#PDVSA: #Venezuela's near collapse takes toll on #oil industry Platts

It's a sad day for Venezuela 
https://www.platts.com/latest-news/oil/newyork/factbox-venezuelas-near-collapse-takes-toll-on-21093950

Factbox: Venezuela's near collapse takes toll on oil industry

New York (Platts)--18 Jun 2018 600 pm EDT/2200 GMT

Venezuela's near economic collapse has taken a toll on the country's oil production, causing shifts in oil flows as buyers look to secure alternative supplies.

As workers have fled the country, state-owned oil company PDVSA has had a difficult time maintaining crude output, let alone boosting production. PDVSA's refining sector has also deteriorated on a lack of funds and manpower.

PDVSA has had difficulty pulling crude from storage because its supplies are subject to seizure by creditors. Most notably, on April 26 the International Trade Court ordered PDVSA to pay $2.04 billion to ConocoPhillips for the 2007 expropriation of ConocoPhillips' 50.1% interest in its Petrozuata joint venture in PDVSA, and its 40% stake in the Hamaca project, both of which were heavy oil installations in the Orinoco Belt of eastern Venezuela.

And US has sanctioned individuals in Venezuela, including President Nicolas Maduro, prohibited the purchase and sale of any Venezuelan government debt, including any bonds issued by PDVSA, and banned the use of the Venezuela-issued digital currency known as the petro.

Below are some key takeaways from the current situation.

CRUDE OUTPUT, EXPORTS FALLING

* Venezuela crude production could be on the verge of sinking to 1 million b/d, and a drop in crude exports is causing a shift in trade flows.

* Venezuela's crude output averaged 1.36 million b/d in May, down from 1.41 million b/d in April, and 1.9 million b/d in May 2017, according to S&P Global Platts. The International Energy Agency said it could fall to 800,000 b/d or even lower next year.

* S&P Global Platts Analytics sees Venezuelan production remaining above 1 million b/d during 2019. "They have a certain amount of production that they can keep going although the heavier grades would get impacted if they can no longer buy diluents," said Chris Midgley, head of Platts Analytics.

* In early June, PDVSA notified 11 international customers that it would not be able to meet its crude supply commitments in full, a PDVSA official said. It is contractually obliged to supply 1.495 million b/d to these customers in June, but only has 694,000 b/d available. The customers either would not comment, or could not be reached for comment.

* Venezuela's rig count has fallen to 28 in May from 36 in April, and 49 in January, according to Baker Hughes International Rig Counts.

* PDVSA has experienced similar drops in the past. In the 1980s, the number of rigs fell to less than 30, causing crude production to fall to 1.3 million b/d.

* Production has slowed largely because of a lack of maintenance and as skilled employees have fled the country. For instance, PDVSA Friday was operating its 202,000 b/d Petrocedeno extra heavy crude upgrader at just 39.6% of capacity, due to delayed maintenance, lack of spare parts, and electrical failures, according to an operator at the facility.

* PDVSA's three other upgraders -- the 120,000 b/d Petrosanfelix, 120,000 b/d Petromonagas and 190,000 b/d Petropiar upgraders -- are expected to be operating below capacity in June.

* PDVSA planned to build a 200,000 b/d upgrader at an estimated cost of $5 billion-$6 billion in the PetroCarabobo project. However, India's ONGC Videsh has put on hold plans to invest in the upgrader until it has received full payment for its equity oil sales.

SHIFTING CRUDE FLOWS

* US Gulf Coast refiners have been increasing their imports of Canadian and Iraqi crude, likely making up for the Venezuelan shortage. * US Gulf Coast imports of Venezuelan heavy sour crude have averaged roughly 249,100 b/d so far this year, down from nearly 529,760 b/d in the same period in 2017 and 658,600 b/d in 2016.

* Iraq, which had long blended its heavier sour crude with medium grades, exported 301,600 b/d of heavy crude to the US Gulf Coast in March, according to the latest EIA data. It was the highest average since January 2017, when about 341,650 b/d of Iraqi heavy sour crude was shipped to the Gulf Coast, an all-time high, according to the EIA data. * Through May, roughly 35.5 million barrels of Basrah Heavy crude had been imported by US Gulf Coast refiners, up about 1 million barrels compared with the first five months of 2017, but more than double imports in the same time period in 2016, according to the latest US Customs and Border Protection data.

* Canadian crude producers are of late stepping up supplies to the US Gulf Coast, with the bulk of the increase being shipped on rail cars.

* Crude exports to the USGC are currently around 530,000 b/d, said Dinara Millington, vice president of research with the Canadian Energy Research Institute said Thursday in Calgary. That's up from 443,000 b/d in March, and 336,000 b/d in January 2017, according to EIA data.

* Canadian crude is competitive because of deep price discounts. The Western Canadian Select coking margin on the USGC has averaged $21.29/b so far in June, compared to a $5.94/b margin for Mexican Maya. The bulk of that WCS advantage comes from the deep spot price discounts for the grade.

* China's independent refiners are looking for alternative sources of heavy crude, with Mexican Maya, Colombia's Castilla and Canadian Cold Lake Blend options being considered.

* Independent refiners are major buyers of Venezuelan crudes, taking around 69% of the Latin American shipment to China, mainly through CNPC, which is the solo buyer under the oil-for-loan deal between the countries. China imported 4.7 million mt crude from Venezuela in Q1, out of which 3.22 million mt was taken by the independent refiners, data from the General Administration of Customs and S&P Global Platts showed.

* Venezuelan crudes are mainly used for asphalt production in China, the demand for which peaks over September-November.

* A CNPC source said it is difficult to find good alternatives for Venezuelan Merey crude, which with an API of 16 degrees and 2.46% sulfur content is a good feedstock for asphalt production. Some heavy crudes, like Maya from Mexico, can be used as an alternate to produce asphalt, a source with independent Wonfull Petrochemical said. But no crudes have been imported from Mexico by independent refineries since 2016.

REFINED PRODUCTS IMPORTS

* Venezuela's imports of oil products have been rising as output from its refineries has been declining due to lack of crude feedstock, accidents, unscheduled shutdowns, and delays in maintenance of various facilities.

* PDVSA will process just 499,000 b/d of crude at its domestic refineries in June, accounting for just 31% of its 1.6 million b/d of refining capacity. This would be 144,000 b/d lower from the same month in 2017.

* PDVSA's system is comprised of five refineries: Amuay, Cardon, El Palito, Puerto La Cruz, and Isla, which it operated in an agreement with the Curacao government. The government of Curacao is open to a third party operating the PDVSA-run Isla refinery.

* PDVSA plans to import 9.735 million barrels of oil products in June, up from 6.188 million barrels in May, and the highest since 2016, according to an internal PDVSA report seen by S&P Global Platts.

* PDVSA sources its imports from Russia's Rosneft, India's Reliance Industries Ltd., and Citgo, PDVSA's US-based refining arm.

* The decline in refinery utilization has also forced PDVSA to suspend oil product exports to eight countries in the Caribbean as part of its long standing Petrocaribe agreement. PDVSA has indefinitely suspended delivery of 38,000 b/d of oil products to Antigua and Barbuda, Belize, Dominica, El Salvador, Haiti, Nicaragua, San Vicente and St Kitts.

--Staff report, jeff.mower@spglobal.com

--Edited by Richard Rubin, newsdesk@spglobal.com

#China’s Global #Energy Interconnection aims to create world’s first global #electricity grid

#China's Global Energy Interconnection initiative is Xi Jinping's ambitious international plan to create world's first global electricity grid.

https://www.ft.com/content/bdc31f94-68aa-11e8-b6eb-4acfcfb08c11

China eyes role as world's power supplier

Beijing promotes global electricity network to absorb huge power surpluses

yesterday

© FT montage / Bloomberg

James Kynge in London and Lucy Hornby in Beijing

Deep in a tangle of planning bureaucracies in western Beijing, the future of a country nearly 3,000km away is under discussion. Xie Qiuye, president of China's Electric Power Planning & Engineering Institute, has been charged with developing an electricity plan for Laos, a nation struggling with a glut of electricity supply from Chinese-built dams on the Mekong river.

Mr Xie's job is to find a rational solution for Laos, even as powerful Chinese construction companies vie for more dam contracts in China's poor southern neighbour. His answer — to make Laos into a regional power hub, exporting electricity to the rest of south-east Asia — depends on a technology that is being pushed hard by a powerful former state electricity boss with a vision for connecting world power markets.

In Laos, in Brazil, in central Africa and most of all in China itself, ultra high-voltage cable technology that allows power to be commercially transported over vast distances with lower costs and increased load is justifying the construction of massive power projects. It is dubbed the "intercontinental ballistic missile" of the power industry by Liu Zhenya, its biggest backer and for a decade the president of State Grid, China's powerful transmission utility.

UHV allowed China to binge on dam building in its mountainous hinterland, then transport the power thousands of kilometres to its wealthy, industrial east coast. But by enabling this, and other projects, UHV has left western China with such a glut of power that Mr Liu in 2016 proposed using the technology to export power as far away as Germany.

Now Mr Liu is promoting UHV internationally through his Global Energy Interconnection initiative. Designated a "national strategy" and championed by Xi Jinping, China's president, the initiative feeds into one of China's most ambitious international plans — to create the world's first global electricity grid.

"All of this fits in with Beijing's goals of expansion and being a global standard setter," says Erica Downs, an expert on China and energy at Columbia University. "It is also linked to China's intention to become an advanced industrial superpower. There is a big prestige element in this."

Advocates stress that this does not mean China would control the resulting grid but networks would be linked to allow better cross-regional allocation of power surpluses. It is no coincidence that this would resolve the problem of "trapped" power resulting from some of China's mega construction projects in countries like Laos that lack a big enough domestic market.

Some western observers see a geopolitical strategy on a par with China's Belt and Road Initiative, a grand design that seeks to boost Chinese-led infrastructure investment in more than 80 countries around the world.

"While there is certainly a commercial explanation for China's rapid expansion in the power sector, it should also be recognised that Beijing is known to intertwine its economic, diplomatic and strategic initiatives," says Andrew Davenport, chief operating officer at RWR Advisory, a Washington-based consultancy. "Part of the explanation for its expansion in this area is, therefore, likely the influence — and soft power gains — that accompanies increased control over an industry so fundamental to the everyday lives of citizens."

Chinese companies have announced investments of $102bn in building or acquiring power transmission infrastructure across 83 projects in Latin America, Africa, Europe and beyond over the past five years, according to RWR. Adding in loans from Chinese institutions for overseas power grid investments brings the total to $123bn.

Throw in all power-related Chinese deals overseas, including investments and loans to power plants as well as grids, and the number almost quadruples. Between 2013 and the end of February 2018, total overseas power transactions announced reached $452bn, up 92 per cent from 2013 levels, according to RWR, which strips out of its calculations deals that are announced only to be subsequently cancelled.

Officials and power industry analysts in China insist that it would be too simple to assume that such investments are all slated to be rolled up into a single international grid to achieve the GEI goal, which Mr Liu recently described as similar to the internet: global but not controlled by a single country.

The first stage, set to run until 2020, involves investment in domestic grid assets within other countries. The second phase would see the knitting together of some of those grids and that generation capacity. "From 2020 to 2030, the task will be to promote intra-continental interconnection with the interconnection of Asian, European and African grids being basically realised," Mr Liu said recently in London.

1. China power surge Brazil

© Bloomberg

China's State Grid has invested more than $21bn to become the biggest power generation and distribution company in Brazil. Its executives promise an extra $38bn in investment over the next five years. Central to their ambitions is to showcase ultra high-voltage transmission technology, which is able to transmit electricity over vast distances at sharply reduced cost. The first UHV line built by the Chinese outside the country runs 2,000km from the Belo Monte hydropower dam (above) in the Amazon region to cities in the south of Brazil.

Although Chinese companies would not necessarily own or control the regional grids, their influence, via the assets they do control, would ultimately lead to regional interconnection.

"China's state-owned power companies are pursuing an aggressive overseas expansion strategy, investing in the construction and operation of energy networks in some countries and as equity investors in others," says Xu Yi-chong, a politics professor at Griffith University, Australia and author of Sinews of Power, a book about State Grid. "[But] China's push for interconnectivity does not have to mean that Chinese companies own or operate the grid."

The ambition is huge, envisaging linking up more than 100 countries. But China has considerable organisational, financial and technological firepower.

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The state-owned power companies that are hitting the acquisition trail overseas rank as global heavyweights. State Grid is ranked as the world's second-largest company after Walmart in the 2017 Fortune 500 list. On important issues such as GEI these companies partly co-ordinate their actions through the China Electricity Council, an official body led by Mr Liu, and reporting to the State Council, China's cabinet.

The financial firepower at the disposal of these state-backed companies to sweeten bids for assets overseas is underwritten by China's policy banks, the China Development Bank and the Export-Import Bank of China.

"You have to understand, the GEI is a personal priority of Xi Jinping," says one senior power official. "Of course, Chairman Liu [Zhenya] and all the other chief executives are under great pressure. Xi does not tolerate failure."

2. China power surge Southern Europe

China is already a big presence in southern European power grids. State Grid became the biggest shareholder in REN, the Portuguese national grid company, in 2012. Another Chinese state-owned enterprise, China Three Gorges, is seeking to increase its 23 per cent stake in EDP, Portugal's biggest company whose assets include the Alqueva dam (above), to give it control over a further 220,000km of transmission lines in the country plus grid assets in Spain and Brazil. Chinese state companies also own significant grid assets in Italy and Greece, bringing the goal of a southern European grid controlled by China closer.

The biggest boon for China's global grid ambitions is UHV cable technology. While other companies such as Germany's Siemens and the Swedish-Swiss conglomerate ABB also have the technology, Chinese companies have been the first to deploy it on a grand scale, developing global industry standards.

China has already demonstrated the technology's performance at home. The 37,000km of UHV cable that is laid or under construction in China can carry a load of 150GW, equivalent to 2.5 times the maximum electricity load in the UK. And despite some pushback from the country's entrenched power generators, Mr Liu claims that the cables are particularly applicable to renewable energy.

Steven Chu, a former US secretary of energy, has called China's strides in UHV technology a "Sputnik moment" for the US, alluding to the Soviet Union's 1957 launch of the first earth-orbiting space satellite, which marked a technological leap ahead of the US.

3. China power surge Africa

The biggest geographical concentration of Chinese investment in power has come in Africa, where 39 projects were announced in the five years to the end of February 2018. Analysts talk of Chinese plans to create regional power grids across the continent. State Grid is set to take a controlling stake in a $2.8bn project to build the transmission backbone in Mozambique, which will link up with the Southern African Power Pool, an interconnected electrical system for Southern African countries. Nigeria is also a key focus with China's ExIm Bank funding the $5.8bn Mambilla hydroelectric project (above) and Chinese companies building it.

"China has the best transmission lines in terms of the highest voltage and lowest loss," Mr Chu has said. "They can transmit electricity over 2,000km and lose only 7 per cent of the energy. If we [the US] transmitted over 200km we would lose more than that."

The technology promises to reshape the way in which the world consumes power, Mr Liu told his London audience. He used the hypothetical scenario of hydropower generated in the Democratic Republic of Congo for $0.03 per kWh being transmitted to Europe through Chinese UHV cables at a cost on delivery of just $0.07-0.08 per kWh. This compares with an average cost of €0.20 ($0.23) per kWh to households in the EU, according to Eurostat, the data agency.

Mr Chu's rosy assessment is not shared by everyone. Although the percentage of power lost is lower than through other transmission technologies, the distances over which China deploys the cables means that total power losses are still significant. Meanwhile, the technology has allowed China to prioritise massive projects with disproportionately high environmental impact, both at home and abroad.

Listen: Gideon Rachman — The dawn of the Chinese century

At the same time State Grid has yet to win many UHV construction projects abroad. Its main success has been in Brazil, where its acquisitions have made it the country's largest generation and distribution company, paving the way for it to install UHV cables from a hydropower dam deep in the Amazon to cities 2,000km to the south. It now has ambitions to build more UHV lines as part of an estimated $38bn in extra investment in Brazil over the next five years.

For now, China's power companies are more focused on building their international generation and transmission assets. China Three Gorges, one of the world's largest electricity groups, last month bid to take control of Portugal's biggest company, the power utility Energias de Portugal. Regulators rejected the initial Chinese offer of €9bn, but it is expected to follow up with more attractive bids.

If successful, the deal will bring one step closer a proposal to create an interconnected southern European grid, says Prof Xu. That would involve linking power assets largely built up in the wake of the financial crisis. China Three Gorges first bought into EDP in 2011 and has invested in its renewables arm. In 2012, State Grid became the largest shareholder in Redes Energéticas Nacionais, Portugal's national power grid. In 2014, State Grid took a stake in Italy's CDP Reti, which owns gas and power transmission networks. In 2017, the Chinese utility completed its purchase of 24 per cent of ADMIE, an independent grid operator in Greece.

The interconnection ambitions combined with the aggressive acquisition strategies of Chinese state-owned actors have met more opposition in northern Europe. State Grid failed in a bid to buy 14 per cent of Eandis, a public distributor of gas and electricity in Flanders, after the city of Antwerp blocked the bid. In May it made a fresh attempt to buy a 20 per cent stake in Germany high-voltage energy network 50 Hertz after an earlier bid failed, according to people close to the deal.

With its great distances, hunger for energy and increasing reliance on renewables, Prof Xu believes the most likely place for the first interconnected grid is Africa. It has attracted 39 power deals since 2013, more than any other region, according to data from RWR.

"There are a number of Chinese companies doing big power generation projects, which need to be connected with new transmission and distribution systems," Prof Xu adds.

In south-east Asia Mr Xie, the state planner, takes his responsibilities seriously, including making a visit to Laos in 2017. He sees regional power integration as an economically and environmentally efficient solution to the problem of "everyone wanting to build their own".

He adds: "It's against everyone's interests to build [power plants] and not sell the power. We want to avoid future problems."

Additional reporting by Archie Zhang