June 6, 2018 / 9:41 PM / in 17 days

Venezuela's PDVSA transfers oil at sea despite customer qualms

HOUSTON/PUNTO FIJO, Venezuela (Reuters) - Venezuela has begun testing sea-borne oil transfers to ease a severe backlog of crude deliveries from its main terminals, according to sources and data, as chronic delays and production declines could temporarily halt state-run PDVSA’s supply contracts if they are not cleared soon.

FILE PHOTO: A man walks past a gas station with the logos of the Venezuelan state oil company PDVSA in Caracas, Venezuela December 23, 2016. REUTERS/Carlos Garcia Rawlins/File Photo

The company has told some customers it may declare force majeure, allowing it to temporarily suspend export contracts, if they do not accept new delivery terms, including sea-borne transfers.

The delivery method entails specialized equipment and training and higher costs for ship owners and customers. But PDVSA is pushing ahead over customer doubts given the congestion at its ports and need to complete sales that are the lifeblood of the OPEC member.

Tankers waiting to load more than 24 million barrels of crude, almost as much as PDVSA shipped in April, are sitting off Jose, the country’s main oil port, according to the data.

PDVSA did not reply to requests for comment.

The delays helped push up Brent crude oil prices LCOc1 on Thursday. Brent rose 2.6 percent to settle at $77.32 per barrel. [O/R]

The tanker Sonangol Kalandula, bound for a Thailand company’s refinery in Kemaman, Malaysia, was loaded this week with Venezuelan heavy crude using a ship-to-ship (STS) transfer, the first test of how PDVSA expects to ease congestion at its ports.

The vessel, which has not yet set sail, had been waiting since February to load, according to Thomson Reuters vessel tracking data. The cargo’s owner, Tipco Asphalt (TASCO.BK), did not reply to a request for comment.

As of Thursday, more than 80 tankers were waiting in Venezuelan waters, half of them to load crude and refined products for exports, according to the data.

(For graphic on PDVSA's oil export delays, click tmsnrt.rs/2JqWNoI)

The delays have mounted since May, when asset seizures forced PDVSA to stop using Caribbean facilities for storing and loading export cargoes. But PDVSA’s noncompliance with oil supply contracts started months ago as production declines accelerated, according to internal company documents.

In April, PDVSA shipped 1.49 million barrels per day (bpd) of crude and fuels to its customers, 665,000 bpd below the 2.15 million contracted, according to the documents.

Customers waiting for cargoes with tankers already at sea include U.S.-based Chevron Corp (CVX.N) and Valero Energy Corp (VLO.N), India’s Nayara Energy and China’s CNPC and its trading unit PetroChina Co Ltd (601857.SS).

PDVSA customers including Chevron declined to comment on the new terms. Nayara Energy, Valero Energy and units of CNPC, which each had vessels awaiting loadings on Thursday, did not reply to a request for comment.

DOUBTFUL SOLUTION

A senior Chinese state-oil official with direct knowledge of the issue said “the Venezuela side has requested for STS operations, and also agreed to bear the additional cost.”

But the official, who spoke on condition of anonymity, said he had doubts over whether PDVSA could deliver on time and who would be given priority.

Another buyer of Venezuelan oil said chances were slim that any customer would contest force majeure, choosing instead to negotiate differences in pricing because of the transfer costs involved.

Venezuela’s crude exports fell 6 percent in May to 1.168 million bpd following U.S. ConocoPhillips’ (COP.N) legal actions to seize PDVSA’s assets in four Caribbean islands, according to Reuters data. Venezuela’s crude exports in the first five months of 2018 were 27 percent lower than in the same period of 2017.

The lack of export and storage terminals, especially those with deep-water docks to load large vessels bound for Asia, has forced PDVSA to divert tankers to Venezuela in recent weeks. The measure also has been taken to avoid further cargo seizures, after Conoco won temporary court orders retaining two vessels near Aruba last month.

The company’s proposed STS transfer solution, to be performed in waters 6 miles (9.7 km) from Venezuela’s Cardon refinery, faces a reluctant reception among oil buyers, according to shippers and traders.

“A STS operation adds at least $1 per barrel to the purchase cost. The question is who will take responsibility for that,” said Robert Campbell, head of oil products markets at consultancy Energy Aspects.

The price of Venezuela’s Merey crude, the main grade exported from Jose port, rose to $60.24 per barrel in April.

Insurance coverage for tankers and cargoes would also have to be changed to include the STS operation if customers accept the option, Campbell said.

Reporting by Marianna Parraga in Houston and Mircely Guanipa in Punto Fijo, Venezuela; Additional reporting by Liz Hampton and Gary McWilliams in Houston, Chen Aizhu in Beijing and Henning Gloystein in Singapore; Editing by Leslie Adler and Matthew Lewis

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