Venezuela's rusted and ugly refineries will be difficult to restore

The Paraguana refinery in?Western Venezuela was once a symbol of the oil wealth of Venezuela and its ambition to convert vast reserves of crude oil into fuels and export revenues.

Today, the 955,000-barrel-per-day complex in Falcon state runs at a ?fraction of capacity, a decline decades in the making and unrelated to the strong earthquakes that struck Venezuela last month.

Interviews with 'four dozen workers, contractors and residents were conducted in the months leading up to the earthquakes.

One worker at the 645,000-barrel-per-day (bpd) Amuay refinery said everything looks "ugly and rusty." The open-air waste pits are nearly full. Residue seeps through pipelines and valve station. Workers claim that years of underinvestment and equipment failures, as well as shortages, have caused Paraguana to struggle in producing the fuel Venezuelans require.

The report revealed rotting decay at all three oil facilities and little maintenance, underscoring Venezuela's monumental challenges in restoring its infrastructure for the benefit of its people, even though President Donald Trump has promised $100 billion in foreign investments.

Venezuela's refineries, while being among the worst-maintained assets in Venezuela, are also vital to its consumers. Analysts and industry executives say that foreign investment is unlikely to come soon in these refineries.

Oswaldo Felizzola is a Venezuelan analyst of energy. He said that the recovery from the two earthquakes which caused more than 5,000 deaths and widespread destruction has complicated the outlook for refineries.

He said, "Right away, it seems that the priority is rebuilding the country and dealing with the destruction caused by the earthquakes."

He stated that any major investment in refining will?now be likely pushed to 2027 or beyond, as the government is focusing on oil production. Felizzola estimated that it would take at least $20 billion to fully restore refining capability, a figure echoed by industry experts.

NEWFOUND INTERESTS IN VENEZUELA Several U.S. oil companies and multinationals have shown interest in Venezuela in the past year, after the U.S. ousted socialist President Nicolas Maduro during a raid on January 3. They have little incentive to restore local refineries, as the U.S. already has refineries that can process Venezuela's heavy sour crude grades.

The government of Delcy Rodriquez, the interim president of Venezuela, has little hope to raise money from oil companies abroad or refineries that provide fuel for the domestic market well below their operating costs due to socialist policies.

The conditions on the ground are terrible. According to the workers and an engineer who recently retired, at Amuay, a flexicoking machine that used to turn heavy, low value residue into better quality low sulfur fuel has been idled and blackened.

The engineer stated that the plant was stripped down to its parts and could not be salvaged. He said that if a pump was needed, they would look there. If a pipe, instrument or other item was needed, then the search continued.

Even in more lucrative sectors like crude and natural-gas production, large oil companies are still hesitant to invest. Exxon Mobil, ConocoPhillips and Chevron left Venezuela in 2007 when Hugo Chavez confiscated their projects.

After a recent reform in energy legislation, many foreign oil companies have signed memoranda relating to exploration and production. However, negotiations with the government regarding the final contracts progress slowly.

A White House spokesperson responded that the U.S. was not involved in rebuilding Venezuela's refineries and pointed out that Venezuelan oil exports have recently reached a record high.

The legislation approved this month built on the recently reformed hydrocarbons laws of the country and created a licensing scheme that allows private companies to run refineries, which were previously the sole domain for the state-run PDVSA, and sell the fuel produced. Analysts said that the model was not appealing to investors because it imposed a tax of up to 5 percent on refiners’ gross income.

No longer welcome are Iranian and Chinese companies

PDVSA, despite having some of the largest crude oil reserves in the world, has struggled to produce enough fuel over the past decade to meet the domestic demand which is now around 250,000 bpd.

Refinery workers and contractors reported that the Paraguana Complex has not had any major repairs in this year. This is after China's Jiazhan Shaelion ceased its operations. One of PDVSA’s major?refining contractor, Jiazhan, has finished a pending project, but the company and PDVSA have not been able agree on a contract renewal.

The Trump administration did not grant licenses to companies from countries it considers to be adversaries. These include Russia, China and Iran.

Requests for comment from PDVSA officials, Venezuelan government officials and Jiazhan Shaelion Venezuela office staff were not answered.

Five employees at PDVSA's smaller refining facilities, including the 187,000 bpd Puerto La Cruz and the 146,000 bpd El Palito have said that local contractors have been repairing a catalytic crackeder, which is not working properly, as well as the power supply for the facilities since last year. El Palito's last major repairs were carried out by?state firms in Iran until early 2024. The work done to ensure that the refinery could operate without the grid was not sufficient to survive the June quakes. The refinery was forced to shut down for two weeks after a key transmission line failed. Refinery was restarted mid-July but major maintenance, including inspections after the earthquake, will take place in the next few weeks.

Jovanny Martinez, Vice President of PDVSA Refining at an April conference, said that smaller repair projects allowed El Palito refineries and Amuay to recover about 20,000 BPD each.

CRUDE EXPORTS RISE AS REFINERIES LANGUISH

The refinery problems are in stark contrast to the gains made by crude production. Since January, U.S. control over oil sales proceeds has allowed crude output to rebound and exports to increase to around 1.2 million bpd, from less than 800,000.

There has been little attention paid to refinement.

Eric Smith, Associate Director of Tulane University’s Energy Institute, said that in the current political climate, the U.S. government is interested in seeing oil exported. He said that only when Venezuela is "stable" and "creditworthy" will bigger projects, such as refinery upgrades, be given attention.

Speaking to reporters in June, U.S. Energy secretary Chris Wright praised the ability of U.S. refining plants to process Venezuelan oil.

He said, "A large quantity of Venezuelan oil is floating to U.S. refining plants." When these refineries were constructed, Venezuela was the biggest exporter of crude oil in the world. "Our refineries have been tuned to use Venezuelan oil."

Cheap gasoline is a major barrier to refinery repair. Venezuela's socialist government sets the prices for its state-owned refineries to supply gas stations. This results in some of lowest gasoline prices anywhere on the planet.

The government of Rodriguez could be saved by the revenue from fuel sales in its own country, but only if it takes the unpopular decision to raise prices. Social tensions are already high due to what many consider an inadequate response to earthquakes. Reporting by Mircely Guianipa; writing and editing by Marianna Parraga.

(source: Reuters)