Lights Dimming On Big Oil In Venezuela

(Argus, Patricia Garip, 10.Apr.2019) — Darkness has befallen Venezuela in more than one sense, and incumbent oil companies are scrambling for a ray of light.

It was hard enough for western oil companies to operate in Venezuela before the lights went out in March. Now it is nearing impossible, at least by the safety standards they can’t afford to neglect. With only intermittent electricity and water supply, routine equipment theft and a shrinking workforce, it’s no wonder the clutch of US and European firms is quietly curtailing operations in the Opec country. Toss in escalating US oil sanctions and an entrenched government that has defied them at every turn, and Venezuela looks like a place where the risk of maintaining a foothold is starting to outweigh the elusive reward of bottomless reserves.

The retreat is most glaring at Jose, the barely beating heart of Venezuela’s national oil industry. Three operational heavy crude upgraders controlled by state-owned PdV have been mostly shut down since March 7, when a wave of catastrophic blackouts plunged almost all of Venezuela into darkness for days at a time. It’s now harder and riskier to restart the upgraders after they were forced off line by the power outages, which they might have shrugged off for a bit if back-up gas generators had been operational. Instead, these showcase projects that Venezuela nationalized in 2007 are forced to rely on the nation´s broken power grid.

Particularly sensitive to the operational risks are Chevron, PdV´s partner at PetroPiar, and European firms Total and Equinor, the Venezuelan company’s partners at PetroCedeño. Until steady power supply is restored, they prefer to mothball the upgraders altogether, executives close to the projects have told Argus. But these companies aren’t in the driver’s seat of operational decisions. Instead they’re in the backseat behind PdV that wants to keep the engines running — even if it means careening toward a brick wall.

PdV’s Russian state-controlled partner Rosneft at the PetroMonagas upgrader is less risk-averse than its western counterparts, and Russian technicians have long had a greater presence there. The same is true of Sinovensa, the heavy oil blending facility where China’s state-owned CNPC basically runs the show. Both companies want to keep the Jose plants on so Caracas can service its oil-backed debts to Beijing and Moscow.

Over at the Perla offshore natural gas field, Spain’s Repsol and Italy’s Eni have shut in most production because PdV is not paying them for it. Unlike the upgraders, the two companies share the wheel of the Cardon 4 joint venture that operates Perla, with no direct participation by PdV. But with its refineries mostly out of service, there is only so much gas that PdV can absorb.

Another European company got into Venezuela’s gas game last year. Shell is working with PdV to capture flared gas in northern Monagas, a contract that was supposed to give the oil major access to the offshore Dragon gas field to supply its liquefaction plant in Trinidad and Tobago. That grand scheme is going nowhere for now, even though Trinidad’s neutral OAS vote this week shows it is taking no chances.

US sanctions, in the meantime, are getting closer to exacting a price on the incumbents. On 27 July, a date that few companies back in January thought they would need to worry about, all US companies must pull out of Venezuela. That means Chevron. The EU doesn’t have oil sanctions on Venezuela, but most European countries are broadly aligned with the US stance and would come under pressure to wind down as well.

That’s to say, unless Venezuela’s president Nicolas Maduro is gone by then. Through the rosy lens of Washington and its allies, his peaceful departure would usher in a business-friendly transition government led by opposition leader Juan Guaidó, and later new elections. Sanctions would be lifted, Venezuela’s debts would be restructured, and the oil companies that endured all these years would drill happily ever after.

As the weeks drag on, that scenario is looking like a fairy tale. Maduro is holding fast, bolstered by paramilitaries and his foreign patrons in Havana, Moscow, Beijing, Ankara and now Tehran. Last week Venezuela’s foreign minister Jorge Arreaza even flew into Damascus. Inside and outside Venezuela, prominent opponents are relentlessly clamoring for military intervention to oust Maduro, an approach Washington has dismissed as “premature”. It should come as no surprise that anti-Maduro paramilitaries are now starting to form. Venezuela might eventually emerge looking like Colombia at the worst of its internal conflict. Or Syria. Back in the boardrooms, it’s getting harder to find a reassuring scenario.

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