Chavez Buys Enemy U.S.’s Fuel While Lauding Iran: Energy Markets

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Chavez Buys Enemy U.S.’s Fuel While Lauding Iran: Energy Markets
2012-07-09 19:06:23.767 GMT


By Nathan Crooks and Paul Burkhardt
July 9 (Bloomberg) -- Venezuelan President Hugo Chavez, who
oversees the world’s largest oil reserves, is growing more
dependent than ever on fuel imports from his political nemesis,
the U.S.
South America’s largest crude producer, which has more
reserves than Saudi Arabia, bought about 40,000 barrels a day of
products including gasoline, fuel additives and liquefied
petroleum gas from the U.S. in the first four months of the
year, up from a record 32,000 barrels a day in 2011, according
to data from the U.S. Energy Information Administration.
While Chavez vilified former President George W. Bush as
the “devil,” seized Exxon Mobil Corp. assets and courted
Iran’s leaders, he’s become increasingly reliant on refined
products from the U.S., which in April bought 36 percent of the
nation’s exported crude. At the same time, the U.S. has
developed technology to recover shale oil and exported more
gasoline, diesel and other fuels than it imported in 2011 for
the first time since 1949, the Energy Department said in
February.
“The irony is that you have the world’s largest reserves,
and you’re not taking advantage of it,” Thomas O’Donnell, a
petroleum analyst affiliated with New School University in New
York, said by telephone from Berlin July 4. “For the next 20 or
30 years, it’s going to be a significant hit for Venezuela.”
Venezuela has the largest proven oil reserves in the world
with 296.5 billion barrels, according to BP Plc’s annual
Statistical Review of World Energy. Saudi Arabia held 265.4
billion barrels.

Stagnant Output

At the same time, output has stagnated since Chavez came to
power in 1999 and Petroleos de Venezuela SA, the state oil
company, boosted imports because its refineries can’t meet local
demand, O’Donnell said.
The nation pumped about 2.72 million barrels of oil a day
in 2011, according to the BP report, down 22 percent from 3.48
million barrels a day in 1998 when Chavez was first elected. In
May, Venezuela was the sixth largest producer in the
Organization of Petroleum Exporting Countries, according to
estimates by Bloomberg.
Chavez’s reliance on PDVSA, as the Caracas-based state
enterprise is known, to finance government budgets and social
spending has delayed investments. The company reported sales of
$123.9 billion last year and accounts for 95 percent of
Venezuela’s export revenue.

Preventive Policies

PDVSA dismissed thousands of workers after an oil strike in
2003 and Chavez expropriated oil assets from U.S. companies in
2007 after they refused to form joint ventures with the
government. Exxon Mobil originally sought to freeze $12 billion
of PDVSA assets for the nationalized Cerro Negro heavy-crude
project. ConocoPhillips is seeking as much as $30 billion for
its assets, Oil Minister Rafael Ramirez said on June 28.
“Chavez’s policies have really prevented the country from
becoming a major global player,” Gianna Bern, president of
Brookshire Advisory & Research Inc. in Chicago, said in a July 5
telephone interview. “The refining infrastructure has been
neglected for many years, which is why they’re importing
products from the U.S.”
The state company said in a 2011 presentation that its
refineries in Venezuela processed 991,000 barrels a day of crude
during the year. PDVSA said it has installed refining capacity
of 1.3 million barrels a day in Venezuela, 401,000 barrels a day
in the Caribbean and about 1 million barrels a day in the U.S.

‘No Investment’

“They used to be product exporters when they were running
refineries at full rates,” John Auers, senior vice president at
the Dallas-based energy consultant Turner Mason & Co., said in a
telephone interview. “They’re no longer capable of exporting a
lot of product.”
The ouster of skilled workers from PDVSA and foreign
companies has slowed oil production and refinery output, Auers
said July 5. “They lost both downstream and upstream people and
there’s no investment there.”
Minister Ramirez wasn’t available to comment for this
story, a PDVSA press official, who refused to be identified
citing company policy, said on July 5. E-mails sent to the
Information Ministry seeking comment weren’t returned.
Chavez, who commonly refers to the U.S. as “The Empire,”
has pledged to reduce dependence on the American market and
double crude oil exports to Asia if re-elected in October to
extend his 13-year rule through 2019.

Cuba Treatment

The Venezuelan leader’s lengthy absences from public view
this year, as he received radiation treatment in Cuba for an
undisclosed type of cancer, fueled speculation his health will
prevent him from being able to contest the election.
With less than 100 days until the Oct. 7 vote, Chavez had
45.9 percent support against 45.8 percent for opposition
candidate Henrique Capriles, in a Consultores 21 poll of 1,000
people taken between June 15 and June 26. The survey had a
margin of error of 3.2 percentage points.
While Venezuelan crude exports to the U.S. have declined to
835,000 barrels a day in April from a high of 1.61 million in
October 1997, according to the Washington-based EIA, the country
may remain Venezuela’s biggest buyer for years because of
refineries built by the Gulf of Mexico coast to process heavier
crude from the Orinoco oil belt, said Auers.
“Chavez talks a big game about wanting to get away from
the U.S., but it’s the most logical place” to refine its oil,
he said. “A lot of it still comes here.”

Refinery Sales

LyondellBasell Industries NV buys about half the crude it
needs for its Houston refinery from the South American country,
according to David Harpole, a company spokesman.
Phillips Petroleum Co. and Venezuela’s state oil company
agreed in 1998 to build a coker, used to process heavy refining
streams into more valuable products such as naphtha and heating
oil and supply the plant.
TransCanada Corp.’s proposed Keystone XL pipeline project
would ship Canadian oil to the Gulf of Mexico, though imports
from Venezuela will still be needed, according to Bill Day, a
spokesman for Valero Energy Corp. in San Antonio.
“The market system doesn’t often follow the political
rhetoric,” Roger Tissot, managing director of Tissot Associates
and a Latin America energy analyst, said by telephone July 4.
“Refineries in North America are becoming much more competitive
and are expanding their export potential to Latin America.”

Cheapest Gasoline

Venezuela has the cheapest and most subsidized gasoline
prices in the world, with a gallon costing the equivalent of 9
U.S. cents. It pays about $200 a barrel for gasoline it imports
at current market prices and sells it domestically for about $5,
said a former PDVSA official who asked not to be identified
because he isn’t authorized to speak publicly about the issue.
Gasoline futures for August rose 4.34 cents to settle at
$2.7594 a gallon today on the New York Mercantile Exchange.
Venezuela’s export basket price for crude oil rose to $92.87 a
barrel for the week ended July 6 from $86.17 a week earlier, the
oil ministry said on its website.
While Ramirez said June 28 that domestic demand in
Venezuela was 600,000 barrels a day, demand may be as high as
850,000 barrels a day including fuel smuggled into Colombia,
said the former PDVSA official.
The country would need to follow through with plans to
build a pipeline through Colombia to gain access to the Pacific
if it wants to be able to better tap Asian markets and
significantly increase exports to China, said O’Donnell.
“All of the new oil in Latin America is on the east coast,
and the U.S. seems to have plateaued in import demand, and
meanwhile it’s sitting on its own shale oil,” said O’Donnell.
Chavez, who in 2006 called Bush the “devil” during a
speech to the United Nations General Assembly, has cultivated
relationships with countries including Iran, Russia and Belarus.

Courting Ahmadinejad

Iranian President Mahmoud Ahmadinejad visited Venezuela in
June during his sixth trip to the region. Chavez, who has been
to the Islamic Republic nine times, has said he’ll stand by
Ahmadinejad “under any circumstances” and that pursuing ties
with Iran is a “holy matter” for Venezuela.
The two countries have signed more than 100 bilateral
agreements that encompass everything from low-income housing
projects to bicycle factories, which Chavez jokingly referred to
as “atomic” two-wheelers. Venezuela is making unmanned aerial
vehicles, or drones, with the help of Iran, Chavez said June 13
on national television.
The U.S. imposed economic sanctions on PDVSA last year for
working with Iran’s energy industry. According to the U.S. State
Department, it sent two cargoes of gasoline additive worth $50
million to Iran from December 2010 to March 2011.
Chavez said in June that Venezuela would produce 25,000 AK-
103 assault rifles a year in addition to ammunition, grenades
and bulletproof vests with help from Russia, which will loan the
South American country $4 billion to purchase Russian military
equipment.

Diesel to Syria

Venezuela has sent three shipments of diesel to Syria since
late last year as Europe extended sanctions on the nation for
using military force to quell civilian dissent against President
Bashar al-Assad’s government, Ramirez told reporters in June.
Chavez started a program in 2005 led by Citgo Petroleum,
the U.S. refining unit of PDVSA, to provide low-income
households in the U.S. with heating oil after meeting with civil
rights leader Jesse Jackson. Citgo has invested over $400
million in the program and in 2010 donated $60 million of
heating oil, the company said in a Dec. 13 statement.
About 27 percent of Venezuelans live below the country’s
poverty line, according to Venezuela’s National Statistics
Institute.
Chavez has pushed the state oil company to channel $53
billion into social development programs that include importing
food, building houses and financing health care clinics from
2006 to 2010, compared with $1 billion for exploration
activities, according to financial statements from PDVSA.
“In all OPEC countries, there’s a real tension between the
national oil company and the government,” said O’Donnell.
“They always come in contradiction to the government, which
wants to extract money.”

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