Venezuela PDVSA expands Caribbean storage, rents NuStar tanks

April 22, 2014 9:52 AM
Petroleos de Venezuela (PDVSA), which urgently needs space in the Caribbean to store its oil, has emerged as the renter of tanks owned by NuStar Energy (NS.N) on the island of Saint Eustatius, where the Venezuelan state-run company will blend crudes. This is told by sources close to the transaction according to press agency Reuters.
 
NuStar, a San Antonio, Texas-based pipeline and terminals company, said last month it signed a long-term agreement to lease parts of its facility on the Caribbean island to a national oil company, but did not disclose the name of its client.
 
"The company renting the tanks in Saint Eustatius is PDVSA. They will use the facility as a mixing hub to produce blends that can then be exported," one of the sources said.
 
After selling terminals to raise cash, PDVSA now must rent space in the Caribbean to store its oil, produce a wider portfolio of blends, and handle trading as it imports more fuels. It also needs the facilities to load large tankers to be sent to Asia, which has become its main market.
 
In a global market oversupplied with oil, the NuStar facility is one of several PDVSA has leased in recent years, particularly since fires damaged its domestic storage network in 2012. In at least one case, it pays rent with oil because of its well-known cash flow problems.
 
In 2011, PDVSA's president and Venezuela's petroleum minister, Rafael Ramirez, announced a plan to increase storage capacity 380 percent by 2014 to handle new production of blends made from the Orinoco belt's crudes.
 
But with construction delays and declining production of light crudes, PDVSA has become a renter of space and a big buyer of heavy naphtha to mix with its extraheavy crudes.
 
PDVSA did not comment. NuStar said that as a matter of policy it does not disclose customer-specific information, so could neither confirm nor deny what the sources said.
 
On April 16, the crude tanker Nord Snow Queen arrived at Saint Eustatius, coming from the 310,000 bpd Cardon refinery in Venezuela, according to MarineTraffic.com and Reuters ship data.
 
BARTERING FOR SPACE
 
According to leasing terms renewed this year, PDVSA is paying around $0.30 per barrel for some 4 million barrels of storage capacity in Aruba, an island in the Caribbean Sea just north of Venezuela, at a refinery owned by U.S. refining company Valero Energy (VLO.N).
 
Aruba's 235,0000 barrel per day (bpd) refinery was shut down in 2012, but since then Valero has earned money by renting out its tanks. PDVSA is paying with crude, which is received by Valero at Venezuelan ports, the sources added.
 
PDVSA is also using its own facilities in the neighboring islands of Curacao, Bonaire, Cuba and Dominica, and it is renting a portion of a 12.5-million barrel terminal in Bahamas that it sold in 2007.
 
"PDVSA is desperate for tanks," another source said, referring to the company's need to find storage and mixing terminals. "It had been looking for store capacity in all the Caribbean".
 
Independent studies show that at some point soon Venezuela will need to import light crude or a larger volume of naphtha because it is unlikely the company can produce enough diluent domestically for its growing extraheavy crude output.
 
PDVSA said recently it could consider the option of buying other diluents, which could be light crudes or condensates, to formulate better quality blends.
 
Blends made of heavy and light crudes traditionally have been well accepted by refining companies in the United States and Asia, but growing output of U.S. light crudes and condensates has reduced refiners' appetite for blends made with heavy naphtha.
 
Importing crude would be highly controversial for Venezuela, which has the world's largest crude reserves, especially since President Nicolas Maduro has been locked in a dispute with opposition leaders over rampant crime and economic woes.
 
GATHERING CLIENTS
 
NuStar's Statia terminal in Saint Eustatius has a total storage capacity of 13 million barrels. Brazil's state-run Petrobras (PETR4.SA) and Petrochina have also been clients of the facility in recent years.
 
Since signing a long-term contract, Petrobras has been using Saint Eustatius as a fuel reserve as Brazil's refined product imports grow and domestic refineries face frequent problems related to overprocessing.
 
NuStar has a plan to increase Statia's capacity by 5 million to 7 million barrels, but the government of Saint Eustatius - a Dutch Antille - has been reluctant to allow it, the sources said.
 
The expansion could create an opportunity for companies from Europe and the Middle East, which, according to traders and tanker information, have been storing fuels on Saint Eustatius and also at the 350,0000 bpd Hovensa refinery in the U.S. Virgin Islands, which was shut down in 2012, but is also offering tanks for rent.

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