Venezuelan Crude
The Venezuelan oil and gas industry has been on its knees after several years of underinvestment and mismanagement due to US imposed sanction. Venezuela is the 10th largest producer in OPEC despite the significant production decline from approximately 3.2 MMbpd in 2000 to 700 000 bpd in September 2023. According to OPEC 2021 data, Venezuela has close to 304 billion barrels in proven oil reserves, making Venezuela the holder of the world’s largest oil reserves, ahead of OPEC majors like Saudi Arabia and Iran. The 2021 reserves estimate more than triple the figure reported in the beginning of the previous decade.
Easing Sanctions for Six Months
The US Department of the Treasury`s Office of Foreign Assets Control, the OFAC has restructured the sanction arrangement imposed on the Venezuelan O&G-industry. The agreement of temporary sanction relief for Venezuela`s oil sector was granted after President Maduro agreed to “act expeditiously” to lift bans on opposition candidates from running for office. Earlier in October, the Venezuelan president signed an agreement in Barbados to create a transparent and fair election next year. Should Venezuela fail to follow through on its pledge the US has warned that the relief could be rescinded. There is a question of the capacity of state-owned PDVSAs ability to increase production following years of underinvestment and mismanagement.
Destination for the heavy- sour Ven Crude
The US seems like a logical destination for the sour and heavy Venezuelan crude (2,45 WT% 16-17° API*). Some US refiners have specialized refinery kit, designed to process heavier grade crudes. The short transit time compared to other nations hungry for Venezuelan crude also point towards the US as a destination. India is another possible destination for Venezuelan barrels, although few of India`s domestic refineries are capable to process the heavy acidic crude and would need to blend with light, sweet crudes to get better yields.
In 2015 India imported approximately 440 000 bpd from Venezuela, but imports declined sharply the following years then halted altogether in 2020 after a 170 000-bpd import, due to US sanctions. The biggest buyers of Venezuelan grades in India before the sanctions was Reliance Industries and Nayara Energy (Rosneft controlled). But even sophisticated and complex refineries like Reliance and Nayara`s plants must blend heavy grades with lighter crudes to enable processing. This means that the refiners need to warehouse the crude in tanks before blending. India has imported millions of barrels per day of discounted Russian crude since the invasion of Ukraine, and the Urals grade has better value for refiners than Venezuela`s Hamaca and Merey crudes. Historically the Venezuelan grades traded at a discount of $10 to $15 per barrel to India`s average crude import basket. Russian crude provides an average discount of $9 per barrel.
During sanctions it is reported that Venezuela exported between 330 000 – 670 000 bpd using known vessels and dark fleets. Most of the barrels found home in China, either directly or via Malaysia.
*Crude oil has an API between 15 and 45 degrees. Higher API equals lower density has a lighter crude grade. Lower API equals a denser and heavier crude. Generally, lighter crudes are more valuable because they yield more high-value light products when run through a refinery.
Light crude like benchmarks Brent and WTI is normally in the range of 35-45 API. Crudes lighter than 45 API are typically considered extra-light crude or condensates and are valued lower than light crude because they contain a lot of light ends such as propane and butane. A medium crude is in the 25-35 API range, and a heavy crude is in the 15-25 API range. Anything below 15 API would be considered an extra-heavy crude.
