Published On: Fri, Feb 16th, 2018

Curacao seeks Chinese lifeline for PdV-run refinery

WILLEMSTAD - More Venezuelan refugees than crude cargoes are coming ashore in Dutch-controlled Curacao these days, a symptom of the Opec country's economic and political maelstrom that has hobbled the island's oil refinery.

Curacao officials and oil industry executives say they are worried that Venezuelan state-owned PdV, which has operated the Isla refinery since 1985, will not be able or willing to keep the century-old facility running even before its long-term lease expires at the end of 2019. At stake are almost 2,000 direct and indirect local jobs.

A Chinese delegation close to state-owned CNPC visited the refinery in January, holding out the possibility of a bridge solution to shore up operations in 2018-19 with more crude supply and technical help. Such a deal would make commercial sense, because the Chinese already have claim to some 300,000 b/d of Venezuelan crude under oil-backed loans with the Venezuelan government. PdV seems receptive so far, but politics could get in the way.

Since the mid-1980s, the Shell-built refinery and the island's deepwater Bullen Bay terminal outside Willemstad have bulked up PdV's processing capacity and enabled transshipment of Venezuelan cargoes for clients further afield, increasingly in China and India.

Curacao's efforts to find a more stable long-term successor to operate, modernize and expand its refining operations have so far sputtered. A preliminary agreement with China's Guangdong Zhenrong Energy (GZE) fell apart in late 2017 after the company failed to meet a deadline for due diligence. A subsequent proposal by Baota, another Chinese firm linked to GZE, is still on the table. Local officials remain circumspect about the latest Chinese proposal, not only because of doubts about its viability, but also because of lingering distrust stemming from past questions about the integrity of some of its own negotiators.

An effort to bring Shell back to the refinery was a non-starter, even though local officials are still hoping the European major will play a role in a future LNG terminal that GZE had planned to incorporate into the downstream project.

The immediate priority for Curacao is to keep the refinery afloat through 2019. The main 125,000 b/d crude distillation unit No. 3 at the refinery, which has a nameplate capacity of up to 335,000 b/d but operates economically at 225,000-230,000 b/d, has been in start-stop mode for months, mirroring the problems that have almost completely stalled PdV's refinery fleet in Venezuela.

Isla's CDU 3 had been processing around 115,000 b/d before it was shut on 8 February because of steam limits, although some intermediate units continue to operate. The refinery's catalytic cracker is currently in the process of restarting.

The refinery´s crude diet in recent months has consisted of Chinese-supplied Domestic Sweet (DSW) and WTI from the US, blended with heavy Venezuelan Merey when available, in addition to extra-heavy Tia Juana Pesada (TJP). Since December, PdV has been acquiring the DSW through barter deals for products. Venezuelan crude grades that are transshipped off Curacao include Diluted Crude Oil, a blend of Orinoco extra heavy crude and naphtha, as well as medium quality Corocoro. PdV´s US downstream subsidiary Citgo has been picking up DCO and taking it to Aruba for offshore blending.

At Bullen Bay, once brisk shipping activity that sustained multiple goods and services suppliers has dwindled in recent months. The few cargoes that do arrive from Venezuela are frequently off spec. A shipment of Venezuelan Merey crude aboard the Singapore-flagged Carabobo that arrived this week is currently held up on excessive water content, an increasingly common challenge for buyers.

A bigger problem is court-ordered seizures of PdV tankers and oil cargoes, an estimated 15 last year alone. Dutch law makes it easier for PdV´s many creditors to obtain pre-judgment attachments than in other jurisdictions.

The Panama-flagged Proteo, a 600,000-700,000 bl tanker carrying Venezuelan Boscan heavy crude likely bound for China, has been held at Bullen Bay since early January, on a court-ordered attachment of the crude as well as the bunkers. Another Panama-flagged vessel, Petion, is outside Curacao and may be targeted for detention or simply stalled for lack of a shipping agent. And the Greek-flagged Promitheas, carrying 720,000 bl of Urals on behalf of PdV and bound for Curacao, is already on financial hold even though it has barely started its voyage across the Atlantic.

For PdV, the trend of seizures took a troubling turn last year, when a court permitted the plaintiff to sell the oil aboard the NS Columbus in St Eustatius, another Dutch island where US firm NuStar leases storage to PdV. The sale took place before a final judgment enforcing the order, setting a costly precedent for Caracas.

Senior industry officials in Curacao say Venezuela's unilateral closure of its borders with Curacao and fellow Dutch Caribbean islands Aruba and Bonaire in early January may have been triggered by such detentions, because PdV is literally running out of vessels.

Venezuela initially said the border closure was aimed at cracking down on smuggling of Venezuelan gold and other goods through the islands. Later it attributed the closure to EU sanctions on senior Venezuelan officials. Officials in Curacao and The Hague say the closure might also have been meant to distract Venezuelans from severe economic problems at home ahead of controversial presidential elections, now scheduled for 22 April in spite of international condemnation. Autocratic president Nicolas Maduro is almost guaranteed to win.

Regardless of what sparked Venezuela's hostility toward the Dutch Caribbean, a bridge solution to shore up the refinery operations would require Caracas to walk back from its position, which Curacao officials concede is a tall order.

In the meantime, Curacao's fuel distributor Curoil is laying the groundwork to diversify its supply sources away from the refinery. It recently contracted an Aframax tanker to store imported oil products off Aruba, and is reaching out to new suppliers.

Curacao officials say Venezuela is suffering the consequences of its crisis much more than the islands, but the impact here is tangible. A once bustling "floating market" of Venezuelan fresh produce, a key tourist attraction, has mostly disappeared. Some 1,700 Venezuelans were deported in 2017, but many stay on illegally, and others die on small boats before reaching Curacao´s rocky shores.

Source: Argus

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