Venezuela restarts crude oil imports for the first time since the 1990s

PDVSA refinery installations. / EFE

The global oil producer and exporter has offered technical reasons for its purchase

Ewald ScharfenbergCaracas

The arrival of a shipment of crude oil from Algeria to Port of José (Anzoátegui state, northern Venezuela) caused the kind of commotion that could be expected were France to receive a shipment of bubbly destined to be mixed with its famous champagnes. “A day of infamy,” was how it was described by Damián Prat, a columnist who supports the political opposition.

Just when Venezuela – the world’s largest producer and exporter during a good part of the 20th century, and one of the founding members of the Organization of the Petroleum Exporting Countries (OPEC) – was celebrating 100 years in the oil industry, it began importing again. The South American country also imported oil from Nigeria in the 1990s.

These recent purchases of light crude oil from Algeria and Russia – two of the regime’s international allies – are down to technical reasons. The extra heavy crude oil from the Orinoco Belt, the largest reserve in the world, provides for a growing percentage of Venezuela’s exports. But this crude oil, which was first thought to be bitumen before it was recognized as oil on international markets, has to be diluted at so-called “upgraders” for distribution and refinery.

Even though the purchase has a technical justification, PDVSA officials hesitated over whether to announce it publicly

The main upgrader in the country is Petrocedeño, an entity controlled by Petróleos de Venezuela (PDVSA), the state-owned oil company. Petrocedeño, Norway’s Statoil and France’s Total will freeze all activities in the next few days as they go through maintenance operations. According to the Venezuelan government, these operations created the need for imported light crude oil, which is necessary to prepare shipments for export.

Even though the purchase has a technical justification, PDVSA officials hesitated over whether to announce it publicly. They knew that it would offer a bad image of an industry vital to the health of the Venezuelan economy, especially when there have been doubts about its management of late. Production is dwindling and the industry is not going through the best of times. PDVSA has not found any buyers for its US-based oil refinery network, Citgo, and it had to deal with a light oil leak on the shores of Falcón state (northeast Venezuela).

PDVSA is the great financial investor and, often, the manager of the state welfare programs that have given the chavista regime such good electoral returns since 2003. The current currency shortage facing the government of Nicólas Maduro is little more than a reflection of the hardships the oil company, the largest Venezuelan exporter, faces.

The company only announced the arrival of the shipment last week, when the tanker Carabobo, which departed from the Algerian port of Bejaia with two million barrels, was already near Venezuelan shores. In August, Reuters published a story from Houston, Texas – a hub of activity for the international oil industry – revealing negotiations being held between Algeria and Venezuela. President Nicólas Maduro accused the British news agency of “a campaign to destroy Venezuela.”

In a statement published on October 20, PDVSA said the talks were about “possible” future purchases. Some experts, however, say these imports underline important weaknesses in the country’s oil industry, which in turn put its chances of recovering from the economic crisis in danger. Light crude oil production in Venezuela is said to be almost marginal due to lack of maintenance at the oldest wells.

Strategic alliances with companies from various countries – Italy, Vietnam, Russia, and China – have led to considerable investments in the Orinoco Belt, and these reserves will supply the market with fresh barrels. But the country does not have the capacity to upgrade that extra heavy crude oil.

Although PDVSA usually mixes its crude oil with naphtha, a product derived from petroleum, it has stopped producing it. Instead it buys from abroad. Now the company saves money on naphtha by importing light crude oil but it has also grown more dependent on foreign providers.