PDVSA awards JGC refinery modernization contract

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Oct. 17 -- Venezuela's state-owned Petroleos de Venezuela SA (PDVSA), as part of its on-going Siembra Petrolera plan, has signed an agreement with JGC Corp. to form a strategic alliance aimed at improving the country's refining capacity.
In particular, the accord with JGC will foster the development of Venezuela's refining projects, especially those involving the conversion of heavy oil, according to Asdrubal Chavez, PDVSA refining, commerce, and supply vice-president.

JGC was involved in the construction of the Cerro Negro heavy crude upgrader in the Orinoco belt, and the Japanese firm also is completing basic engineering for an expansion at the Puerto La Cruz refinery.

The PDVSA announcement follows several earlier ones concerning financial arrangements for the projects.

Earlier agreements
In September, Venezuela said it signed a $1.2 billion loan with the Japanese Bank for International Cooperation.

According to Oil Minister Rafael Ramirez, who doubles as president of PDVSA, the loan will enable modernization of two refineries: at El Palito and Puerto La Cruz.

The amount of Japanese financing for the two projects is considerably lower than PDVSA had earlier hoped for. In May, PDVSA made an unsuccessful bid for $3.5 billion in credit from Japan's Sumitomo Corp. and Itochu Corp.

"For the expansion of the El Palito and Puerto La Cruz refineries we're using technology…for deep crude conversion. For this we need specialized equipment manufactured overseas, and that's why we've secured the Japanese company financing," Ramirez said at the time.

The hoped-for accord was similar to a $3.5 billion loan PDVSA obtained in February 2007 from Marubeni Corp. and Mitsui & Co. as an advanced payment for oil shipments to be made later in the year.

The Japanese funds were provided to PDVSA via two special purpose companies established in the Netherlands by Marubeni and Mitsui: Yucpa Finance and Caribe Financing Co.

PDVSA was expected to repay that loan through sales cash flow generated by its crude oil and petroleum products. The first oil exports to Japan—20,000-30,000-b/d of oil and petroleum products—were expected to begin by mid-2007.

More funding
In July, Venezuela's El Universal newspaper reported that rising costs and rising oil prices had led PDVSA to "realign its Siembra Petrolera investment plan up to 2012."

According to information provided by PDVSA to Banco Central de Venezuela, the firm now plans to invest $78.116 billion in 2007-12, an increase of 40% over the $56 billion calculated for the same period in 2005.

The paper said that 2008 is "the main" year for investment within the plan, with a total outlay of $15.671 billion planned. That amount includes $4.102 billion for production, $3.91 billion for natural gas, and $2.276 billion for refining.

Also included are investments of $2.249 billion in support and management, $1.253 billion in joint ventures, $1.154 billion in former operating agreements, $336 million in joint ventures stemming from old exploration risk agreements, $323 million in exploration, and $68 million in new Faja del Orinoco joint ventures.

Under the plan, according to El Universal, PDVSA will invest $11.481 billion in 2009 and $15.055 billion in 2010.

Earlier this week, PDVSA began construction of the 100,000-b/d Santa Ines refinery, one of four domestic refineries either under way or planned. The others include the 50,000-b/d Caripito refinery, a 200,000-b/d refinery in the state of Zulia, and a 400,000-b/d refinery at Cabruta (OGJ Online, Oct. 13, 2008).

Contact Eric Watkins at hippalus@yahoo.com.

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