Oil traders like Lukoil share pain of Venezuela's 6,000-pct gas hike

HOUSTON, Feb 18 (Reuters) - Venezuela’s motorists, who have long enjoyed the cheapest gasoline in the world, are not the only ones likely to rue President Nicolas Maduro’s decision to raise prices for the first time in almost two decades.

Firms including Indian refiner Reliance, Russian oil giant Lukoil and independent traders Trafigura and Noble Group also risk losing out on the billion-dollar-a-year business of supplying costly, high-octane blending components that make up as much as a fifth of the nation’s supply.

While a founding member of OPEC, Venezuela increasingly relies on imports of specialized products such as alkylate, MTBE and reformate to oxygenate and increase the octane level of domestically produced gasoline, which tends to be poor quality due to high amounts of sulfur, olefins and aromatics.

Its dependence has grown since 2012 due to reduced output of components following a big explosion at its largest refinery, Amuay, as well as rising consumption of the premium 95-octane gasoline - the price of which, in real terms, was essentially the same as lower-grade fuel due to soaring inflation. This has prompted more and more Venezuelans to top up with premium gas.

In the United States, premium grades are as much as 50 cents a gallon higher, reflecting the costlier components, and high-octane fuel makes up about one-tenth of retail pump sales.

On Wednesday, Maduro changed that policy with enormous price increases meant to address the huge cost of subsidizing fuel, which it can now scarcely afford as the collapse in oil prices has hit the economy, slashing income from exports.


The largest impact is likely to be on drivers’ choice of fuel, not their mode of transport. The changes are largely intended to deter drivers from unnecessarily filling up with high-grade gasoline, which experts say is unnecessary in most modern cars, by pricing it at a six-fold premium.

Maduro said Venezuela expects to reduce import costs by $800 million per year if consumers switch to 91-octane gasoline, the price of which was hiked by just 14-fold. The price of premium fuel was raised more than 6,000 percent.

The cost of gasoline is “almost nothing,” Maduro said late on Wednesday. “At a Venezuelan fair price, we will guarantee to cover producing costs and PDVSA’s healthy performance.”

Even after the increase to 1 bolivar per litre, Venezuela’s 91-octane gasoline costs the equivalent of $0.02 per gallon at the highest official exchange rate - about 1 percent as much as U.S. prices. Prices in Kuwait - with the world’s second cheapest gasoline - are 40 times greater.

“Some drivers could migrate to 91-octane gasoline in the short term due to the big gap between the two prices,” said Francisco Monaldi, fellow at the Baker Institute for Public Policy in Houston.

But the impact may be quickly diminished by three-digit inflation that will erode the effect of the adjustment on the country’s finances if prices are not raised periodically.

Also, smugglers can still sell the fuel at a 60-time mark-up in neighboring Colombia.

“I would not expect a total demand reduction because I still see incentives for smugglers,” he said.


Venezuela consumed 283,000 barrels per day of gasoline in 2014, according to official data, about as much as the U.S. state of Illinois. That’s around 0.4 gallons a day per capita, a third as much as the U.S. average but high compared with most Latin American countries.

In 2015, it bought some 60,000 barrels per day (bpd) of naphtha, alkylate, reformate, MTBE and gasoline blend stock from the United States, according to the Energy Information Administration.

The most recent purchase of gasoline component by PDVSA arrived last month in Guaraguao port on a 145,000-barrel tanker containing alkylate sold by the Indian refining firm Reliance, according to an internal PDVSA report on imports and exports.

Reliance and PDVSA have exchanged crude for refined products in recent years as part of Venezuela’s broader attempt to increase market share in Asia.

For its Cardon, Amuay and El Palito refineries, PDVSA has been importing up to three monthly cargoes of MTBE and other components from the United States.

Lukoil Panamericas, Trafigura, Morgan Stanley, Rosneft and Noble Americas were the main providers in 2015, according to trade flows data on ThomsonReuters Eikon (Eikon users click here:


Most purchases are made under 6 to 12 month supply contracts. Still, in recent years, PDVSA has also sought to buy on the open spot market, something that is proving tricky as the country struggles to pay debts and gather enough money from exports to afford imports of food and other goods.

PDVSA in February has also offered to buy gasoline blend stock and catalytic naphtha on the open market. One of the tenders was not awarded due to very high price premiums demanded by suppliers after PDVSA’s payment delays caused a backlog of vessels at the end of last year, a trader said.

With fuel prices still so low, some warned, there is no certainty that the pricing scheme will succeed in cutting out the costly middlemen who keep its motor fuels flowing.

“Even after this increase, Venezuela is still the country with the world’s cheapest gasoline, so smuggling will continue and it’s difficult to see how the country will reach its goal,” Monaldi said.

Editing by Jonathan Leff and Bernadette Baum