Published On: Wed, Feb 1st, 2017

40 y Lease agreement between Curacao refinery & Chinese company Guangdong Zhenrong (GZE)

oil refineryOn November 2016, a “Heads of Agreement” was signed between GZE (Guangdong Zhenrong) a commodity trader and the x government of Curacao under x PM Ben Whiteman to finance, modernize and operate its refinery & the storage terminal & dock and to also assist in modernizing the water and electricity plants as well as aid in the construction of a new gas terminal giving China a strong foothold in Curacao oil hub.

With little experience in the oil business GZE(44% owned by “Zhuhai Zhenrong ”one of China's top four state petroleum traders) entered a cooperation agreement with some other major Chinese oil companies such as“CNPC” (China National Petroleum corporation) the largest oil and gas producer and supplier in China as well as one of the world's major oilfield service providers and a globally contractor in engineering construction & “Sinopec” (China Petroleum & Chemical Corporation) & “CNNOC” (a major national oil company), to seek their engineering and construction expertise.

“Sinopec” will renovate the refinery, “CNOOC” is the potential builder and operator of the gas terminal (Reuters), and it seems that these big oil companies prefer to keep a low profile for not being seen helping PDVSA directly (Nomura global research).

But what does this mean to PDVSA?

From the “Bullenbaai” terminal, PDVSA sends a large portion of Venezuela’s crude shipments to China and India and without a deep-water port at its disposal, PDVSA would face challenges paying back its numerous crude for cash deals.

Losing the refinery lease could also have a negative effect on PDVSA’s European operations where there is a commercial agreement between the Isla refinery and “Nynas AB” a Swedish manufacturer of specialty naphthenic oils and bitumen products, PDVSA is the parent company of PDV Europa B.V. and “Nynas” buys all of Isla’s production of naphthenic base oils (type of crude oil that create products with better solubility and very good properties at low temperatures).

This heads of agreement was obviously signed after Venezuelan state oil company PDVSA refused to invest some additional money that Curacao authorities requested several years back to modernize and upgrade the facility, the current lease agreement with PDVSA specify that if neither party ends the agreement two years before its expiration, it is automatically renewed for another 10 years(Reuters)

An exclamation mark arises at the timing and content of this agreement with the recent discoveries that were made of major gas fields in the southwest Caribbean Sea. & with the idea of converting Bullenbaai into a natural gas/LNG terminal Curacao would experience a significant gas discovery, promoting development of a modernized and cleaner industry.

Furthermore, terminals at Isla and Bullenbaai can receive large tankers, that can transport up to 2 million barrels of oil to China, and due to the Isla geographic advantages with its access to the North American market, and the Caribbean market, Curacao is an ideal investment.

It is important to mention that Chinese company “Guangdong Zhenrong Energy” also signed an MOU with the governor of the state of “Ceara” /Brazil to conduct studies for the construction of a refinery in its Export Processing Zone, Information released by the “Ceara” government showed that the refinery is expected to cost US$4 billion and provide jobs for 10,000 people during the construction period and 8,000 direct and indirect jobs when it starts operating.

It is generally believed that Heads of agreement is an informal and non-binding document which does nothing more than set out the proposed agreement between the parties, however, it must clearly state that it is not an offer and that the proposal is subject to a formal lease being prepared and signed, the memorandum of understanding between the two parties lays out a two-month timeframe for negotiations with the possibility for a two-month extension, fingers crossed!

© ReinaSankari 2017

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