The flow of positive news regarding the future of PDVSA, Venezuela’s national oil company and cash cow, has been almost non-existent since February 2018. Rightly so, given that almost every month was a demanding uphill battle – few were those who could predict such survival skills from the Maduro regime. This September was no exception to the rule, as the media were replete with news about Venezuela’s revenues continuing to decrease, Caracas selling out its gold reserves to lay its hands on some Iranian crude volumes and the last Venezuelan buyers apprehending another tightening of screws by the United States. Whilst all this is true, Venezuela has nevertheless managed to come back from its summer low point quite revitalized and ready for another challenge. As difficult as the task of assessing Venezuela’s actual crude production might seem (considering the last year for which PDVSA has issued any numbers was 2015), current developments indicate that the past several months have eased its operational strain. Media reports have suggested that internal PDVSA documents put its August 2020 crude production at 380kbpd, following an uptick in crude exports that has allowed to clear filled-up storage. The exports bounce back could not have happened at a better time, having bottomed out this June at a mere 7 MMbbls leaving the ports of Venezuela – every single month since then has surpassed the previous one and preliminary numbers for September are already indicating that Venezuela’s exports are approaching 0.5mbpd.
Graph 1. Venezuelan Crude Exports in 2018-2020 (million barrels per day).
It is not just the upstream that seems to be recovering, Venezuela’s downstream sector has seen some positive drive, too. PDVSA has restarted the FCC unit (fluid catalytic cracker) at its 305kbpd Cardon Refinery, allowing for the production of some 20kbpd gasoline. The gasoline is still suboptimal as the highest PDVSA can get with its quality is an 83-octane variant, however, the launch of its production marks a radical break from the crippled capacities of the past months. Difficulties notwithstanding, PDVSA has been claiming that it would seek to attain a gasoline output level of 40kbpd in the near future. If all goes well, Cardon would also witness a revival of its naphtha reformer, the relaunch of which was assumed to take place at some point end September 2020.
One of the main hurdles PDVSA has been trying to clear is Venezuela’s tankers problem. As the Trump Administration is continuing to tighten whatever last remaining screws there remain, tankers have become the latest target. Virtually any tanker that had some Venezuelan exposure in the past months might be unilaterally penalized by US authorities for dealing with PDVSA, therefore trading firms are taking all they can to demonstrably avoid dealing with the Venezuelan NOC. China, which was long believed to be one of the countries most interested in keeping the Maduro regime afloat due to its substantial advance payments to PDVSA, is a case in point – despite still taking in Venezuelan crude, Chinese buyers do their utmost to avoid direct contact on the shipping part.
PDVSA deployed all its creativity to wriggle out of this financial chokehold, to some avail. Despite most European shipping companies quitting the Venezuelan chartering market, PDVSA managed to get back some of the vessels it had leased out. Concurrently, all the Asian shipping joint ventures the Venezuelan NOC established (such as CV Shipping, along with Petrochina) have gone down the drain, with only a limited number of tankers remaining in Venezuelan ownership and operatorship. Venezuelan ownership is by no means a sufficient defense as new US litigations are targeting PDVSA’s debt repayment in the form of a tanker seizure in international waters. Yet even against such a background, PDVSA remains creative – it recently renamed its largest VLCC tanker from Ayacucho to Maximo Gorki and moved it under a Russian flag.
The diesel-for-crude swaps that make up the majority of the crude leaving Venezuela nowadays is PDVSA’s par excellence demonstration of how US sanctions can be circumvented. The setup of the deal is fairly straightforward – the Indian Reliance, the Spanish Repsol and the Italian ENI are lifting Venezuelan crude as a form of barter payment in return for diesel supplies and whatever gas production they have on Venezuelan territory. The fact that it is not gasoline but diesel that PDVSA is importing matters a great deal – in this case, the Venezuelan NOC can argue that imports the fuel for humanitarian purposes as the main sphere of utilization for Diesel is in power generation (back-up generation for Venezuela’s famously failure-prone hydrogeneration system) and agriculture. All this means that were the US Treasury to penalize the diesel swaps, they would knowingly inflict damage on Venezuela’s food production and the nation’s electricity supply.
The US sanctions threat is poised to increase as we near the December 06 parliamentary election (the current National Assembly’s mandate runs out in January 2021). The US Treasury has sanctions-listed several Venezuelan officials early September, including Luis Parra, the self-proclaimed President of the National Assembly. Meanwhile, President Maduro has outdone himself in derisking the December elections – a prolonged Turkey-mediated negotiation track is dovetailing Maduro with former presidential candidate Henrique Capriles whose participation at the ballot might create a moral dilemma for all the nations that maintain Guaido is the legitimate president of Venezuela. The Capriles-Maduro talks have already led to the release of several political prisoners so the odds are high that Guaido will see his position weaken even further in the run-up to the elections, further aggravating the US.
Should the Trump Administration increase the sanctions’ pressure, the odds are Venezuela is going to start moving towards partial privatization of PDVSA. An internal Venezuelan document, prepared by a dedicated state commission in March 2020, already provides for such an opportunity, claiming that given the stressful circumstances reversing the crude production terminal within the shortest possible timeframe supersedes any other concern about resource nationalism. Moreover, PDVSA might not only privatize oil and gas assets and its decrepit refineries but would also consider allowing the investors to market their hydrocarbons and hedge them without state control. This would amount to a tiny revolution for Venezuela where PDVSA was the cornerstone of the oil and gas industry, the default majority owner of every prospective joint endeavor.