PDVSA urges US to expand refinery capacity; strengthen trade ties

By OGJ editors
WASHINGTON, DC, Mar. 16 -- A top energy official with the state-run Petróleos de Venezuela SA urged US government and industry leaders to expand US refinery capacity.

Luis Vierma, Venezuelan hydrocarbons vice-minister and PDVSA director, spoke at the Energy Council's 2004 Conference, held in Washington, DC, last week.

"It becomes urgent to discuss and seek agreement on the matter of energy policy and investment required to increase refining capacity in the Atlantic basin, for the purpose of meeting a growing oil products demand, especially in the US," warned Vierma, according to a company press release dated Monday.

"The decision to undertake the task of overcoming this imminent deficit in refining capacity should be taken shortly, because it takes from 3 to 5 years to build a new refinery," Vierma said. "The US particularly has little room for maneuver in increasing its processing capacity and, moreover, in meeting operational contingencies in their refining plant."

Vierma's comments come as international crude prices reach record-highs and with it the likelihood that gasoline and diesel prices also will increase dramatically.

Venezuela is typically one of the US's top four crude and product importers and is the world's fifth largest oil and gas exporter. PDVSA says it supplies the US nearly 15% of its crude oil and refined product imports.

According to the US Energy Information Administration's latest monthly analysis, even if unexpected significant refinery or pipeline disruptions are avoided, national monthly average regular unleaded gasoline prices may reach a peak of about $1.83/gal this spring. Summer (April to September) gasoline prices now are expected to average about $1.74/gal for 2004. This would be a record in nominal dollar terms and the highest inflation-adjusted summer average since 1985, EIA said.

For 2004 as a whole, national regular gasoline pump prices are now expected to average $1.67/gal, 10¢/gal higher than its previous projection.

EIA said about half of the increase reflects higher crude oil prices, with the remainder reflecting the impact of low inventories, robust demand, and—in perhaps a veiled reference to Venezuela—"uncertain availability of gasoline imports."

Repairing strains
Vierma sought to dispel supply concerns, urging US policymakers to forge a stronger bond with Venezuela despite recent strains over the US's disapproval of President Hugo Chávez's socialist government (OGJ Online, Feb. 2, 2004).

"[Vierma] reiterated Venezuela's wish to keep open all available communications and contact channels on energy with the United States, with the aim of reinforcing the safety and reliability of hydrocarbons supplies," the PDVSA release said. "And [he] referred to the efforts already being made in this direction by the Ministry of Energy and Mines and the Venezuelan Embassy in Washington, where Ambassador Bernardo Alvarez and Minister Counselor for Energy Affairs Fadi Kabboul maintain an intense and ongoing agenda of contacts with government, legislative, financial, and business leaders in the US."

Vierma's remarks followed a decision by PDVSA's top management to shift its corporate structure back toward the way business units were organized before last year's strike. PDVSA's labor problems did not topple Chávez from power but they did succeed in crippling production and dramatically cutting back US imports for a few months last year. PDVSA now says the company has recovered and remains committed to supplying the US.

Nevertheless relations between Caracas and Washington remain frayed. Meanwhile, the political climate in Venezuela grows increasingly unstable. Venezuela's Supreme Court ruled Monday that recall signatures demanding a new presidential vote this year were valid, reversing a National Elections Council decision. Chávez is seeking an appeal. If the referendum does not take place, the next presidential election occurs in 2006.

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