VENEZUELA - Politically Motivated Refining Projects.

President Chavez, a populist with Marxist leanings and a "revolutionary" close to Cuban President Fidel Castro, has been spending heavily on social projects partly of questionable commercial merit. He has got PDVSA to spend over $10 bn on having a state-of-the-art refinery with a capacity of 400,000 b/d at Cabruta. The budget for this in 2005 was $6 bn. The project is in a remote rural area about 600 km from the Venezuelan coast. Because of rapidly rising project costs, this refining venture has been delayed, and any further delays will mean the budget for it will be higher.

The refinery is to be for export. Not only is the location wrong, but the plant's proposed site is far from major urban centres which eventually would require an important part of its output to be transported either by an expensive pipeline to be built, or by tanker truck which will also be a costly process. President Chavez himself keeps putting emphasis on the refinery's primary purpose: social, with emphasis on the rural poor.

If this refinery's purpose is to create new jobs for Venezuelans, the areas near its location lack the qualified technicians who would be required to run such a huge and sophisticated plant. Personnel needed to run the refinery will have to shuttle between remote areas or, alternatively, relocated in and around Cabruta.

Those PDVSA executives and Chavez administration officials who several years ago criticised the previous regime's purchases of refineries in the US and Europe as a waste of money, now are justifying new domestic refining projects by saying they help "democratise" national petroleum wealth and re-distribute this among the poor. Another pet project of Chavez motivated by political, rather than commercial considerations, is re-activate the Cienfuegos refinery in Cuba which had been mothballed since the 1990s. This is now part of a $56 bn business plan for PDVSA announced in August 2005 by President Chavez.

There is a large petrochemicals business making a range of products in Venezuela and overseas through JVs. These activities are handled by the state-controlled Petroquemica de Venezuela (Pequiven), which has been made autonomous. There are three major petrochemical centres in Venezuela - Zulia-El Tablazo, Moron and Jose (Anzoategui) - owned and operated by Pequiven. A big expansion of this sector is envisaged (see DT No. 21).

The Local Refineries & Marketing Operations: There are six oil refineries in Venezuela, all owned and run by PDVSA which has the lion's share of the domestic market.

As a result of a restructuring process in late 1997, PDVSA has from early 1998 to the first quarter of 1999 made major savings in its domestic refineries and marketing operations (see background in Vols. 57 and 61). PDVSA's 20-year supply monopoly ended in 1997 when Congress passed a law allowing foreign companies and private Venezuelan firms to market oil products in the country.

BP, Mobil (now part of ExxonMobil), Shell, Texaco (now part of Chevron) and other majors joined the country's oil retail market, together with Venezuelan firms. But the governments then and under Chavez have retained the pricing of domestic petroleum products. Since the state enacted a new hydrocarbons law in 2001, the government has moved to reserve a controlling stake to PDVSA in all petroleum ventures in Venezuela (see omt20VenzFieldsNov12-07).

The situation had token a negative turn for PDVSA's competitors with the coming to office of President Chavez in February 1999. The foreign companies have since limited their retail operations, worried that - apart from ownership control by PDVSA - the Chavez government will keep the local oil market regulated and fuel prices heavily subsidised.

Prices of natural gas being supplied to the domestic market are also heavily subsidised, with PDVSA paying the producers, led by Repsol/YPF and a consortium headed by Total, 80% above the local gas price (see gmt20VenzFieldsNov12-07).

Apart from the upgrades at the Amuay, Cardon and Puerto La Cruz refineries, two expansions completed in 1996 were the following: the inter-connection of the Amuay and Cardon plants, both located on the Paraguana peninsula in the state of Falcon; and the setting up of a catalytic distillation unit at El Palito refinery, with technology developed by PDVSA's research unit Intevep.

The linkage of Amuay and Cardon was done to optimise the product mix at both complexes, in order to produce higher quality fuels and chemicals and generate added revenues. The El Palito expansion boosted the production of methyl-tertiary-butyl-ether (MTBE), ter-amyl-methyl-ether (TAME) and high octane components needed to reformulate gasolines for export.

Due to plans to phase out MTBE in the US, Super Octanos in late 2000 began considering a shift of its 500,000 t/y of MTBE production to iso-octane, another gasoline additive.

Deltaven is PDVSA's local oil marketing subsidiary. Set up in July 1996, Deltaven was created in order to modernise the image of state retailing. Until the latest restructuring process, Deltaven unified the domestic marketing strategies of the then integrated PDVSA operators Lagoven, Maraven and Corpoven. These three companies were merged into PDVSA's new system in late 1998.

Deltaven has improved many of the 1,580 petrol stations it took from the three operators and now its network exceeds 1,600 stations. It markets around 100 products under the PDV brand name and logo, including engine and aviation gasolines, jet kerosine, diesel, fuel oil, lubricants and greases, additives, brake fluid, asphalt and bunker fuel. These products are also marketed under the PDV brand name elsewhere in Latin America.

On Oct. 1, 1999, Deltaven began supplying the market with lead-free gasoline through PDV service stations in the country's main urban centres. These have been fitted out to supply new fuels across the country.

The unleaded gasoline has self-cleaning characteristics, advertised nation-wide by Deltaven. By using it, Deltaven says, consumers do not only obtain the benefit of a gasoline which protects their environment, but their cars as well - "all thanks to new-generation detergent additives that are used exclusively on all types of PDV gasoline".

One of the main advantages of this "exclusive PDV feature" is that, by keeping the fuel system clean, it helps protect injectors, filters and other engine parts. To help clients spot the gasoline outlets, allocated stations have been clearly identified with green signs - the same colour used to identify the bays and pumps carrying the unleaded fuel. Even nozzles on pumps are green.

Amuay (Judibana) Refinery: The latest major upgrade at this 635,000 b/d refinery was the installation of a sulphur recovery unit in 1996, the third at the complex. Its operations were suspended during the strikes of 2002/03 (see down19VenzRefNov7-05).

Much of the upgrading at this plant was done in the early 1990s and, when it was finished in October 1994, Amuay became a state-of-the-art facility. Expansion involved the addition of a 34,000 b/d delayed coker and a coke combustion unit with a capacity of 445,000 tons/day. The added deep conversion capacity boosted the refinery's production of distillates and cut residual fuel oil output by 50,000 b/d. A new MTBE plant was brought on stream at Amuay in 1994.

A facility for the Amuay Flexicoker Disposal (DFAY) started up in September 1999. This can fill 200/day heavy-duty sacks with coke and store them until they are shipped to buyers abroad twice a month. They are sent through the Guranao port in vessels handling from 4,000 to 7,000 tons per trip. DFAY uses a special pneumatic system to fill two-ton sacks with coke, a procedure which helps reduce particle emissions and makes this byproduct much easier to market.

The DFAY facility opened up a new line of business, which kicked off with a first shipment of 2,371 of these "super bags", or the equivalent of 4,080 tons, sent to US clients on Sept. 11, 1999. The material is used by aluminium smelters for insulating electric-arc furnaces.

In late 2003 fire broke out at the Block 25 electric sub-station at Amuay as a result of an explosion. Refining was not affected because the sub-station site was distant from the core operations, and there were no hydrocarbons in the surrounding area. This is another feature of installations designed to ensure the safety of operational areas and the communities surrounding it.

A fire at a 200,000 b/d crude distillation unit at Amuay in July 2006 caused extensive damage to a 97,500 b/d fluid catalytic cracking (FCC) unit. PDVSA's refining unit tried at least five times to restart the FCC unit without success, leaving the company with a surplus of high-sulphur vacuum gasoil (VGO). Until February 2007, this unit was still out of order, according to press reports at the time.

Another FCC unit, at El Palito refinery, was also shut down in January 2007 because of unexplained problems, exacerbating the VGO surplus. At a result, PDVSA was in the first half of 2007 exporting large volumes of VGO to the US Gulf Coast. PDVSA was also importing gasoline oxygenates and blendstocks to cover domestic market shortfalls. (PDVSA has traditionally exported about two high-sulphur VGO cargoes per month to US and Caribbean refineries. But VGO export volumes were particularly large in January this year, when PDVSA sold at least four 350,000-400,000 barrel cargoes of high-sulphur VGO from Amuay, mostly to US Gulf Coast refiners. Amuay also exported a large volume of reformer-grade naphtha. PDVSA sold one more 400,000 barrel cargo of high-sulphur VGO for February delivery).