PDVSA does not have enough dollars to buy oil due to chronic underinvestment
A dramatic fall in crude oil production has forced Venezuela to increase its imports from Russia. PDVSA, the state-owned oil and natural gas company, does not have enough dollars to buy oil due to chronic underinvestment.
However, more suppliers are accepting swaps which has given the company a temporary solution after a seven-months pause. On the other hand, the US is considering imposing sanctions on Venezuela specifically targeted to the oil sector.
Although Venezuela holds the world’s largest crude reserves, the country´s oil output has fallen to its lowest in almost three decades, according to S&P Global Platts. In that context, there is an increasing need of foreign crude to supply the refineries.
The economy of Venezuela heavily relies on oil exports and PDVSA supplies more than 90 percent of the country’s revenue in foreign currency. Nevertheless, lack of investment and corruption have had a devastating impact on oil production, leaving the country short of crude to process.
Now, 335,000 barrels of Russian crude oil are entering Venezuela each day to supply PDVSA refinery in the Caribbean island of Curacao.
Reuters reported, “The increased activity at Curacao comes as more suppliers are accepting oil swaps as a solution to the company’s lack of dollars, according to the documents. Cash-strapped PDVSA is increasingly giving its own crude and products away to obtain some of the barrels its refining network needs”.
Curacao is located about 65 km north of the Venezuelan coast. The refinery there has been operated by PDVSA since October 1985. The current contract expires in 2019 and, according to OilPrice, “Shell, the facility’s owner, has said PDVSA will not be the facility’s operator beyond the existing contract due to its failure to meet contractual obligations to perform upgrades”.
Russia has cooperated with Venezuela during a prolong period of time and partnership in the energy sector has been an important aspect of this alliance. Nevertheless, the Latin American country is undergoing a major crisis that has affected all areas of the economy and led the entire nation into a state of humanitarian emergency.
Furthermore, the US is considering imposing sanctions on Venezuela’s oil sector. "Obviously, sanctioning the oil or in effect prohibiting the oil to be sold in the United States, or for the United States as well to sell or provide oil to Venezuela, or refined products, is something we continue to consider”, reportedly said the Secretary of State Rex Tillerson while he was in Argentina.
The US administration has already imposed sanctions on more than 50 officials and businesses from Venezuela; however, actions against the oil industry are more complicated since the consequences for the millions of people who are suffering from lack of food and basic medicines could be catastrophic.
As CNN Money reported, by banning crude oil exports the US government would be “choking off Venezuela's last remaining and rapidly dwindling source of income”. While it is true that this may have terrible consequences, unless the international community takes drastic measures, it is likely that people in Venezuela will continue to suffer from this severe and protracted crisis.
Latin American Post | Paula Bautista
Copy edited by Susana Cicchetto