Oil Report

ANALYSIS-Venezuela energy clients subject to Chavez whims

CARACAS, Jan 14 (Reuters) - Venezuela’s decision to halt asphalt exports and unilaterally change oil payment terms are new signs that the OPEC nation’s energy deals can at any moment be upended by the whims of leftist President Hugo Chavez.

The former soldier on Sunday said Venezuela would cut all asphalt exports to improve domestic infrastructure [ID:nN13364901], just days after Venezuela announced it was cutting the payment time for oil cargoes to eight days from the industry-standard 30 days [ID:nN08521603].

The announcements follow a barrage of contract changes in recent years as part of Chavez's energy sector overhaul, and come less than a year after Venezuela pushed Exxon Mobil Corp XOM.N and ConocoPhillips COP.N out of multibillion-dollar oil projects.

“The changes add a great deal of unpredictability to future commercial dealings with Venezuela and make markets uneasy about the sanctity of contracts going forward,” said Patrick Esteruelas, an analyst with Eurasia Group in New York.

Since 2004 Chavez has startled investors with retroactive tax hikes, unilateral royalty increases and abrupt policy changes that forced companies to become minority partners in operations they once ran.

He has also unnerved markets by frequently threatening to cut off oil sales to the United States, which depends on Venezuela for around 12 percent of its crude imports -- though Chavez has never acted on this threat.

Still, Venezuela recently amended an oil supply contract with Conoco so that state oil company PDVSA can halt sales if Chavez declares an embargo against the United States.

The continuing changes come as PDVSA is facing growing operational problems that analysts attribute to its excessive involvement in social development efforts ranging from maintaining roads to producing and distributing food.

Official figures show oil production close to 3.2 million barrels per day (bpd), but analysts say output is closer to 2.4 million bpd and say PDVSA is facing a cash crunch.


Chavez on Sunday harshly scolded Energy Minister Rafael Ramirez for the sorry state of a road in rural Guarico state, insisting state oil company PDVSA needs to be more active in keeping roads paved.

“Let’s stop the export of asphalt,” he said minutes later. Asphalt is generally made out of heavy crude oil and is used to surface roads.

The move came just days after Venezuela slashed the time foreign clients have to pay for its oil. Ramirez on Friday said the billing changes would apply only to “some clients,” but did not specify which ones.

The effects of the abrupt changes are not yet clear.

NuStar Energy, which recently won a bid to buy two asphalt refineries from Venezuela’s U.S. subsidiary Citgo, said it had not received official notification of the asphalt decision.

Ramirez on Sunday said asphalt exports were 17,000 bpd, though the two U.S. asphalt refineries process a combined 104,000 bpd and PDVSA produces more than 100,000 bpd of asphalt grade crude from one field alone.

The moves are the latest in a series of steps to wrest further control of the energy sector.

In 2005 the government ordered companies to convert subcontracting ventures into state majority joint ventures, and in 2006 seized fields from France's Total TOTF.PA and Italy's Eni EN.MI after negotiations fell through.

Last year the government took a majority stake in four heavy-crude upgraders operating in the Orinoco tar belt, leading Exxon Mobil and ConocoPhillips to announce they were filing international arbitration claims.

“Anyone who expects business as usual out of Caracas is being somewhat naive,” said one Wall Street analyst who asked not to be identified. (Additional reporting by Matthew Robinson in New York, editing by Matthew Lewis)