VENEZUELA - Oil Pricing.

To secure its position at a leading oil supplier to the US, PDVSA is in keen competition with Saudi Aramco and Pemex of Mexico in the pricing of its exports. Official prices for its crude oils are set forward in line with market developments. Prices for oil product exports are set according to short-term spot market quotations.

However, Saudi Aramco and Pemex have become the main oil suppliers to the US, with PDVSA coming third. Often Saudi Aramco becomes the number one oil supplier to the US; its exports to the American market last May exceeded 2.2m b/d.

Saudi Aramco has become one of the top three oil exporters to the US since mid-1998, when its American refining and marketing assets in 50-50 partnership with Texaco (Star Enterprise) were merged with those of Texaco and Shell. The merged entity, Motiva Enterprises, became the biggest refiner and marketing venture in the south and east of the US. On Oct. 9, 2001, after Texaco's merger with Chevron, Saudi Aramco raised its stake in Motiva to 50% with the other 50% held by Shell. The increase in their shares resulted from the two companies' purchase of Texaco's equity (see Saudi survey in OMT 18 & 19).

Venezuela's main export crude oils to the US and the other markets are: Leona, 24o API with 1.5% sulphur; three BCF grades ranging from 24o API with 1.9% S to 17o API with 2.5% S; Bachaquero, 13o API with 2.6% S; and Pilon, 13o API with 2.3% S.

PDVSA's Mesa/Furrial crude oil, a medium sour grade, is traded freely on the spot market. It has become a marker on the US spot market and in the Caribbean. The crude trades at a large discount to WTI. PDVSA also has been promoting a light/sweet crude, Santa Barbara, on the spot market with its price set at an advantage relative to WTI. The volume of Mesa/Furrial sold on the spot market has risen by more than 60% since mid-1966 to almost 300,000 b/d. Before the restructuring was completed, Lagoven had expanded the capacity of Mesa/Furrial fields to reach 400,000 b/d by end-1999. PdV M&M opened a new business unit in Houston in February 2000 to expand its marketing and other commercial activities in the US and other parts of the world. Called PdV Trading, it provides services for the purchase and sale of crude oils and petroleum products from third parties.

A few months later PdV Trading opened offices in London and Singapore. Together with the Houston unit, these have traded in non-Venezuelan crude oils and fuels and have earned additional income for the Caracas government.

PdV M&M has been buying foreign crude oils, including Basrah Light from Iraq, the heavy and sour Maya grade from Mexico and Oriente from Ecuador, to optimise its local refining system. It uses Maya as a pricing reference for its own heavy sour sales. Occasionally it swaps crudes with NIOC Int'l of Iran, supplying Iranian grades to its JV refining system in Germany in return for Venezuelan crudes sent to Iran's clients in Chile and Brazil.

From a terminal in the Bahamas, PdV M&M in 2001 launched Internet bunker sales through the e-trade sites Bunkerstem and OceanConnect. It then planned to move 20% of its $150m/year bunker sales through the Internet. Now PDVSA uses the Pepex e-trade site in tendering a variety of petroleum products, including vacuum gasoil and jet fuel from the Amuay refinery.

Before the strikes began in December 2002, PDVSA used to export reformulated gasoline (RFG) to the US. But the volume of RFG sent to the US through the Citgo system after the stikes has been much smaller.

The Latin American Market: Under the Chavez government, Venezuelan energy integration with fellow Latin American countries has accelerated. PDVSA's oil exports to Latin America include clean products and LPG sold to PetroEcuador under long-term arrangements. From end-2003, PetroEcuador will import gasoil, gasoline and LPG directly from PDVSA. Venezuelan LPG moving to Ecuador has replaced a 500,000 t/y contract between PetroEcuador and the European trading firm Trifigura.

In a renewed San Jose Pact for regional co-operation in energy, Venezuela and Mexico have continued their joint supply of 160,000 b/d of crude oil and refined products to the Central American and Caribbean countries. Under the Caracas Energy Accord, PDVSA supplies another 80,000 b/d to the San Jos Pact nations. Cuba gets more than 50,000 b/d of Venezuelan crudes under a five-year pact signed in late October 2000 at the end of a visit to Caracas by President Fidel Castro, with part of the crudes provided at a special discount, and Havana buys another 30,000 b/d through oil traders. The Castro-Chavez alliance is particularly disturbing to the US.

PDVSA is aggressively pursuing Brazil's oil market, the biggest in Latin America, which consumes almost 2m b/d. Petrobras has become an important client of PDVSA for crudes, fuel oil and other products including LPG. During a visit to Caracas in April 2000, then Brazilian President Fernando Henrique Cardoso discussed Chavez' grandiose project of a multi-state PetroAmerica, joining the assets of Petrobras, PDVSA and several other Latin American NOCs. PDVSA is selling gasolines to Ecopetrol of Colombia in a special deal - to curb contraband which involved about 7,000 b/d of Venezuelan mogas that used to enter the neighbouring country.

Because of a political dispute between Venezuela and the Dominican Republic, PDVSA in recent months cut off petroleum exports to the island nation. Exports until then used to average about 110,000 b/d, which covered about 80% of the Dominican Republic's needs.

Talks between the two countries' foreign ministers were held last Sept. 29 at the Venezuelan mission in New York to discuss Venezuelan claims that the Dominican Republic had failed to suppress an alleged plot to kill President Chavez in its country. Dominican Republic Foreign Minister Francisco Guerrero Prats then said that, while his country's oil needs were covered through November, he wanted to resolve the issue. He denied the plot charges made by Caracas. Former Venezuelan President Carlos Andres Perez, against whom Chavez led a military coup attempt in 1992, lived in the Caribbean country until mid-2003. Chavez has accused Perez and the Dominican Republic of conspiring against him.