender documents show. That has
raised the cost of electricity subsidies even as the country
again fell into a debt default last month.
"Argentina has agreed to pay this year up to $20 per million
BTU for LNG imports versus an international price of $16-18," a
trader said. "But consumers don't notice it because of the
A YPF spokesman, when asked about Venezuelan supplies, said
that domestic price increases are a result of higher costs, but
he declined to elaborate.
Uruguay has this year been buying at least one 1
million-barrel cargo of crude each quarter on the open market
after supplies from PDVSA in 2013 dropped 15 percent.
Venezuelan supplies have even declined in countries where
PDVSA owns refinery assets, such as Jamaica and the Dominican
Republic, exposing them to intermediaries.
Ecuador, facing a prolonged overhaul of its main refinery,
has bought more than 70 cargoes of naphtha and 30 diesel cargoes
so far this year after an exchange agreement with Venezuela fell
to 2,000 bpd last year from 49,000 bpd in 2008.
Chavez was a vocal critic of what he called "usurious"
traders and Petrocaribe was created largely to cut out the role
of intermediaries that raise import costs for most countries in
the region, but none of his energy pacts has been able to
completely dispense of traders.
Bolivia is also struggling. It used to get most of its
diesel from Venezuela, but those shipments have slipped and
Chile is now its main supplier. That has exacerbated fiscal
pressure from fuel subsidies that last year exceeded $1 billion,
or 3.4 percent of gross domestic product.
"Any shipment reduction from Venezuela, which used to be
Bolivia's main diesel supplier, will affect the public budget,"
said Marco Gandarillas of Bolivia's Data and Information Center,
an independent think tank.
President Evo Morales has tried to raise fuel prices, which
have been steady since 2001, but protests stopped him.
Other countries, such as Guatemala, sought Venezuelan
supplies but never received much amid complaints about terms and
political disagreements between them.
Not all countries have suffered declines, however. Shipments
to Cuba and Nicaragua, two of Venezuela's closest allies, have
held strong - a combined 130,000 bpd in 2013, PDVSA says.
In the United States, Citizens Energy Corp in February
renewed for the ninth straight year a controversial program that
distributes some 620,000 barrels of heating oil to needy
families. The fuel, supplied at favorable terms, comes from
PDVSA's unit Citgo.
Widening agreements with China and generous financing
schemes have created a cash flow problem for Venezuela, which is
struggling with inflation above 60 percent and chronic product
shortages as a result of insufficient hard currency.
In those circumstances, the oil deals with allies look like
a luxury that Venezuela can ill afford, especially as some
countries, such as Haiti and Nicaragua, have missed payments
even after Venezuela forgave some debts..
Total debts are climbing. PDVSA reported that non-current
account receivables related to energy agreements increased last
year to $6.09 billion, compared to $5.3 billion in 2012 and
$3.25 billion in 2011.
At the same time, PDVSA did not receive cash in the short
term for a third of the barrels exported in 2013 as more crude
is used to service debts owed China, according to Reuters'
calculations based on the company's latest financial statement.
That is a concern for a country where oil exports
historically bring in 96 percent of dollars and PDVSA's
transfers to the state fund a third of the budget.
"While Venezuela itself is compromising more barrels for
China and importing at least eight monthly cargoes of naphtha,
diesel and gasoline for its domestic market, Jamaica, Uruguay
and Argentina are tendering a lot to import fuels", a trader
involved in the purchases said.
(Additional reporting by Enrique Andres Pretel in La Paz and
Eliana Raszewski in Buenos Aires; Editing by Terry Wade and