Country With The World's Largest Oil Reserves Runs Out Of Gasoline
In a testament to the efficiency of socialism, leftist-run Venezuela has long prided itself on selling its citizens the world’s cheapest gasoline… that is when it has gasoline to sell.
While fuel supplies in the country with the world’s largest proven oil reserves…
… have continued flowing despite monetary collapse and hyperinflation, a domestic oil industry in turmoil and a deepening economic collapse under President Nicolas Maduro that has left the South American country with scant supplies of many basic necessities, that changed last Wednesday when Venezuelans faced their first nationwide shortage of motor fuel since an explosion ripped through one of the world’s largest refineries five years ago. At the time, the government of then-President Hugo Chavez curbed exports to guarantee there was enough fuel at home. This time, however, the problems were all man made and the shortage was mainly due to problems at refineries, as a mix of plant glitches and maintenance cut fuel production in half.
In the immediate aftermath of the shortage, Venezuela’s state oil company, Petroleos de Venezuela, rushed to replenish gasoline supplies in various neighborhoods of Caracas as drivers lined up at filling stations amid a worsening shortage of fuel. While Petroleos de Venezuela, or PDVSA, says the situation is normalizing and blamed the lines on transport delays, the opposition says the company has had to reduce costly fuel imports as it tries to preserve cash to pay its foreign debt. The opposition was likely right.
According to Bloomberg, tanker trucks were seen in several neighborhoods of the capital city resupplying filling stations after local newspaper El Nacional reported widespread shortages across the country. As the company’s crumbling refineries fail to meet domestic demand, imports have become a major drain of cash as the country buys fuel abroad at market prices only to sell it for pennies per gallon at home, unless, of course, one buys abundant gasoline on the black market where its cost is orders of magnitude higher than what one would pay at the gas station.
“Yesterday, I went to three filling stations and I couldn’t fill my tank,” Freddy Bautista, a 26-year-old student, said in an interview while waiting outside of a gas station in the Las Mercedes area of eastern Caracas on Thursday. “I’ve been waiting 30 minutes here, and it seems like I’ll be able to fill up today.”
But the key reason PDVSA has been reducing the money-losing imports as it prepares for $2 billion in bond payments due next month, said Jose Brito, an opposition lawmaker on the National Assembly’s oil commission. “They’re not importing enough because they are saving up to pay the debt,” he said in a telephone interview. “It’s unbelievable that this is happening in an oil producing country.”
It gets better.
While PDVSA was “suddenly” unable to keep the domestic market stocked, it had no problems supplying gasoline to its main export partners such as Cuba and Nicaragua. As Reuters reported, Caracas has continued exporting fuel to political allies and even raised the volume of shipments last month despite warnings within the government-run company that doing so could trigger a domestic supply crunch. Shipments from refineries to the domestic market needed to be redirected to meet those export commitments, internal documents showed.
“Should this additional volume … be exported, it would impact a cargo scheduled for the local market,” read one email obtained by Reuters and sent from an official in the company’s domestic marketing department to its international trade unit. Venezuela last month exported 88,000 barrels per day (bpd) of fuels – equivalent to a fifth of its domestic consumption – to Cuba, Nicaragua and other countries, according to internal PDVSA documents seen by Reuters.
That was up 22,000 bpd on the volumes Venezuela had been shipping to those two countries under accords struck by Chavez to expand his diplomatic clout by lowering their fuel costs through cheap supplies of crude and fuel. The order to increase exports came from PDVSA’s top executives, according to the internal emails seen by Reuters.
Then came the departures.
As Reuters adds, the strain on the country’s fuel system has been worsened by the quiet departure of staff in PDVSA’s trade and supply unit who are key to ensuring fuel gets to where it is needed and making payments for imports, three sources close to the company said. Clearly unconvinced that Venezuela is the socialist paradise shown on brochures, the unit has seen around a dozen key staffers depart since Maduro shook up PDVSA’s top management in January. Among those who left was the head of budget and payments.
“Every week someone leaves for one reason or another,” said a PDVSA source familiar with the unit’s operations. Some have been fired, while others have left since the shake-up inserted political and military officials into top positions and bolstered Maduro’s grip on the company that powers the nation’s economy.
The imposition of leaders with little or no experience in the industry has further disillusioned some of the company’s experienced professionals and accelerated an exodus that had already taken hold as economic and social conditions in Venezuela worsened. A recent internal PDVSA report seen by Reuters mentioned “a low capacity to retain key personnel,” amid salaries of a few dozen dollars a month at the black market rate.
The vacancies have led to all-out chaos inside the state-run energy company: the departure of staff responsible for paying suppliers, as well as a cash crunch in the company and the country, have led to an accumulation of unpaid bills for fuel imports into Venezuela. Had those bills been paid, the supply crunch would have been less acute, company sources said.
About 10 tankers are waiting near PDVSA ports in Venezuela and the Caribbean to discharge fuel for domestic consumption and for oil blending.
Only one vessel bringing fuel imports has been discharged since the beginning of the week, shipping data showed.
PDVSA ordered some of the cargoes as it prepared alternative supplies while refineries undergo maintenance.
As a result of this clusterfuck, Venezuela finds itself in a particular bind: while there are millions of gallons of gasoline parked offshore (not to mention some 300 billion barrels of oil underground) they will remain there indefinitely until PDVSA pays for their cargoes. Should PDVSA pay – up to $20 million per cargo – shortages could blow over relatively soon. However, as noted above, it won’t, as it is saving every dollar for an upcoming bond payment: PDVSA is preparing for some $2.5 billion in bond payments due next month.
Meanwhile, the shortages persist despite calls for calm from PDVSA.
Ysmel Serrano, commercial and supply vice president at PDVSA, said on Twitter last Wednesday that the company has sufficient supply from its refineries and is working to increase shipments to stabilize distribution after transportation delays led to lines at gasoline stations in four states. “We call for calm and to resist false rumors from sectors trying to create chaos in the country!” Serrano said.
The comments came just hours after the company said it had controlled a “minor” fire at the Amuay refinery in Falcon state, the largest refining complex in the country where a 2012 explosion killed dozens of people.
To be sure, shortages are nothing new in Venezuela. The hunt for gasoline is just the latest headache for consumers after years of severe economic contraction and triple-digit inflation have produced shortages of everything from bread to antibiotics.
Unfortunately, even once the bond payment is made there is no assurance the flow of gasoline to the domestic market will resume. Venezuela has been forced to increase imports of finished gasoline and components over the past years as its refinery utilization rates declined because of deteriorating infrastructure and under-investment. The country imported about 75,000 barrels a day of refined products from the U.S. in 2016, according to the U.S. Energy Information Administration.
As Bloomberg writes, in Caracas’ eastern Sucre municipality, around 20 cars were lined up outside of a PDVSA gas station trying to fill up. National police in the Las Mercedes part of the city, meanwhile, were trying to prevent lines from forming outside of filling stations there. Outside of Caracas, El Carabobeno, a newspaper based in the central city of Valencia, reported widespread lines there.
* * *
On Wednesday, Maduro found a way to briefly deflect blame for the ongoing debacle: Venezuela’s public prosecutor ordered the arrest of Marco Antonio Malave, PDVSA’s manager of international trade, for supposed wrongdoing related to fuel purchases for the domestic market. Malave was detained at a Venezuelan military facility and his bank accounts have been blocked. This attempt to scapegoat failure on one person will resolve nothing.