UPDATE ON THE FORMER STRATEGIC ASSOCIATIONS

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000617 SENSITIVE SIPDIS ENERGY FOR CDAY AND ALOCKWOOD NSC FOR JSHRIER E.O. 12958: DECL: 05/05/2018 TAGS: EPET ENRG EINV ECON VE SUBJECT: UPDATE ON THE FORMER STRATEGIC ASSOCIATIONS REF: A. 2007 CARACAS 967 ¶B. CARACAS 598 ¶C. CARACAS 580 Classified By: Acting Economic Counselor Shawn E. Flatt for Reason 1.4 (D) ¶1. (C) SUMMARY: Energy Minister and PDVSA President Rafael Ramirez told the local press production at the former strategic associations was currently 600,000 barrels per day. He also crowed that the maintenance shutdown at Petrocedeno revealed that the upgrader was far simpler in design than international oil companies have claimed. Petromonagas has raised the API of its product to 18 and is apparently sending the majority of its production to China. An insider claimed the API was raised so that traders could not resell the crude to ExxonMobil. The insider also claimed one of the main pipelines running to the Faja upgraders was operating at reduced pressure. END SUMMARY -------------- RAMIREZ: EVERYTHING IS HUNKY-DORY IN THE FAJA -------------- ¶2. (SBU) Energy Minister and PDVSA President Rafael Ramirez in an interview with El Universal newspaper to mark the anniversary of the May 1 nationalization of the extra-heavy crude strategic associations in the Faja claimed that their successor joint ventures were running smoothly (Reftel A). He claimed the nationalization allowed PDVSA to recover control of the Faja and stated Venezuela needed oil companies that knew how to drill rather than contract service companies. ¶3. (C) Ramirez claimed that total production in the Faja was 600,000 barrels per day, which is full capacity for the four upgraders. A BP employee familiar with the Petromonagas joint venture told Petroleum Attache on April 19 that joint venture presidents have been lying about their production figures on a regular basis. The employee also stated that one of the two main pipelines leading to the upgraders was operating under reduced pressure. A senior Statoil official told Petatt on May 2 that the pipeline leading to Petrocedeno was operating normally. (COMMENT: We believe the BP official was referring to the pipeline that supplies Petromonagas and Petropiar. END COMMENT). ¶4. (C) Ramirez also stated in the interview that Petromonagas had raised the API of its syncrude to 18 degrees and stated it planned to raise it to 20 degrees eventually. The trade periodical Petroleumworld on May 5 quoted Petromonagas president Daniel Mancilla as stating that Petromonagas was exporting its crude to China. He added that Petromonagas would eventually send 80,000 barrels per day to China. The BP employee told Petatt that Petromonagas was instructed to raise the API of its crude so that oil traders could not resell the crude to ExxonMobil. Petromonagas' 16 API crude was designed to be refined by an ExxonMobil refinery in the United States. The BRV instructed PDVSA to cut off shipments to ExxonMobil. However, the BP employee claimed traders were purchasing the crude on the spot market and then reselling it to ExxonMobil. -------------- PETROCEDENO MAINTENANCE SHUTDOWN -------------- ¶5. (SBU) Ramirez also used the interview to crow about the success of the recent maintenance shutdown at Petrocedeno. He claimed PDVSA refinery technicians "died laughing" when they discovered the upgrader was nothing more than a coker. He said the transnational oil companies had Venezuela convinced that it did not have the technical capacity to deal CARACAS 00000617 002 OF 002 with the refineries. ¶6. (C) The Statoil employee, who played a major role in the maintenance shutdown, told Petatt she was not sure if she should view the shutdown as a major victory or not. On the one hand, Petrocedeno was able to complete the shutdown despite enormous challenges, particularly in the labor field. However, she noted the amount of maintenance that was actually performed was less than what she would have liked to have seen. She also stated the recent nation-wide blackout stopped Petrocedeno's start-up procedures in their tracks and forced the joint venture to begin the start-up from the beginning (See Reftel B for blackout details). -------------- INDIA -------------- ¶7. (C) Ramirez also claimed in the interview that PDVSA hoped to tap new markets for Faja crude but added it would continue honoring existing contracts. He said PDVSA hoped to eventually place 600,000 barrels per day of heavy crude with the Indian refiner Reliance. As noted in Reftel C, the Indians do not appear to be as optimistic about the arrangement as Ramirez. DUDDY