Latest Market News

Aruba souring on Citgo upgrader: Update

  • Spanish Market: Crude oil, Natural gas, Petroleum coke
  • 20/09/18

Adds Citgo Aruba response.

Aruba is losing patience with Venezuelan state-owned PdV subsidiary Citgo's slow-moving, ambitious plan to transform the rusty skeleton of Valero's former 235,000 b/d oil refinery into a heavy crude upgrader.

"Under the current circumstances the chances that Citgo can carry out the deal are slim," Aruba Prime Minister Evelyn Wever-Croes told Argus. The project is "very important" to diversifying the island's tourism-based economy, but if Citgo fails to have it up and running by an October 2020 deadline, the government would be willing to terminate the deal and find another partner, she said.

The $1.1bn downstream project "makes business sense" to the senior government officials and oil industry executives interviewed by Argus on the tiny Dutch Caribbean island. Under a 2016 long-term lease signed by Venezuela's former PdV chief executive Nelson Martinez with the Aruban government, Citgo Aruba Refining would refurbish the San Nicolas installations and build a 110km 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 would be upgraded into 125,000 b/d of 22.5° API Maya-like synthetic crude with 1.2pc-1.5pc sulfur. The stripped-out naphtha would be recycled back to Venezuela, and sulfur and coke sold. The estimated refurbishment cost of $600mn-$700mn seems high to some officials, but it is dwarfed by the $8bn cost of a greenfield upgrader, one said.

What the project lacks is financing and stakeholder confidence in Citgo's ability to fulfill the directly awarded contract, which Aruba's year-old government inherited from the previous administration. So far Citgo has plowed in little money and has not completed a Phase 2 inspection or control budget cost estimate, even after work was supposed to pick up following the stunning November 2017 arrests of Martinez and former Venezuelan oil minister Eulogio Del Pino on unrelated corruption charges. In August Citgo committed a sparse $35mn for Phase 2, before the final refurbishment phase kicks off in second quarter 2019.

"The contract is not very favorable to us," said Richard Eman, chairman of the board of RdA, the government entity that owns the refinery. The agreement has inadequate safeguards for Aruba, making it difficult to sever before October 2020, he said. "There is a lack of confidence in Citgo because it has not produced, but they have time to prove us wrong."

A Citgo Aruba official told Argus this afternoon that Phase 2 started in early September and "entails detailed inspection of units, piping, buildings and relevant equipment to come to a Class 2 cost estimate of the actual refurbishment," reiterating the message that Venezuelan energy minister and PdV chief executive Manuel Quevedo recently conveyed to the Aruban government. Phase 2 will be completed in March 2019 and involve around 471 workers, of which some 85pc will be local, the Citgo Aruba official said, reconfirming "the commitment of PDVSA to the development and successful completion of this strategic project."

PdV officials say privately that they "understand the island's concerns." The Venezuelan company regularly blames US financial sanctions for thwarting financing options. Aruba had tried to secure a waiver from the US Treasury's Office of Foreign Assets Control (Ofac) on Citgo's behalf, but it was rebuffed because Washington wants to block money flowing back to Caracas. That leaves the heavily indebted island with little choice but to hope Citgo delivers within two years.

In the meantime, Citgo is using Aruba as a terminal, routinely unloading DCO tainted by excessive water into storage tanks to allow it to settle before reloading it for export to the US and Asia, a local shipping source said. Around three 500,000 bl cargoes of DCO and occasionally Boscan crude or fuel oil come through Aruba from Venezuela each month.

In contrast to fellow Dutch Caribbean islands Curacao and Bonaire, Aruba was relatively unscathed by debt-related liens that US independent ConocoPhillips levied on PdV's local assets in early May, because the oil cargoes coming to Aruba and the 15-year refinery and terminal lease plus a 10-year optional extension belong to Citgo, not PdV. But the episode caused delays, and left Aruba waiting for the other shoe to drop.

That shoe could be Crystallex. The now-defunct Canadian mining company, like ConocoPhillips, is seeking to enforce an international arbitration award for the takeover of its Venezuelan assets. Crystallex in August secured an order from a US federal court in Delaware to attach the shares of PdV Holding, the parent of Citgo Petroleum and Citgo Aruba Refining. The case is now winding its way through appeal, but Crystallex has said it is already preparing to auction Citgo.

The Aruba project would be an afterthought if not a liability to parties eyeing Citgo's 750,000 b/d of US refining capacity. If a new Citgo owner sought to retain the Aruba assets, the US ruling would have to be ratified by a local court, a Dutch Caribbean attorney says.

Aruba would jump at the chance to replace Citgo with a robust and unencumbered counterparty. But the project still relies on Venezuelan crude and gas supply, which a truncated PdV would be reluctant to sell to a newcomer that had scooped up its prized US asset.


Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

08/11/24

Hungary’s Mol cuts forecast for 2024 refinery runs

Hungary’s Mol cuts forecast for 2024 refinery runs

Budapest, 8 November (Argus) — Hungarian integrated oil firm Mol has revised down its 2024 forecast for crude runs at its two landlocked refineries after a "turnaround-heavy" third quarter, it said today. The company expects to refine around 11.5mn t of crude combined at the 161,000 b/d Szazhalombatta plant in Hungary and the 115,000 b/d Bratislava complex in Slovakia this year, down from its previous guidance of about 12mn t. The two refineries processed 8.25mn t of crude in January-September, down from 9.09mn t a year earlier. Their combined crude throughput was down by 11pc on the year at 2.81mn t in the third quarter. Mol carried out scheduled maintenance at Szazhalombatta between 26 July and 19 September and expects to complete maintenance work on petrochemical units at Bratislava in the first half of November. Crude intake at Mol's third refinery, the 90,000 b/d Rijeka plant on Croatia's Adriatic coast, rose by 2.6pc on the year to 802,000t in the third quarter and was largely unchanged year-on-year at 1.26mn t in January-September. The company's crude throughput forecast only includes the Hungarian and Slovakian refineries. Mol cut the share of imported crude in its overall slate to 3.35mn t, or 93pc, in the third quarter from 3.8mn t, or 97pc, a year earlier, while it almost doubled intake from its own crude production to 255,000t in July-September from 129,000t in the same period last year. Szazhalombatta and Bratislava mostly process Russian crude received through the Druzhba pipeline system under an EU oil ban waiver, while Rijeka mainly takes non-Russian seaborne crude. The profitability of Mol's refining business was hit by a 71pc year-on-year fall in its refinery margin indicator — calculated based on the Dated Brent crude benchmark — to just $3.70/bl in July-September. Its oil product sales fell by 4.2pc from a year earlier to 4.88mn t in the third quarter. This included 1.52mn t of products Mol had to buy from third parties to complement its own output and satisfy demand, a significant rise from 1.25mn t of third-party oil products it sold a year earlier. The firm's upstream oil and gas production rose by 11pc on the year to 96,100 b/d of oil equivalent (boe/d) in the July-September quarter. It has raised its full-year forecast to about 92,000-94,000 boe/d from previous guidance of around 90,000 boe/d. Mol's profit fell to 111.5bn forint ($295mn) in the third quarter from Ft175.8bn a year earlier. By Béla Fincziczki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US extends oil service firms' Venezuela waiver


07/11/24
07/11/24

US extends oil service firms' Venezuela waiver

Washington, 7 November (Argus) — The outgoing administration of US president Joe Biden extended authorization for oilfield services companies Halliburton, SLB, Baker Hughes and Weatherford to continue working in Venezuela until 9 May 2025. The waiver allows the service companies to pay their staff and maintain limited operations, but it prevents them from drilling new wells or otherwise contributing to state-owned PdV's production and exports. The Biden administration reimposed sanctions on Venezuela's oil sector in April, after a six-month reprieve. The sole exemption is a waiver for Chevron allowing it to import oil into the US from its joint venture with state-owned PdV. US crude imports from Venezuela averaged 212,000 b/d in January-August, US Energy Information Administration data show. Chevron's Venezuela output has stood at about 200,000 b/d. Neither president-elect Donald Trump nor his campaign addressed the Venezuela sanctions regime or indicated if they would change it. Republicans in Congress ahead of the election called for the Chevron exemption to be revoked. The Biden administration separately extended a prohibition for holders of $3.4bn in PdV 2020 bonds guaranteed by 50.1pc in US refiner Citgo's holding company to exercise their claim, this time until 7 March 2025. The PdV bondholders in theory hold a superior claim to Citgo Holding — a legal entity that directly owns Citgo and, in turn, is owned by Citgo parent company PdVH. A federal court in Delaware recently oversaw an auction of PdVH shares that yielded a $7.3bn bid from a company backed by investors including Elliott Investment Management. Legal wrangling over the bids and the distribution of auction proceeds is likely to keep Citgo ownership unresolved in the near term. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German energy-intensive industry reduces output


07/11/24
07/11/24

German energy-intensive industry reduces output

London, 7 November (Argus) — Production from Germany's energy-intensive industrial sectors was lower in September than a year earlier for the first time in seven months, driven by lower generation from the chemicals sector. Energy-intensive industrial production fell by about 3.3pc in September from August, according to data from German statistical office Destatis ( see data and download ). This was driven largely by a 4.3pc fall in output from the chemicals industry. And overall industrial output was about 1.8pc lower than in September 2023, falling year on year for the first time since February this year. The chemicals industry has warned of lower business confidence in the sector since the summer . Energy-intensive industrial branches previously showed signs of a slow recovery, but general manufacturing output across Germany has been on a consistent downward trajectory in recent months ( see manufacturing index graph ). Manufacturing output across all industrial sectors fell on the month by about 2.5pc, having risen on the month by 2.6pc in August. Third-quarter output as a whole was about 2pc lower than in the second quarter. Industrial economic activity has remained "very weak" recently, German economy and climate ministry BMWK said. But it expects a bottom to form in about the new year. BMWK has predicted that Germany will be in a technical recession in 2024 , before a return to 1.1pc GDP growth in 2025. The German economy started on a downward trajectory in 2022 , triggered by higher energy prices on the back of a halt to Russian gas deliveries to the country. And it has since been hampered by other structural factors such as labour shortages and a high bureaucratic burden. Higher gas prices could drive output lower A steady rise in gas prices in recent months could lead industrial firms to curtail domestic industrial production or use LPG instead of gas for some industrial processes. Argus assessed the German THE everyday price at an average of €40.68/MWh in October, about 56pc higher than the €25.98/MWh in February, the index's lowest point this year. Much higher gas prices since 2022 have driven a drop in Germany's industrial gas demand. Gas use in German industry of 256.5TWh in 2023 was about 22pc lower than the pre-crisis 2018-21 average of 327.6TWh, according to Destatis data released earlier this week ( see sector demand graph ). Firms either curtailed production in reaction to higher prices or switched to LPG in some processes in which gas is used as an energy carrier. But some processes, such as the production of ammonia through the Haber-Bosch-synthesis, use methane as a feedstock, which means they cannot shift to LPG as easily. Gas used as a feedstock reacted more strongly to the energy crisis than the gas used for energy. Gas use as a feedstock in the chemicals industry fell by 36pc in 2023 from 2021, while gas use for energy fell by only a quarter. Many fertiliser producers curtailed capacity in 2023, and Europe's largest fertiliser producer, Yara, expects its European gas costs to rise on the year this winter . The producer has already indicated it will shift its focus towards cheaper ammonia production in the US and away from Europe. Industrial gas use on track to rise in 2024 German industrial gas demand is on course to be higher this year than in 2023, based on daily data ending at the end of October. Industrial gas use for production processes other than space heating was 746 GWh/d in January-October, about 8pc higher than a year earlier, according to Argus estimates. But if September's industrial output drops extend to a multi-month trend, this would pull down the average for this year as a whole. Industrial demand typically falls in December when the holiday period limits economic activity, which could push down the average further. And the collapsed German governing coalition is unlikely to send strong recovery signals to the German economy. German market area manager THE publishes a combined dataset for gas demand by industry and the power sector. Argus splits out power-sector gas demand data by assuming operational efficiencies of 39-42pc, in line with fuel use data from Destatis, and factors out seasonal demand swings linked to space heating by looking at analogue trends in the residential and commercial sector ( see demand split graph ). Argus' estimates diverge from Destatis' annual demand data by only about 1-3pc, except for a 6pc gap in 2021 ( see Destatis vs Argus estimates graph ). By Till Stehr German manufacturing index index, 2021=100 German industrial gas demand by sector TWh German industry and power demand split GWh/d Destatis data vs Argus estimates GWh/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German government collapse could delay energy policies


07/11/24
07/11/24

German government collapse could delay energy policies

London, 7 November (Argus) — The collapse of the German coalition government may delay critical energy security policies currently under discussion, with industry and power associations expressing concerns about potential political standstill on such issues in the coming months. Asked in Berlin on Thursday, energy minister Robert Habeck said he does not expect a general agreement between the remaining red-green government and the conservative Union, which would ensure all further projects in this parliamentary period. And "it remains to be seen" if some decisions could be made together with the opposition on a case-by-case basis where the interests of government and CDU align, Habeck said, although energy security could be one topic where bills could be passed during the minority government phase before the end of this year. CDU politicians including on the state level had "constantly" written him letters to ask when some laws would "finally" be passed, he said, highlighting that while he does not expect "a great deal of helpfulness" he hopes the opposition will work with the government on the basis of how beneficial planning security would be for Germany as a whole. Among the energy security laws waiting to be passed is the draft law that abolishes the German gas storage levy on cross-border interconnection points , while the government has not yet passed its power plant strategy nor submitted the second of its two planned "solar packages". Chancellor Olaf Scholz on Wednesday said that among the legislative projects he was trying to pass before the end of the year were "immediate measures for our industry" on which he was currently deliberating with "companies, unions and associations". He said he would quickly try to begin speaking to opposition leader Friedrich Merz around the questions of defence and economic stability, since the economic stabilisation "cannot wait until elections have taken place". The coalition government collapsed after Scholz sacked finance minister Christian Linder , leading the latter to withdraw his party from the ruling coalition. An election looks likely in early 2025. Industry and renewables associations in particular voiced concerns about the timing of the collapse and potential political stagnation, with general leader of chemicals association VCI calling for elections at "the earliest possible time" to avoid "stalemate and political standstill", while the federation of German industries BDI said the country needs a "new, effective government" with a parliamentary majority "as quickly as possible". VCI stressed that Germany needs low energy prices, faster permitting and less bureaucracy, while BDI highlighted that existing market uncertainty is likely to rise with the arrival of the new US administration at the beginning of 2025, when Scholz plans to hold a vote of confidence. And wind association BWE stated that the country "cannot afford to stand still", while solar power association BSW appealed to members of the Bundestag to "make decisions and compromise" on important energy policy issues across party lines. Renewables association BEE called for laws and budget funds already in process for the continuity of energy measures to be adopted by December, stating that "even in a political crisis" the country "cannot afford" stagnation and stalemates. Conservative opposition sister parties CDU and CSU have been polling well ahead across 2024 at around 30-33pc of the vote. While the parties agree with the ruling coalition on several aspects of energy policy — including supporting hydrogen-fired and climate-neutral gas-fired generation — they notably diverge on the topic of nuclear generation. Germany completed its long-awaited nuclear phase-out in April 2023, but the CDU/CSU this week announced it would conduct an investigation into whether the last plants to be decommissioned could feasibly be reactivated. The CDU/CSU also reiterated its support for the development of fourth and fifth-generation nuclear reactors. Nuclear plants are notorious for lengthy construction times, meaning a single parliamentary term may not be enough to see projects through without cross-party support, and the ruling Greens and SPD remain anti-nuclear. The country has also not yet decided on a final storage location for its existing nuclear waste, which will need to be stored there for "one million years", according to the final report from the commission for the storage of highly radioactive waste. But the CDU and SPD have both voiced support for the introduction of a national green gas sales quota , with the CDU/CSU this week highlighting green gas quotas in the gas grid as a way to leverage the market to reach climate goals. By Till Stehr and Helen Senior Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Mexican peso plummets on Trump win


06/11/24
06/11/24

Mexican peso plummets on Trump win

Mexico City, 6 November (Argus) — The Mexican peso fell sharply against the US dollar as markets priced in potential retaliation against Mexico following former president's Donald Trump's victory in the US presidential election. "A Republican Senate majority and potential House win raise the chances of Trump's radical reforms, which could hurt Mexico's economic dynamism," said a financial analyst from Mexican bank Monex in a note today. The peso initially dropped around 3pc to Ps20.71/$1 early today, hitting a two-year low before recovering to Ps20.20/$1 by midday. The peso may weaken further, as Mexico is vulnerable to tariff hikes amid strained relations over issues like immigration and the opioid crisis, according to a desk report from a major Mexican bank. Trump repeatedly threatened tariffs on Mexico during his presidential campaign, most recently pledging a 25pc tariff on all Mexican imports unless President Claudia Sheinbaum's administration launches a severe crackdown on Mexico's drug cartels, which ship fentanyl and other drugs across the border to the US. Recent constitutional amendments in Mexico, including judicial reforms and proposed eliminations of independent regulators, may also add downward pressure on the peso, according to the report. "The government's goal to direct private-sector involvement could limit market forces," it noted. Mexico's state-owned oil company Pemex typically offsets peso depreciation due to its dollar-denominated oil export revenues, which help cover increased import costs. "Pemex's exports and domestic sales are tied to international hydrocarbon prices, providing a natural hedge," the company stated in its most recent report. Still, analysts warn that Pemex's focus on domestic refining over crude exports could erode this hedge, leaving it more exposed to foreign exchange swings on USD-denominated debt. By Édgar Sígler Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more