Venezuela Forced To Shut Down
Production As Operations Fall Apart, by Tyler Durden, 6/18/18, Authored by Nick Cunningham
via OilPrice.com,
Every
week the
crisis in Venezuela takes a turn for the worse...There are now signs that its oil industry is entering
a dangerous new phase. Argus Media reports that Venezuela has begun to “proactively shut in oil production to cope with
nearly replete terminal storage, further accelerating an output decline and
bringing the OPEC country closer to the psychological barrier of 1mn b/d.”
Venezuela’s
oil production fell to an average of 1.392 million barrels per day in
May, down
another 42,000 bpd from a month earlier, according to OPEC’s secondary sources. However, with the crisis in Venezuela
spiraling out of control at a horrific pace, the numbers from May might as well
be a year ago.
The
May numbers don’t reflect the full ramifications of having to deal with
inadequate port capacity, after
PDVSA diverted operations to Venezuela from its Caribbean island refineries and
storage facilities following the attempt by ConocoPhillips to take control of
them.
The problem of export capacity has
become so acute that PDVSA is demanding customers send ships that can handle ship-to-ship loadings, since there is a backlog of ships
trying to load up at the country’s decrepit ports. PDVSA is even considering
declaring force majeure on contracts that it will be unable to fulfill. The
upshot is that PDVSA might have only 694,000 bpd available for export in June, which
is less than half of the 1.495 mb/d that it is contractually obligated to
deliver this month.
As
such, the 1.392 mb/d figure for May, bad as it is, is woefully out of
date. Sources
told Argus Media that production plunged to just 1.1-1.2 mb/d in early June,
heading down towards 1 mb/d.
To
be sure, upstream operations are in crisis mode. But the bottlenecks at storage
facilities and the ports have opened up a whole new crisis.
“Eastern
division land-based storage of 11mn bl is at full capacity, and western
division storage capacity of almost 48mn bl will be filled to its operational
capacity in a question of days,” the western division executive told
Argus. PDVSA’s
terminals and facilities, equipped to handle 61 million barrels are “filled
nearly to capacity,” an oil ministry official said.
The
storage and exporting problem is having a ripple effect upstream. PDVSA and its partners have halted
operations at two upgraders that process heavy oil, and two more facilities
could be shutdown, according to Reuters, moves intended to ease the pressure on the storage
facilities. But if upgraders are shut down, PDVSA won’t be able to process
heavy oil, which means it will have to curtail or shut down operations at its
oil fields.
Analysts have predicted that Venezuela’s
oil situation would deteriorate over the course of 2018, but
the descent is happening much faster than most people predicted. If OPEC said Venezuela produced
1.392 mb/d in May, and sources from within the Venezuelan oil ministry are now
saying the country is producing between 1.1 and 1.2 mb/d, that could
potentially mean output falls by a few hundred thousand barrels per day in June
compared to a month earlier.
Venezuela had been losing roughly 50,000
bpd each month this year, so the unraveling underway right now is a sign that
production losses are spiraling out of control.
In
another sign of
trouble, PDVSA announced that it will suspend oil shipments to about half of
the Caribbean nations in the Petrocaribe program, according to the Antigua Observer. The program, inaugurated under the
late Hugo Chavez, offered Caribbean nations oil and refined products on
favorable terms, often including extended payback periods at extremely low interest rates.
PDVSA said it would cut shipments of
refined products by about 38,000 bpd to eight of the 17 countries in the
program. Amazingly, PDVSA has vowed to keep up some 45,000 bpd of shipments to
the other nations. Meanwhile, PDVSA apparently does not have enough of the type
of oil that it typically sends to Cuba, so, despite being essentially broke, it
is reportedly trying to purchase light crude from third parties to send to Cuba
in order not to disrupt shipments to its ally.
It is hard to see things turning around
anytime soon. “For Venezuela, we assume
no respite in the production collapse that has taken 1 mb/d off the market in
the past two years,” the
IEA said on Wednesday.
Norb Leahy, Dunwoody
GA Tea Party Leader
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