Wood Mackenzie: Venezuela’s oil output declines to continue under sanctions

Wood Mackenzie: Venezuela’s oil output declines to continue under sanctions

Baku, Azerbaijan, Jan.31

By Leman Zeynalova – Trend:

Venezuela’s oil output declines are expected to continue under the fresh US sanctions, Trend reports citing Wood Mackenzie research and consulting company.

Venezuela is embroiled in fast-moving political crisis, after an opposition leader stood in the streets of Caracas on Jan.23 and declared himself as the rightful interim president.

A flurry of world powers, including the US, immediately backed Juan Guaido, prompting a furious response from President Nicolas Maduro.

The US has imposed sanctions on Venezuela's state-owned oil firm PDVSA and urged the country's military to accept a peaceful transfer of power.

The sanctions allow Chevron, the only US upstream operator in Venezuela, to continue to operate normally, said the company.

“However, they prohibit the export of diluent from the US to Venezuela. Diluent is blended with extra heavy crude produced from Faja projects that do not have upgraders installed. The largest consumer of diluent is Petrolera Sinovensa where production climbed to 130,000 b/d by the end of 2018.”

Venezuela exports have fallen in recent years, with exports to PADD 3 declining from 700,000 b/d in 2016 to 500,000 b/d in 2018, reads an analysis by Wood Mackenzie.

“Excluding 180,000 b/d of Venezuelan crude run at Citgo refineries leaves roughly 300,000 b/d at stake, distributed to mainly Valero, Chevron and PBF. Canada and Mexico are two of the largest suppliers to the Gulf Coast, but their ability to cover a shortfall from Venezuela may be limited. Instead, as Venezuela re-directs its exports east to current clients or by tenders, Saudi Arabia and Iraq will likely divert barrels from Asia and thereby fill the gap.”

US consumers will likely feel some pressure as it will be more expensive for US refiners to import alternative crudes, according to the company.

Wood Mackenzie believes that while the sanctions do not ban US entities from importing oil from Venezuela, they intensify pressure on Maduro to step down, by limiting his access to oil revenues through PDVSA.

Venezuelan crude exports to the US are about 500,000 barrels per day (b/d), although the full volume is not immediately at stake, said the company.

“Venezuelan output appeared to stabilize at the end of 2018, with reports that repairs to key heavy oil projects temporarily reinstated some production. Our base case of 1.1 million b/d of crude oil production in 2019 already assumes that PDVSA invests the minimal capital necessary to keep operations active,” reads an analysis by the consulting company.

Wood Mackenzie believes declines are expected to continue while fields are deprived of the investment needed to stabilize output.

“Even in the event of regime change, we anticipate it could take until the end of the year for investment to restart and field declines to stabilize.”

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Follow the author on Twitter: @Lyaman_Zeyn

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