U.S. Treasury Eases Sanctions on Venezuela

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land Texas)

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Summary

Sanctions are easing on Venezuela as U.S. President Donald Trump tries to revive the energy sector in the OPEC founder. Billions of dollars and decades' worth of commitments are needed for a recovery.

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General License Issued

The window for more Venezuelan crude oil on the market opened further after the U.S. government issued a general license for work in the South American country's delipidated energy sector.

A general license runs counter to earlier plans floated by U.S. President Donald Trump to grant individual concessions to companies looking to get involved in the Venezuelan oil sector. Trump hosted executives from major oil companies early last month to discuss the potential for reconstruction, though ExxonMobil and TotalEnergies both expressed reservations.

The U.S. Treasury Department on Thursday issued a general license that permits work with the Venezuelan government and state-owned Petroleos de Venezuela, better known as PDVSA, related to "the lifting, exportation, re-exportation, sale, resale, supply, storage, marketing, purchase, delivery, or transportation of Venezuelan-origin oil, including the refining of such oil, by an established U.S. entity."

Restrictions, however, limit payments for "terms that are not commercially reasonable," debt swaps, gold or digital currency. Under U.S. regulations on Venezuela, dealings with China, Iran and North Korea are also prohibited.

The measure followed warnings from a handful of Democrats in the House of Representatives about dealing in a still-uncertain Venezuela. Widespread legal questions hang over everything from U.S. claims of authority over the country to war crimes allegations and the constitutionality of military action without congressional authorization.

"We urge you, therefore, to bear in mind that it is possible that efforts to invalidate any such arrangements might be made by Congress, a subsequent administration, or a future Venezuelan government, and that participation might present your company with legal and enforcement risk," lawmakers said in a letter to energy company executives.

Recovery is No Easy Feat

Trump, meanwhile, is pursuing a massive $100 billion reconstruction package for the Venezuelan oil sector, which is hobbled by years of mismanagement and chronic under-investments. The heavy Venezuelan crude oil is suited for a U.S. refinery sector tailored to those slates, though the viscous crude is difficult to move.

Apart from some of the light crude oil at home, Venezuela has relied on imports for diluting agents such as naphtha to facilitate flows away from production centers. Reviving the industry would likely cost billions of dollars to address everything from leaky pipelines to aging storage tanks. The last refinery upgrader, which helps process the heavy crude, that was proposed for Venezuela was expected to cost more than $2 billion. It was cancelled because it wasn't economically viable.

Venezuela is a founding member of the Organization of the Petroleum Exporting Countries (OPEC) and sits on top of the largest oil reserves in the world. Oil production peaked in the 1970s at 3.7 million barrels per day (BBL/d), though secondary sources reporting to OPEC economists put production at 896,000 BBL/d for December, down 6% from the prior month.

Meanwhile, various media reports suggest Venezuelan crude oil is moving through trading house Vitol, while Chevron, the only U.S. company with a license to operate in the country, is making claims of additional imports into the U.S. refining sector, targeting a potential 300,000 BBL/d by next month.

The U.S. Energy Information Administration (EIA), the data arm of the Energy Department, reported in its weekly petroleum status report for the seven-day period ending Jan. 23 that the United States took in 94,000 BBL/d of Venezuelan crude.

By the Numbers

• 3.7 million BBL/d peak was in the 1970s
• 6% month-on-month drop in Venezuelan oil production to December
• $207.5 million in investments seen so far

Key Takeaways

• Windows opening for Venezuelan crude
• U.S. congressional leaders wary of the risks
• Trading house already said to be dealing in Venezuelan crude

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).