Aruba close to suspending Venezuela oil ties

Market: Crude oil, Natural gas, Oil products
22/01/20

Venezuela's opposition-run parallel administration is close to an agreement with Aruba to suspend a lease on oil assets managed by Citgo Petroleum, the US refining subsidiary of Venezuelan state-owned PdV.

RdA, the Aruban state entity that owns the island's former Valero refinery which PdV sought to transform into a heavy-crude upgrader, is expected to sign an agreement by the end of January. The counterparties would be Delaware-based Citgo Aruba Holding (CAH) and its local subsidiaries Citgo Aruba Refining (CAR) and Citgo Aruba Terminal (CAT), according to Aruban officials.

Subject to board and government approvals on both sides, the agreement would effectively end the long-term lease on the assets signed by PdV in 2016, before Venezuela's political opposition took administrative control of the company's US subsidiaries in 2019. CAR is expected to sign separate termination agreements with around 76 employees and a contractor after reaching verbal deals this week.

Venezuelan officials in PdV's opposition-controlled US corporate network tell Argus the Aruba obligations will be met, but without resorting to restricted funds from Citgo Petroleum, which is Venezuela's most valuable overseas asset and the target of myriad creditors. They say the project could be revived in the future once Venezuela's political conditions are transformed and US sanctions are lifted.

CAH is a subsidiary of Delaware-based PdV Holding, which is an indirect owner of Citgo Petroleum that managed the Aruba project under a service agreement. Until last year, Citgo had made use of the leased Aruba terminal to store and tranship oil cargoes, highlighting the Dutch Caribbean island's logistical value. DCO cargoes would often sit in storage there to allow excess water to settle, shipping sources told Argus.

PdV had planned to refurbish the 235,000 b/d San Nicolas refinery on the tiny island to upgrade Venezuela's extra-heavy Orinoco crude into lighter synthetic oil. The project would have helped to absorb Venezuelan production that could no longer be processed at mostly inoperable upgraders at PdV's Jose complex in Venezuela.

Only one of four such plants at Jose, PdV's PetroPiar joint venture with Chevron, recently resumed operating as designed, turning Orinoco crude into more valuable Hamaca syncrude for export.

Under the 2016 lease signed by late PdV chief executive and former Citgo chief executive Nelson Martinez with the Aruban government, CAR was to refurbish the installations and build a 110km (68mi) natural gas pipeline from Venezuela's Tiguadare gas treatment facility to run the complex, which includes two cokers. Around 209,000 b/d of diluted crude oil (DCO) from Venezuela's Orinoco heavy oil belt were to be upgraded into 125,000 b/d of 22.5° API Maya-like syncrude with 1.2pc-1.5pc sulfur. The stripped-out naphtha would have been recycled back to Venezuela, and sulfur and coke byproducts sold.

The refurbishment project was hobbled from the start. It was unpopular with Citgo Petroleum's senior US managers and was never approved by Venezuela's National Assembly. Amid repeated project delays, Aruba's authorities lacked confidence in Venezuela's ability to carry it out. PdV blamed US financial sanctions imposed on Venezuela in August 2017. Martinez and former Venezuelan oil minister Eulogio Del Pino were arrested in November 2017 on unrelated corruption charges. Martinez died in custody in December 2018.

The imminent agreements would sever Venezuela's longstanding oil ties with Aruba for now. The island is part of a Dutch Caribbean chain that PdV traditionally relied on to get its oil to market. Another island, Curacao, recently ended a lease with Caracas-based PdV to operate its own refinery and terminal.

The planned Aruba agreements would also close another chapter in the opposition's year-old campaign to oust the government of President Nicolas Maduro. US-backed opposition leader Juan Guaido, who is recognized by more than 50 Western countries as Venezuela's rightful president, is currently in Brussels after attending the World Economic Forum in Switzerland.

By Patricia Garip

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