U.S. Sanctions On PDVSA Likely To Impact Venezuelan Gas

(Energy Analytics Institute, Pietro D. Pitts, 29.Jan.2019) — U.S. sanctions announced in January week against Venezuela’s state oil company PDVSA will not only affect Venezuela’s oil sector, but also hold potential to trickle over to its natural gas sector and recent dealings with gas-hungry neighbour Trinidad and Tobago.

The sanctions aim to limit transactions between U.S. companies that purchase crude oil from Venezuela for refineries specially equipped to take on Venezuelan crudes as well as for the sale of U.S. refined products to Venezuela for use to dilute heavy crudes or for use as gasoline components.

In all, the sanctions affect about 500,000 barrels per day of Venezuelan crude shipped to the US.

“We expect that the measure totals $7 billion in assets blocked today, plus over $11 billion in lost export proceeds over the next year,” announced U.S. National Security Advisor John Bolton on January 28 during a televised press briefing from Washington, DC.

While sanctions primary affect Venezuela’s oil sector, which generates upwards to 95% of the country’s foreign export earnings, they also hold potential to affect its still evolving gas sector, and especially ongoing negotiations with Trinidad.

Countries in the Latin America and Caribbean region that support the sanctions vary. Trinidad’s Prime Minister Keith Rowley stated this week during a parliamentary session that the small twin-island country continues to support Nicolas Maduro and his administration, while not mentioning Juan Guaidó, who was recognized by U.S. President Donald Trump on January 23 as Venezuela’s interim president.

In recent years, Trinidad has assisted Venezuela in a number of non-gas related business ventures, all the while both have continued to advance plans related to commercialization of massive gas resources shared on their martime borders. Latter discussions have been driven by both countries to commercialize the resources, but nonetheless amid a complicated political backdrop, which has stalled progress for years.

Events this week “very much add to the already high political risk of the deal,” former Trinidad and Tobago Energy Minister, and now Advisor Kevin Ramnarine told Energy Analytics Institute.

GAS SECTOR IMPACT

Venezuela, home to the largest crude oil reserves in world, also holds the world’s seventh largest natural gas reserves with 225 trillion cubic feet (Tcf), according to BP’s Statistical Review of World Energy. Even though Venezuela continues to focus attention and foreign capital on its oil sector, the country’s offshore gas sector has started to come to life in recent years, and its offshore gas developments contain sufficient resources to cover domestic demand with ample left over for export.

Developments offshore that hold immediate promise for export include the Cardon IV gas project on the western side of Venezuela, and the Mariscal Sucre gas project on the eastern most side of Venezuela and nearest to Trinidad. The former, which partners Spain’s Repsol and Italy’s Eni, is already producing gas destined primarily for the domestic market, while the latter is gearing up for first gas by some estimates in one to two years.

PDVSA expects peak production from the four fields that comprise the Mariscal Sucre: Mejillones, Rio Caribe, Dragon and Patao, will reach 1.2 billion cubic feet per day (Bcf/d) of gas and 28,000 barrels per day of condensates. Production from the project will be destined for export to Trinidad as well as the Venezuelan’s domestic market via the CIGMA gas plant located in Guiria in Sucre state, according to PDVSA.

Trinidad’s gas-reliant economy has experienced growing plans of late due to a lack of gas supply that has hampered domestic gas-dependent industries and Atlantic LNG, the country’s four-train liquefaction facility with capacity of 15.3 million metric tons/year. Amid Trinidad’s falling gas reserves and production, the Venezuelan gas options is a lifeboat that could rescue Trinidad’s sinking gas boat.

Russia’s Rosneft has been on board for some time now to assist PDVSA develop Mariscal Sucre. However, statements this week from Russia acknowledging Venezuela would likely have problems paying multi-billion dollars in debts to Moscow point to potential headwinds as well with the project.

Gas investors watching the multi-faceted dramas unfolding in Venezuela fear what has happened to the country’s oil sector in terms of personnel brain drain and a lack of financial investments, could also spill over to the country’s gas sector. Unlike oil sector projects, gas sector projects don’t stipulate that PDVSA has to be a partner in the ventures or hold a minimum 60% interest.

To-date, Venezuela’s cash-strapped PDVSA has not been able to inject the necessary capital to stop declining oil production across the country, amid foreign partners unwilling to dedicate more resources to stop a production decline seemingly unstoppable. At last count, production was down to 1.148 million barrels per day in December 2018 compared to 1.911 million barrels per day in 2017, according to OPEC data.

“Trinidad knows that the deal they are getting from Maduro and it’s risky to back away from the hand that feeds you … especially if it’s a good deal,” Refinitiv Commodities Specialist Carl Larry told Energy Anlaytics Institute. “What happens from here will be complicated, but no matter who is running Venezuela, they will need all the partners they can get to monetise their energy supplies.”

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