Venezuela in Need of Russian Oil to Meet Contractual Obligations

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Researched by Industrial Info Resources (Sugar Land, Texas). Due to the growing gap between Venezuela’s declining domestic output and its expanding contractual obligations to international customers, Venezuela’s government made a $2 billion deal with Russia to start buying 100,000 barrels of crude oil per day from Russia this month until the end of the year.

Venezuela is facing a shortfall in its own production mainly due to poor technical management clearly shown in the explosion at the Amuay Refinery in March 2006, together with a complete shutdown at the Cardon Refinery on April 14, 2006. For more datails see related April 18, 2006, news article - Complete Shutdown at Cardon Refinery in Venezuela. These two incidents, which occurred within the Paraguana Complex in northwest Venezuela, brought about a large decrease in the international supply and even reached to point of affecting the USA´s gasoline prices in particular. For details, see related April 20, 2006, news article - Explosion at Amuay Refinery has Worldwide Effect. Moreover, such incidents put the country in risk of defaulting on contracts with clients and third parties, resulting in the possibility of penalties if it fails to meet its supply contracts.

Apparently, Russia has offered Venezuela an open account to buy the oil from them. However, to facilitate the purchases of oil via Rotterdam, the Latin American country may have been forced to make a financing agreement with the ABN Amro Bank (Moscow, Russia) in April. At the same time, other refineries such as the Ruhr Oel refinery in Germany (Gelsenkirchen), in which PDVSA of Venezuela has a 50% stake, already is being supplied with the Russian oil. According to PDVSA, this is simply because it is cheaper for this German refinery to get oil from Russia rather than transporting it from Venezuela.

Even though PDVSA is hoping to turn Venezuela into the country with the most crude oil reserves in the world (see related January 11, 2006, news article – Venezuela: The New Saudi Arabia), this Latin American country needs to improve the already existing plants and properly train its personnel to avoid further setbacks like the ones that have recently occurred. Until these measures are taken, decisions such as buying oil from Russia is a good representation of how PDVSA´s is going out of its way in order to meet its customers´ needs.

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