Whatever the eventual outcome of the firm grip in which the sanctions imposed by the United States has left Venezuela’s oil industry, it is now clear that at the end of the ordeal the sector will be in need of an overhaul that may take a considerable amount of time, perhaps even a few years.The latest blow to the country’s oil and gas sector was last week’s withdrawal of service by the Chinese contracting firm, China Huanqiu Contracting and Engineering Corporation, an affiliate of government-run China National Petroleum Corp (CNPC), contracted to work on the expansion of a crude oil blending facility on account of non-receipt of payment. The facility is part of the Sinovensa joint venture between CNPC and Petróleos de Venezuela SA (PDVSA) and is intended to expand the crude oil blending capability by 57% to 165,000 barrels per day.
The irony here is that the Chinese are not among the supporters of the Trump administration’s sanctions against Venezuela, which have already dealt a body blow to the Venezuelan economy.
The news that the Chinese have ‘downed tools’ comes a matter of weeks after the state-controlled Petróleos de Venezuela SA had announced that a second expansion of the Sinovensa project would take output to 230,000 barrels per day (bpd) at the project, which is jointly owned by PDVSA and CNPC, China’s biggest energy company.
The halt to the project is the latest blow to the Venezuelan oil sector which, in the wake of the US sanctions, has become progressively reliant on Russian and Chinese oil companies to prop up the oil sector. The isolation of the Maduro administration – and more particularly, the country’s oil and gas industry – is likely to worsen when Chevron Corp. and four U.S. oilfield service companies cease work in Venezuela at the end of October unless the US administration extends already existing waivers on foreign drilling rigs
operating in the country.
The Chinese pullout is linked to information that the company is owed sums in excess of US$52 million, dating back to 2018, and that the date for its withdrawal of services was likely to be September 3. The joint venture project is reportedly a key project in Venezuela’s Orinoco which boasts the largest oil reserves on the planet and currently accounts for about half of the country’s remaining production.
China, inadvertently, has now thrown a further spanner into the works in Caracas, adding to the woes that have already been inflicted on Venezuela’s oil industry by US sanctions which have been progressively applied by the Trump administration since January this year. Up until then, refineries in the US had been the biggest importers of Venezuelan crude. Venezuela reportedly exported around 933,000 bpd of crude and refined products in July, down 17.5% from June. In the wake of the US sanctions, India and China had accounted for most of Venezuela’s crude exports. Up until January 25, around which time sanctions were first announced, US refineries imported around 587,000 bpd from Venezuela. In the wake of the sanctions, imports have collapsed to zero.
The fact that Venezuela is a major supplier on the global market has meant that other oil-producing countries such as Canada and Mexico, have so far been unable to increase their exports to make up for the shortfall resulting from the cutoff of supplies from Venezuela. At the same time smaller oil producers in the hemisphere including Colombia and Ecuador do not pump enough to ease the global shortfall.
