Tanker Market and Venezuela: Again…
The impact of Venezuela’s reeling oil industry on trade patterns on the tanker market has been well documented since the country’s “fall from grace” a few years back. Things are once again heating up, bringing shifts on the freight market. In its latest weekly report, shipbroker Gibson noted that “later this month the people of Venezuela will once again be heading to the polls to vote in Presidential elections. Whatever the outcome of the vote, the next government will be facing significant challenges over the next few years. The Venezuelan economy is almost entirely dependent on revenue generated from the oil and gas industry. Opec’s decision in November 2014 to remove all production limits hit Venezuela particularly hard as the oil price fell to historically low levels. As a result, the nation’s economy slumped from what was already a precarious position and despite the country sitting on the world’s largest proven oil reserves. Venezuela lacked the financial investment and expertise from overseas companies, which could have helped drive down production costs as well as support higher production levels which in turn would have at least slowed the nation’s economic decline”.
Gibson said that “according to the IEA, in March Venezuelan production fell to just 1.5 million b/d, down 24% from a year earlier. Production has fallen by around 40% since Maduro took office in 2013, following the death of Chavez. Until recently, sanctions imposed by the US against Venezuela has benefited the tanker market in terms of long haul crude exports previously destined for US refineries. However, as production and the quality of the crude continues to decline, the impact on shipments is a cause for concern. Between January and April this year, some 9.5 million tonnes of crude and fuel oil was shipped on VLCC and Suezmax tonnage to Asia, down from 12.2 million tonnes over the same period in 2017. Fortunately for the tanker market, increased volumes from the US and Brazil have more than compensated for these losses”.
The London-based shipbroker added that “it must be concluded that Venezuela urgently needs huge outside investment into their oil and gas industry which in all probability needs to be in the form of foreign technology and investment. The current political impasse with the US would make this difficult. The fear of another Maduro victory, the most likely result, has resulted in several companies trimming further their operations in the country. In April, Schlumberger joined other service providers, by reducing their Venezuelan workforce, because of payment problems with money owed to them. Chevron have also withdrawn key personnel ahead of the election. In the same month, ConocoPhillips received confirmation from an arbitration case that the state-owned oil company Petroleos de Venezuela SA (PDVSA) owes them $2.04 billion in a contractual compensation settlement dating back to 2007. Also last month Halliburton announced that it was writing down its remaining investment in the distressed Opec member, citing “continued devaluation of the local currency, combined with US sanctions and ongoing political and economic challenges”. Reuters reported that in March PDVSA’s refineries were operating at 43% of their total capacity due to a lack of spare parts, light crude and feedstock caused by cash flow problems. Venezuela is consistently short of gasoline and other fuels and is forced to import more and more to supplement domestic demand”.
Gibson concluded that “the elections are unlikely to change the political scene, though the outcome will be keenly followed in Washington and further measures could be placed against Venezuela. Therefore, it is difficult to see much hope of a turnaround anytime soon. The problems that plague Venezuela’s oil industry are only going to get worse as the nation’s economic and political crisis deepens. The IEA’s prognosis sees production falling to around 1 million b/d by 2020, which places an even greater burden on servicing their huge international debt. The pressures on the Caracas government continue to mount and at the moment there appears to be no release valve”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide