PETROCARIBE UPDATE #22 - VENEZUELA HALTS FUEL

C O N F I D E N T I A L BRIDGETOWN 001095

SIPDIS

SIPDIS

SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 06/23/2016
TAGS: EPET EIND PREL ETRD BB XL VE CH
SUBJECT: PETROCARIBE UPDATE #22 - VENEZUELA HALTS FUEL
SUPPLY TO BARBADOS IN FAVOR OF CHINA

REF: BRIDGETOWN 877 AND PREVIOUS

Classified By: DCM Mary Ellen T. Gilroy for reasons 1.4 (b) and (d).


1. (C) Summary: In early June, Venezuela abruptly cut off
the supply of Orimulsion fuel oil to the Arawak Cement Plant
in Barbados with a year left in the contract, rerouting
future shipments to China. According to an Arawak executive,
Venezuela is the only supplier of Orimulsion, and the plant
cannot produce cement profitably using the alternative fuel,
Bunker C. The Government of Barbados has been unsuccessful
thus far in convincing the Chinese and Venezuelans to
reinstate Arawak's contract. It appears China's quest for
raw materials has combined with Venezuelan petrodiplomacy to
the detriment of Barbados. The sudden and callous way that
PDVSA canceled Barbados' Orimulsion contract may help
convince the Eastern Caribbean that Venezuela is not a
reliable oil supplier. End Summary.

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This Shipment? It's Your Last One
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2. (C) On June 21, Matthew Thornhill, production manager at
the Arawak Cement Plant, told Econoff that Venezuela cut off
the plant's supply of the heavy fuel oil Orimulsion with no
advance notice and a year left in the contract. He recounted
how the Venezuelans did not tell Trinidad Cement Limited,
Arawak's parent company, of the move until the plant's final
Orimulsion shipment was on its way to Barbados. (Note:
Venezuela has a patent for Orimulsion and is the sole
supplier of the fuel in the world. The only petroleum
product Barbados purchases from Venezuela is Orimulsion for
the cement plant. Other oil imports come from Trinidad. End
Note.)

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No Good Alternative
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3. (SBU) The plant switched from Bunker C oil to Orimulsion
in 1997. Reverting back to Bunker C, which is nearly three
times as expensive, is not a viable long-term option for the
plant. Compounding this problem, the government regulates
cement prices in Barbados, making it difficult for the
company to pass on the higher fuel cost to consumers. The
300 jobs at the cement plant may be in jeopardy if Barbados
cannot secure a supply of Orimulsion or a similarly cheap
fuel oil. The plant is temporarily using Bunker C, but the
high cost of the fuel may make future cement production
unsustainable.

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Chinese/Venezuelan Joint Venture
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4. (SBU) According to press reports, the Chinese and
Venezuelan state oil companies started producing Orimulsion
in Venezuela via a joint venture in April 2006. Reportedly,
the entire Venezuelan output of Orimulsion will eventually
head to China, meaning other consumers of the fuel will
likely have their contracts canceled. This shift is
apparently part of Venezuela's increased commercial ties to
China and its search for oil export markets outside the
United States.

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Barbados Government on the Case
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5. (C) The Barbados Minister of State in the Ministry of
Foreign Affairs and Foreign Trade, Kerrie Symmonds,
reportedly used the June 6 visit to Barbados of Chinese Vice
Minister of Foreign Affairs, Yang Jiechi (septel),to lobby
for the Chinese National Petroleum Company to supply Arawak
with Orimulsion. Additionally, Thornhill remarked that the
Barbadian and Trinidadian ambassadors to Caracas have asked
the Venezuelan government and state oil company (PDVSA) to
reconsider the cutoff of Orimulsion to Barbados. (Note:
Since the Chinese and Venezuelan state oil companies jointly
produce Orimulsion, both governments have a say in where the
product goes. End Note.) Thornhill said the Barbadian
government was confident that it could convince China to
spare some Orimulsion, but he was not so sure how this might

come about. Thus far, diplomatic efforts have not succeeded
in restoring the flow of the heavy fuel.

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Comment
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6. (C) The unexpected diversion of Orimulsion supplies from
Barbados to China brings together two main hemispheric
trends, China's insatiable thirst for raw materials and
Venezuelan petrodiplomacy. Until this latest Venezuelan
move, these trends had little effect on Barbados' economy.
Barbados rejected Venezuela's PetroCaribe scheme a year ago,
and this sudden supply disruption may be an attempt at
retribution. In any case, the Caribbean governments that did
sign PetroCaribe may have second thoughts about Venezuela's
reliability as an energy supplier given PDVSA's unforeseen
cancellation of Barbados' Orimulsion contract a year early.
KRAMER