PdV finds new outlet in Aruba

OREANDA-NEWS. June 15, 2016.  Venezuela is looking next door to solve production and shipping issues stunting crude exports.

The country's US refining subsidiary Citgo finalized a deal to convert a former Aruban refinery into a heavy crude upgrader over the next two years, the company said over the weekend.

The agreement would add offshore upgrading capacity to bottlenecked Venezuelan facilities over the objections of non-Venezuelan executives in national oil firm PdV's subsidiary, Citgo, and without the support of the country's national assembly. Estimates for refinery upgrades run up to \\$1bn, but the company gains immediate access to a facility with 12mn bl of total storage capacity.

PdV subsidiary Citgo Aruba will process Venezuela's very heavy Orinoco crude into a lighter crude and produce naphtha to be sold to PdV for use as a heavy crude diluent. Venezuela upgrades Orinoco into a synthetic crude or, increasingly, has blended it with light crude into a 16°API crude called Merey commonly exported to China.

Power outages and faltering access to special services have hampered Venezuelan production. Argus estimates Venezuelan production has fallen toward 2mn b/d — a third of PdV's 6mn b/d target for 2019.

US independent refiner Valero shut the 280,000 b/d Aruba refinery in 2012 as cheap natural gas and crude in the US Gulf coast eroded the refinery's competitiveness. Aruba did not produce finished products and relied on costlier power generation at the time.

A project to build natural gas infrastructure, including a pipeline between the Venezuelan and Aruban coasts, was under consideration, the company said. The project would provide a cheaper power supply fed by "excess natural gas" from Venezuela's Paraguana region.

The deal could face bigger challenges than refining fundamentals. The deal sparked anger in May among non-Venezuelan Citgo executives and lacks the approvals of Venezuela's national assembly required under national law. The agreement could provoke the political opposition that controls the assembly.