VENEZUELA - The Venezuelan Oil Refining Sector.

The state-owned Petroleos de Venezuela (PDVSA) controls one of the biggest oil refining systems in the world. Its domestic refining sector is being expanded by 500,000 b/d to 1.8m b/d by 2012. The capacity of external refineries owned and partly-owned by PDVSA units is being increased by 300,000 b/d. Put together, the total capacity of local and external refineries by 2012 would exceed 4m b/d. If a leased refinery abroad is included, the total would exceed 4.8m b/d.

The last major expansion of the domestic refining sector in Venezuela was achieved in 1996, when the $2.7 bn Cardon Refinery Upgrading Project (PARC) and new units in other refineries began operations. There are now six refineries in Venezuela with a total capacity of 1.3m b/d. There are possibilities that external refining ventures would be expanded beyond the figures mentioned above (see Venezuela's trans-national system in OMT No. 22).

Products Exports: The upgrading of the downstream sector in Venezuela has enabled PDVSA to increase its exports of refined oil products. PDVSA often issues tenders to sell gasoline and other fuels.The terms for buyers include destination restrictions.

Upgraded in a US$800m project, the 199,000 b/d refinery at Puerto La Cruz in 2004 had a new naphtha hydrotreating unit added which raised the production of unleaded gasoline to 45,000 b/d, and a diesel hydro-desulphurisation unit which raised the output of ultra low-sulphur diesel (ULSD) to 30,000 b/d. The top quality diesel is being exported to Europe and fellow Latin American countries. The ULSD, with a maximum sulphur content of 50ppm, meets the European Union's strict sulphur specifications.

However, the destination restrictions against the North America and limited demand in Latin America have compelled PDVSA to send surplus ULSD and gasoline to Europe, a market which occasionally is over-supplied with these fuels, while the US Gulf Coast often becomes acutely short of oil products.

Following Hurricanes Katrina and Rita in the autumn of 2005, for example, that disaster caused the US oil refining sector to be short of capacity by 2.1m b/d. As a result, US prices of gasoline and diesel then were high, whereas in Europe the prices were much lower. PDVSA in the autumn of 2005 also lost a major premium on ULSD spot prices offered on the US Gulf Coast, while the Venezuelan diesel did not meet the EU's cold property requirements on cloud point and cold filter plugging point (see background in down19VenzRefNov7-05).

General strikes in December 2002 and January 2003 caused oil output and refining in Venezuela to stop. Supply to the domestic fuels and lubricants market rose from 109,000 b/d in January to 363,000 b/d in June 2003 and to about 480,000 b/d in November of that year.

In order to export higher quality fuels and be able to satisfy a growing domestic population with gasoline and other light products, PDVSA has invested billions of dollars in a major upgrading of its four large Venezuelan refineries. Amuay refinery's upgrading and deep conversion, alone, has cost PDVSA $1.5 bn.

PDVSA is shipping gasoline, jet fuel and diesel to the Central American state of Belize under an agreement signed on Oct. 28, 2005. That came as PDVSA signed a maritime shipping accord with Cuba to prepare for stepping up fuel shipments in the Caribbean. President Hugo Chavez's government has agreed to sell fuel directly to Belize and other Caribbean states under an initiative called PetroCaribe. The agreement requires participating states to pay 60% in cash and allows them to finance the rest through long-term, low-interest loans.

Caracas has said it will accept services and goods such as rice or bananas as partial payment. The first shipment of 15,000 barrels of diesel left PDVSA's Isla Refinery in Curacao on Oct. 30, 2005, bound for Belize. The deal was signed by Asdrubal Chavez, who is the president's cousin and heads PDVSA's sales and shipping arm PDV Marina, and Cresencio Sosa, a vice minister of investment for Belize. At the signing ceremony, Chavez of PDV Marina said: "The idea is to work for PetroCaribe to take shape in the shortest time possible. Until now six countries have signed supply contracts under the PetroCaribe accord, and the idea is to benefit the member countries, especially the nations affected by recent hurricanes" - the US then excluded.

PDVSA described the shipping deal with Cuba as an "accord of integration in the area of maritime transport" aimed at the "creation of a bi-national company" in charge of handling oil shipments to the Caribbean. The agreement, signed by Chavez and Cuban Transport Minister Alvaro Montero, calls for using the fleets of PDVSA and Cuba, although it also leaves open the possibility of incorporating ships from other companies. Chavez then said: "This agreement is the continuation of the process of energy integration...in the area of transport".