Venezuela's PDVSA raises prospect of force majeure on oil exports -sources
(Recasts; adds detail, background)
By Marianna Parraga and Deisy Buitrago
HOUSTON/CARACAS June 5 (Reuters) - OPEC member Venezuela has
raised the prospect of declaring force majeure on contracts with
major crude buyers amid plummeting output from its oil fields
and tanker bottlenecks at ports, according to three sources
familiar with the matter.
Falling production from Venezuela has contributed to a rally
in global oil prices to a near four-year high,
and other OPEC members may boost output at a meeting later this
month to compensate for the shortfall and other risks to global
Oil is the financial lifeline for the embattled socialist
government of President Nicolas Maduro, but his cash-strapped
administration has failed to invest enough in the industry to
prevent its decline.
Venezuela's state-owned oil firm PDVSA has told some
customers that they must send vessels equipped to accept
ship-to-ship oil transfers rather than load at its ports. If
they do not accept the terms, PDVSA is considering force
majeure, in essence declaring its contracts incapable of being
fulfilled, the sources familiar with the matter said.
It has separately begun notifying all its customers that it
will no longer receive new tankers for loading at Jose or
Paraguana, its main export terminals, until ships already in
line are served.
Most customers have so far refused the ship-to-ship transfer
request due to the lack of a third party supervising the
operations, according to shippers and traders. Additional costs
for completing the transfer also contributed to the refusals.
PDVSA has been using sanctions imposed on the company by
U.S. President Donald Trump as a rationale for the change,
according to one of the sources.
Venezuela's export terminals have grown overcrowded since
U.S. oil firm ConocoPhillips last month won court orders
freezing PDVSA's key Caribbean operations, where the Venezuelan
company used to ship large cargoes to Asian destinations.
There were more than 70 tankers off the coast of Venezuela
on Tuesday, according to Thomson Reuters vessel tracking data.
"We are going to try the ship-to-ship idea first," the
source familiar with the matter said.
"Many customers are going to prefer this than continuing to
accumulate demurrage," the source added, referring to fees
charged for long waiting times.
One of PDVSA's Indian customers confirmed it had received a
request to load its cargoes via ship-to-ship transfers. The
buyer so far has refused to accept the new terms, said an
employee who was not authorized to speak publicly and requested
Traders and shippers were skeptical that the transfers would
succeed in easing the bottlenecks. PDVSA will still have to load
vessels at its Jose port for transporting the crude to its
proposed offshore loading facility, and production declines are
not expected to reverse.
Very large vessels that typically do not approach
Venezuela's western coast are now visible from Paraguana
Refining Center (CRP), according to a worker from the facility.
PDVSA did not reply to a request for comment.
MISSING LOWERED TARGETS
PDVSA knew it would fall short of contracted deliveries this
year because of declining output and set a goal to limit the
gap, according to internal company documents reviewed by
Reuters. But the firm missed even that lowered target.
"There's an average deficit of 422,000 barrels per day (bpd)
between real and planned production so far this year," according
to one of the documents.
In April, the company shipped 1.49 million bpd of crude and
fuels to its customers - 665,000 bpd below the 2.15 million bpd
contracted, the documents show. The firm shorted deliveries to
12 of 14 major customers with long-term crude supply contracts,
the records show.
The shortfall, which has not been previously reported, shed
new light on the depth of the company's problems extracting and
refining crude - despite repeated promises by Maduro and PDVSA
President Manuel Quevedo to grow 2018 production by 1 million
The state-owned firm in April had so little oil it failed to
deliver almost all of the crude it promised to its U.S. refining
unit, Citgo Petroleum, under a 273,000-bpd contract, the
Venezuela's exports of crude declined 28 percent in the
first four months of 2018 to 1.19 million bpd compared with 1.65
million bpd in the same period last year, according to Reuters
trade flows data.
In January-April, crude output fell to 1.62 million bpd, the
lowest annual average in over three decades
Aggravating its export problems, Conoco last month started
seizing PDVSA's terminals, oil inventories and cargoes in the
Caribbean to enforce a $2 billion arbitration award in a dispute
over the socialist government's nationalization of the U.S. oil
producer's Venezuela assets.
(Reporting by Marianna Parraga and Liz Hampton in Houston,
Deisy Buitrago in Caracas, Mircely Guanipa in Punto Fijo and
Rishika Chatterjee in Bengaluru
Editing by Lisa Shumaker, Toni Reinhold and Joseph Radford)
First Published: 2018-06-06 01:57:18
Updated 2018-06-06 05:34:13
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