VENEZUELA: PDVSA'S REFINERIES AND NEW PROJECT PLANS

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 001465 SIPDIS ENERGY FOR ALOCKWOOD AND LEINSTEIN, DOE/EIA FOR MCLINE HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK COMMERCE FOR 4332/MAC/WH/JLAO NSC FOR DRESTREPO AND LROSSELLO AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA AMEMBASSY OTTAWA PASS TO AMCONSUL QUEBEC E.O. 12958: DECL: 2019/11/17 TAGS: EPET EINV ENRG ECON VE SUBJECT: VENEZUELA: PDVSA'S REFINERIES AND NEW PROJECT PLANS REF: CARACAS 1326 CLASSIFIED BY: Darnall Steuart, Economic Counselor, DOS, Econ; REASON: 1.4(B),(D) ¶1. (C) SUMMARY: PDVSA's concept for the future development of the Faja heavy oil fields -- and particularly how to link the different joint venture projects together into a common infrastructure -- is still in its infancy. A senior PDVSA official described the company's numerous international refinery commitments as "a portfolio of opportunities," with the exception of concrete plans to move ahead with three Chinese refineries. PDVSA senior executives are tasked with representing the company on many domestic and international joint venture boards of directors, making it difficult to focus on any particular project for long. END SUMMARY. ¶2. (C) Petroleum AttachC) (PetAtt) separately interviewed Frank Gyax (PDVSA Vice President for New Refineries, Upgraders, and Terminals) and his deputy, Ygor Martinez Acurero (protect both throughout),in September when they were identified on the visa line by alert Consular Officers. [NOTE: Industry contacts report that it is believed Gyax retired from PDVSA in October. END NOTE] Both represent PDVSA on numerous joint venture (JV) boards, including the JV with PetroVietnam in the Junin 2 block of the Faja heavy oil belt. The two provided a unique look into the formation of a joint venture and a foreign refinery project. PDVSA Refinery Structure -------------- ¶3. (C) According to Gyax and Acurero, three PDVSA vice presidents report to Vice President of Refining, Trading, and Supply Asdrubal Chavez: (1) Vice President of Refining Jesus Luongo (based in Paraguana),(2) Vice President of Commerce, Supply, and Trade Fernando Valero, and (3) Vice President of New Refineries, Upgraders, and Terminals Frank Gyax (based in Puerto La Cruz). Gyax ostensibly is in charge of all new domestic and international refinery projects. He stated that the international refinery commitments (which total more than 28) made by President Hugo Chavez represent "a portfolio of opportunities." He claimed that PDVSA's role in any international refinery joint venture would be to support GBRV policy, but not to drive the process. He noted, however, that PDVSA has concrete plans to assist with the construction of three refineries in the Guangdong province of China. ¶4. (C) Gyax also mentioned that PDVSA plans to build a new refinery in Barinas, near the town of Santa Ines and that the original concept was to build a 120,000 b/d refinery. He claimed that he personally convinced Minister Ramirez to divide the project into two phases, both with the capacity to process 60,000 b/d. [NOTE: Crude oil production from the Barinas region is estimated around 75,000 b/d; it is not an area projected for significant new development. Barinas, is however, President Chavez's home state. Gyax claimed that the Barinas refinery would ultimately absorb some production from the extra heavy crude Orinoco heavy oil belt.] Faja Development Plans -------------- ¶5. (C) Gyax stated that PDVSA's current plans for the future development of the Orinoco heavy oil belt, or Faja, call for three refineries, five upgraders, and a pipeline that will run along the southern edge of the Faja, and then run north from Soledad to the Caribbean coast at Punta Araya where PDVSA plans to construct a CARACAS 00001465 002 OF 003 deep sea terminal to accommodate VLCC (Very Large Crude Carrier)tanker traffic. In the initial phase of the plan, the terminal will have storage capacity of 10 million barrels, but PDVSA will double that capacity in phase two, which will allow it to store up to ten days of production. Gyax explained that two of the upgraders would be located in the Junin area of the Faja, two near the town of Uverito, and two in Soledad [Note: Gyax initially described five upgraders but when he discussed plans for where they would be located he mentioned six upgraders.] PDVSA plans to upgrade roughly half of the new Faja production from 8-9 degree API to a 32 API syncrude. This synthetic crude (or "syncrude") would then be mixed with additional 8-9 degree API crude, resulting in a 16 API syncrude. [NOTE: Post believes PDVSA is focused on producing syncrude for use as a diluent in the new Faja projects because the alternatives are to blend heavy crude oil with PDVSA's valuable light, sweet crude (which demands the highest market rates) or to blend it with a diluent, such as naphtha, to facilitate transportation. PetAtt has heard from several sources that PDVSA's naphtha stocks are extremely low and that it is importing naphtha. END NOTE] ¶6. (C) According to Virginia Nieto (protect throughout),the Business Development Manager of Y&V, a Venezuelan engineering firm, some aspects of the project as described by Gyax are still in the visualization phase. She stated that Y&V, partnered with the German Man Forrestaal engineering firm, won the concept engineering contract with PDVSA to develop all common surface facilities (transportation, tank farms, and terminals) involved in the development of the Junin and Carabobo areas of the Faja. She told PetAtt on November 13, that Y&V had been tasked to develop pipeline plans from Soledo to the north coast, transversing a retired tank farm in Anaco that will be reactivated for the new Faja projects. She added that the contract, which calls for 300,000 engineering man hours, is broad enough to allow PDVSA to task the engineering firms with unrelated projects in the Faja, such as some above ground work on the PetroVietnam project (reftel A). She shared that this joint venture with Vietnam is ready to move forward, but is pending a visit to Vietnam by President Chavez to announce the deal formally. ¶7. (C) BIO DATA: Gyax, a former CEO of CITGO and former President of Sincor (2001-2003),with 37 years experience with PDVSA, is the chair of the PDVSA-Syria joint venture board and is a member of the board of directors of PDVSA joint ventures with Brazil, Ecuador, and Vietnam. In addition, he is a member of the Citgo, PetroPiar, PetroCedeno, PetroMonagas, and Sinovensa boards of directors and represents PDVSA on the Executive Committee of the Chalmette refinery. His request for an official Venezuelan passport was denied by the Ministry for External Relations (MRE). According to several industry representatives, Gyax retired from PDVSA as the Vice President of New Refineries, Upgraders, and Terminals in October 2009 and has not yet been replaced. It is not clear whether he continues to represent PDVSA on these external boards. He claims to have hired PDVSA Vice President Asdrubal Chavez when Gyax was in charge of the El Palito refinery. They used to play softball regularly and he attended Asdrubal Chavez's wedding. Gyax believes he is the only PDVSA employee to have served as the General Manager of the El Palito, Puerto la Cruz, and Paraguana Refinery complexes. Acurero, who holds an official Venezuelan passport in addition to his tourist passport, also represents PDVSA on the Chalmette Executive Committee. In addition, he is an Executive Director of PDVSA Agricola, is an internal PDVSA director for Euro-Asia, and is a board member on PDVSA's joint ventures with Syria, Argentina, and Vietnam. ¶8. (C) COMMENT: These senior PDVSA officials offered an interesting look into PDVSA's conceptualization for Faja development. It CARACAS 00001465 003 OF 003 appears that PDVSA's (and President Chavez's) public announcements are far ahead of actual progress on design of the projects. Most of the required engineering is contingent on decisions that have not been made yet. Additionally, the construction of upgraders east of the Faja in Uverito, makes little logistical sense but is emblematic of President Chavez's "poles of endogenous development" concept, or planned communities with heavy industry as the anchor for his vision of a new model of socialist life for Venezuelans. President Chavez's claims that early production will be realized by 2012 appear to be more wishful thinking than well-formulated plans. Furthermore, with the exception of the refineries in China, the numerous refinery deals the GBRV has entered into (and announced with great fanfare) represent political will rather than genuine business interests. The Chinese refinery deals follow PDVSA strategy from the 1980s when it decided to lock-in the U.S. market by purchasing refineries on the Gulf Coast. The numerous boards both officials sit on is further evidence of the challenge PDVSA faces in executing so many different projects with limited trusted human resources. END COMMENT. DUDDY