OREANDA-NEWS. Venezuela?s ambitious plan to ramp up production and exports of its Merey 16 crude blend hinge on resolving financial problems and addressing logistical bottlenecks at its marine terminals, according to multiple Venezuelan officials and international traders.

The 16°API Merey grade, obtained by blending Orinoco extra-heavy crude with light crude, makes up a growing share of Venezuela?s export slate with up to 900,000 b/d going to China and India.

Venezuela?s vast reserves of 8.5°API Orinoco crude cannot flow without a diluent. State-owned PdV blends the extra-heavy grade with around 30pc imported naphtha to make diluted crude oil (DCO) for pipeline transport to the Caribbean coast. The naphtha is then stripped out before the crude is upgraded into synthetic crude of varying qualities or blended with light crude for sale to overseas markets.

Because of upgrading capacity limits and Merey?s market appeal, especially in Asia, PdV now favors blending to handle incremental volumes of Orinoco crude coming out of its new joint ventures with foreign partners such as US major Chevron and Spain?s Repsol.

But infrastructure constraints at PdV?s marine terminals in eastern Venezuela, coupled with worsening financial problems sparked by the sustained oil price slump, are impeding the approach.

PdV has 10 domestic export-oriented crude and products marine terminals designed to load a combined volume of more than 3mn b/d and storage capacity of about 30mn bl, according to the energy ministry.

PdV utilizes two of these terminals – Jose and Guaraguao in Anzoategui state with a combined loading capacity of more than 2mn b/d – to export nearly all of the crude and refined products produced by its eastern division, including Merey 16 and synthetic crude, PdV officials tell Argus. Jose and Guaraguao are also used to import naphtha and light crude for blending.

But PdV's terminals are generally designed for export, and are not equipped to efficiently offload, store and handle sustained volumes of imported crude, diluent and other oil products, Venezuelan officials say.

PdV has been working to compensate for domestic capacity constraints by leveraging its offshore Caribbean assets. Some of the light crude is shipped to the nearby Bullen Bay terminal in Curacao, where PdV leases the 325,000 b/d Isla refinery, and the Bopec storage terminal in Bonaire. PdV also has leased storage and blending capability at MMR unit Nustar?s St. Eustatius terminal. The company?s US downstream subsidiary Citgo is currently evaluating Valero?s mothballed Aruba refinery that it might be seeking to tap for the same purpose.

This offshore approach affords PdV more logistical flexibility for importing light crude, and frees up its declining domestic light grades Mesa and Santa Barbara for blending.

The one-third proportion of light crude required to produce Merey 16 illustrates the challenge. According to PdV, one barrel of Merey 16 requires blending 0.618 bl of 8.5°API extra-heavy crude with 0.382 bl of 30°API Mesa.

Reaching a targeted production of 1.5mn b/d of Merey 16 crude by 2017 would require 573,000 b/d of 30°API crude, or almost 38pc more locally produced light crude than the 416,000 b/d PdV reported for 2014, the energy ministry said.

"PdV must increase its Venezuelan production of light crude, or else import increasing volumes of light crude in coming years until the new upgraders and refineries are built, which could be in five or six years if contracts are signed no later than 2016," an executive in the company's Carabobo division told Argus. PdV's Carabobo division includes integrated joint ventures Sinovensa, PetroMonagas, Petrodelta, PetroCarabobo, PetroIndependencia and PetroVictoria.

PdV had planned to commission a new 2.5mn b/d crude export terminal by 2016 at Araya in the eastern state of Sucre, but the project?s estimated completion has been pushed back to 2020 at the earliest.

The planned terminal is part of a host of new infrastructure that PdV is hoping to build with partners, including six new Orinoco upgraders, a 350,000 b/d refinery called PetroBicentenario at Jose in partnership with Italian Eni, and petroleum coke power stations and handling facilities.

But the company is under pressure to rehabilitate its existing infrastructure first. According to internal PdV reports dated April and August 2015 and seen by Argus, Venezuelan oil terminals, including Jose and Guaraguao, have damaged loading arms, inoperative pumps, faulty power supply systems, water contamination, off-specification cargoes, toxic product leaks, structural damages to some berthing facilities and deteriorated storage tanks.

PdV officially maintains that all of its export terminals, especially Jose and Guaraguao, are in good condition and operating at peak capacity.

Even so, an energy ministry official acknowledges that multiple oil tankers are currently stalled offshore awaiting payment, a trend that highlights PdV?s dire financial shape.

Energy minister and PdV chief executive Eulogio del Pino has prioritized limited spending to modernize and expand dilapidated infrastructure at all of the company's Venezuelan terminals.

PdV upgrader division chief executive Pedro Villarroeal said in August 2015 that equipment and related infrastructure upgrades already under way at Jose could double its daily loading volumes from 1.5mn b/d to 3mn b/d by 2019.

But there is not enough cash to address the breadth of structural shortcomings, and the sharp decline in oil prices that started in mid-2014 has undermined PdV?s investment plans, local officials say.

Venezuela?s crude export basket fetched an average of less than $35/bl in the week ending on 20 November, compared with a full-year average of more than $88/bl in 2014.

For now PdV's Jose and Guaraguao terminals are "critical" to the company's current efforts to augment Merey 16 production and exports, the energy ministry said.

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