Venezuela, the country with the largest oil reserves in the world, 9th largest producer of crude oil and an OPEC member, will now be importing oil for the first time.
PDVSA (Petroleos de Venezuela S.A.) is the Venezuelan state-owned oil and natural gas company importing the oil. According the International Business Times (IBT), PVSDA was expected to receive its first ever shipment of light crude oil from Algeria. With oil being the Venezuelan government’s largest source of income, the importation of oil is rather peculiar.
“Oil production has declined over the years, exacerbating the country’s problems with a limited foreign currency supply, and critics say mismanagement of PDVSA is largely to blame. Meanwhile, global oil prices have slipped by more than 25 percent since June,” reported IBT.
Venezuela produces different types of oils, but its main product is known as an extra heavy crude oil. In order to process this oil, a diluent is needed, this diluent normally being light crude oil. Venezuela had been buying alternate diluents, as their light and medium crude oil stocks fell. The most common alternate diluent they used is called naphtha, a distillation liquid comprised of hydrocarbons, has become expensive in recent years. PVSDA had begun to think about the importation of light crude oil in order to reduce the expenditures used on naphtha, necessary for the processing of their extra heavy crude oil.
“PDVSA in August put on hold its exports of diluted crude oil (DCO) made of heavy crude and naphtha to review its cost structure and avoid losses amidst an oil market worried because of falling crude prices,” according to Reuters.
Despite earlier this year commenting that importing oil would be a “last resort,” energy minister, Rafael Ramirez and Venezuela turned to Algeria, fellow OPEC member. The country put in a 2 million barrel order shipment that was expected to arrive at the end of October.
Imports from Chinese Oil Company Out Of Russian Urals
Algeria was not the only country that Venezuela turned to, Petrochina, a Chinese state owned oil and gas company, has become of a part of the importation mix as well. However, the gas in question that is being exported is being extracted and produced in Russia. The Russian cargoes will be the second imports into Venezuela; PVDSA bought two cargoes of Russian Urals light crude oil from a unit of Petrochina. The exported are being attributed to Russia however being extracted by a Chinese corporation, reported by Reuters.
According to the Venezuelan administration, PDVSA produces close to 3 million barrels a day, making it one of the world’s largest crude exporters. With such a dependent economy on oil extraction, production, and exportation the largest crude oil reserves country in the world will have to deal with production problems in the face of slipping global oil prices and civil unrest.