The next few weeks for Venezuela will be crucial, as it could struggle to meet a huge stack of debt payments. Reports that the nation’s oil production is experiencing deteriorating quality raises a new cause for concern for the crumbling South American nation.
Venezuela’s state-owned oil company PDVSA is reportedly shipping crude oil with growing quality issues. Reuters reported that its oil shipments are “soiled with high levels of water, salt or metals that can cause problems for refineries”. It’s a troubling situation for an oil company already suffering from a steep drop in output.
The quality problem is very much related to the country’s economic crisis. Without cash, PDVSA is struggling to obtain the proper chemicals to treat its oil, or pay for equipment and upkeep to maintain quality. As a result, PDVSA has had to shut down operations, or throttle back on production. “We’re refitting chemical injection points, recouping pumps and storage tanks,” one PDVSA worker told Reuters. “But without chemicals, we can’t do anything.”
The oil company has been shipping crude that is apparently causing problems for refiners around the world. According to Reuters, that has led to complaints and even cancellations of purchases. Phillips 66, a U.S. refiner, cancelled at least eight cargoes in the first half of the year due to inferior quality. It also demanded discounts for other shipments. Refiners in India and China have also lodged complaints.
The sales cancellation poses a serious financial threat to a company and country already wallowing in a horrific economic crisis. For example, the cancelled shipments were carrying oil representing $200 million in value, according to Reuters estimates. PDVSA is the only lifeline for the Venezuelan state, so reports that the one source of revenue keeping the country somewhat afloat is not only declining but is now exhibiting declining quality is alarming.
Output is falling, cash is drying up and oil workers have fled the country because of food shortages and violence.
The problem for PDVSA is compounded by the fact that a few months ago the Trump administration slapped sanctions on new financial arrangements with the oil company, prohibiting PDVSA from engaging with U.S. banks to restructure debt. The measures also add a new level of red tape for U.S. refiners who do business with PDVSA. Because of the new pressure from Washington, refiners are starting to look elsewhere for their crude. PBF Energy, the fifth largest U.S. refiner and regular PDVSA customer, has reportedly halted direct purchases from the Venezuelan oil company.