Venezuela’s PDVSA mulling force majeure on oil exports: sources

HOUSTON/CARACAS (Reuters) – Venezuela’s state-owned oil company PDVSA is considering a declaration of force majeure if customers do not accept new contract terms to ease a bottleneck of tankers around its two main export ports, three sources familiar with the matter said on Tuesday.

FILE PHOTO: A man walks past a gas station with the logos of the Venezuelan state oil company PDVSA in Caracas, Venezuela December 23, 2016. REUTERS/Carlos Garcia Rawlins/File Photo

Venezuela’s export terminals have grown overcrowded since U.S. oil firm ConocoPhillips last month won court orders freezing PDVSA’s key Caribbean operations, where the Venezuelan company used to ship large cargoes to Asian destinations.

The congestion has reduced PDVSA’s exports, aggravating a decline due to plunging crude production and fuel output.

Falling output from Venezuela has contributed to a rally in global oil prices to a near four-year high, and other OPEC members may boost production at a meeting later this month to compensate for the shortfall and other risks to global supplies.

Oil is the financial lifeline for the embattled socialist government of President Nicolas Maduro, but his cash-strapped administration has failed to invest enough in the industry to prevent its decline.

PDVSA is notifying all its customers that it will no longer receive new tankers for loading at Jose or Paraguana terminals until it manages to fill the vessels already waiting, one of the sources said.

In the coming days, PDVSA plans to divert some tankers to a deep-water operation close to the Paraguana Refining Center (CRP) for ship-to-ship transfers. It would allow large vessels to be loaded from tankers temporarily used by PDVSA for storage, the source added.

PDVSA in recent weeks had requested several customers accept this new ship-to-ship methodology for loading, but most refused due to the lack of a third party supervising the operations. Additional costs for completing the transfer also contributed to the refusal, according to shippers and traders.

“We are going to try the ship-to-ship idea first,” the source familiar with the matter said. “Many customers are going to prefer this than continuing to accumulate demurrage,” referred to long waiting times for loading.

If customers continue rejecting the ship-to-ship proposal, PDVSA could be forced to declare force majeure over shipments going out from Jose and the CRP, the sources said.

PDVSA did not reply to a request for comment.

Conoco last month started seizing PDVSA’s terminals, oil inventories and cargoes in the Caribbean to enforce a $2 billion arbitration award in a dispute over the socialist government’s nationalization of the U.S. oil producer’s Venezuela assets.

PDVSA’s declining crude production, lack of spare parts and materials to run its refineries and difficulty importing oil to blend with its heavy crudes are progressively reducing the amount of crude available for export.

Venezuela has been wracked by political turmoil and a severe recession and hyperinflation.

Reporting by Marianna Parraga and Liz Hampton in Houston, Deisy Buitrago in Caracas, Mircely Guanipa in Paraguana, and Rishika Chatterjee in Bengaluru; Editing by Toni Reinhold and Lisa Shumaker

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Venezuela’s PDVSA mulling force majeure on oil exports: sources

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