Published On: Mon, Mar 14th, 2016

Credit concerns loom behind PDVSA’s super-sized oil import tender

PDVSAHOUSTON, WILLEMSTAD – State-run PDVSA’s biggest ever crude oil import tenders, launched this week, suggest the cash-strapped Venezuelan firm is hoping suppliers will shrug off concerns about payment capacity as it seeks to compensate for ailing oil processing equipment.

One of PDVSA’s oil upgraders – a processing unit that converts extra heavy crude into higher-quality, exportable oil without the need to blend it with imported light oil – is working at half capacity, a company source told Reuters.

The tenders, which would more than double the OPEC member’s imports in the second quarter, are a break with PDVSA’s past practice of negotiating prompt spot deals to buy crude. Imports have become a growing necessity to dilute extra heavy oil output as PDVSA’s medium and light crude output falls.

It may also be an effort to regain access to credit and get better delivery terms when planning longer-term purchases, as other Latin American oil importers do.

In two separate tenders this week, PDVSA asked traders for offers to sell it some 10.74 million barrels of Nigerian, Russian and U.S. crudes delivered to PDVSA’s terminal in Curaçao between April and June, according to trade sources.

The purchases would increase Venezuela’s crude imports to some 118,000 barrels per day (bpd) compared with 50,000 bpd in 2015.

The increased volume may be partly explained by the fact that PDVSA’s 130,000-bpd Petro San Felix upgrader – which accounts for more than a fifth of its total capacity – is currently working at 54 percent capacity due to equipment failures, a company source told Reuters.

Credit woes

Some companies in a position to cover the required volumes of West Texas Intermediate, Qua Iboe, Brass River and Urals crudes said PDVSA’s deteriorating payment capacity is worrying, so they do not expect the firm to achieve better sale terms.

Since a backlog of vessels formed in late 2015, because of PDVSA’s payment delays to its suppliers, oil and trading firms are demanding to be prepaid when selling to Venezuela.

In the tenders, PDVSA said it is open to buy the cargoes using letters of credit or open credit, which are standard for oil deals. But pre-payments and swaps were also included.

Cash-strapped PDVSA has preferred swap deals in recent years to avoid mounting pending invoices. It currently has exchange agreements with India and Russia that reduce its cash needs when paying for oil imports.

But not every provider is willing to take Venezuelan oil, especially diluted crude oil (DCO) and other heavy blends that need to be processed at specialized refineries and that also face quality and stability issues, traders said.

Ecuador’s state-run Petroecuador last year launched a larger tender to import 30 million barrels of crude and it was finally unawarded due to a lack of financial guarantees.

For its part, PDVSA awarded only one from three tenders earlier this year to buy gasoline blend stock amid credit woes.

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