Stratfor on Latin America, not so much on Brazil, but Venezuela :0)
Global Market Brief: Jan. 17, 2005
Venezuelan President Hugo Chavez has been ratcheting up the rhetoric
over
cutting off U.S. markets from Venezuelan oil supplies during the past
several weeks.
On the surface the idea seems preposterous. Along with Mexico, Canada
and
Saudi Arabia, Venezuela has ranked among the top four U.S. oil
suppliers for
decades and currently supplies approximately 11 percent of U.S. oil
needs.
Located just across the Caribbean from the U.S. Gulf Coast, it is
ideally
situated to supply the U.S. market. Denying that in order to supply
customers in Asia or Europe would cut deeply into Venezuela's profit
margins.
However, Chavez's primary rationale is not economic, it is political.
Opposition to the United States is an ideological fact for him, and he
wants
to reduce Venezuela's economic links to the superpower to his north --
even
if it means a little less cash for his coffers.
Now, we do not take Chavez exactly at his word. We never expect him to
stop
all shipments to the United States, not out of love or kindness, but
because
the primary customer for Venezuelan crude in the United States is
Citgo, a
subsidiary of PDVSA, the state-owned Venezuelan oil company. Chavez
might be
many, many things, but he is not about to cut off supplies to one of
his own
companies -- or at least not before he sells it (although that is
another
issue we will get to in good time).
Citgo uses about 860,000 barrels per day to supply its refineries and
approximately 700,000 bpd of that total comes from PDVSA. To fill
domestic
refinery needs, Venezuela keeps about another 1.3 million bpd at home,
of
which some 900,000 bpd of product is shipped abroad with the remaining
400,000 bpd being used at home. That leaves Venezuela with only about
600,000 bpd of additional crude exports to play with. In a global
system
where demand is at about 80 million bpd, 600,000 bpd can be mopped up
pretty
quickly.
But Chavez has even selected where he wants his country's crude to go:
China. Chinese representatives have been hopscotching all over Latin
America
during the past few months attempting to pen trade and investment
deals. For
China, energy security is an acute issue. The Persian Gulf states enjoy
a
near monopoly on exports to Asia, resulting in a stiff premium on
supplies.
Venezuela's heavy crude might be of inferior quality to the lighter,
sweeter
streams that come from the Middle East, but it does not have to steam
past
regional rivals Australia, India, Singapore or Vietnam to reach
Shanghai.
The lower cost of Venezuelan crude -- not to mention the lack of a
premium -- should also offset the higher transport cost of getting it
across
the Pacific.
Venezuela is already in advanced negotiations with Panama to trim some
of
that transport cost. Panama possesses a pipeline -- the Petroterminales
de
Panama -- that transports crude from its Pacific to its Atlantic coast.
Chavez wants to reverse the flow so Venezuelan crude can reach the
Pacific
basin. The process is rather simple and cheap -- and with oil prices
where
they are Venezuela can afford it. Should an agreement be struck,
Venezuelan
cargos could be steaming to Asia by August. At maximum capacity the
Petroterminales de Panama can handle 800,000 bpd.
The one hitch in the plan is that Venezuelan crude is so thick that
very few
Chinese refineries can run it at all. Refitting sufficient capacity to
use
the stuff could take up to two years. Currently, China could handle no
more
than 100,000 bpd according to sources in the U.S. Department of Energy.
But even here Venezuela has a bridge to make things work out. Singapore
currently has spare capacity of about 300,000 bpd which is capable of
handling the Venezuelan crude, and the U.S. West Coast has plenty of
refineries that would be willing to take a few cargos to supplant -- or
supplement -- Middle Eastern deliveries even if only on a temporary
basis.
When Venezuelan crude oil hits the Pacific, Chavez will have his pick
of
potential customers -- even if the Chinese are not among them at first.
That leaves only the pesky issue of Citgo, a front on which no moss is
gathering. On Jan. 13, Chavez restructured the PDVSA board of directors
and
installed Bernard Mommer, until now PDVSA's U.K. director, in the new
lineup. Mommer favors PDVSA selling all of its international holdings.
Add
that PDVSA President Rafael Ramirez's first assignment for the new
board was
to completely review all of PDVSA's contracts and agreements with
foreign
firms, and it appears ground is being laid for a rolling Venezuelan
disengagement from the United States. |
