Venezuela resorts to floating storage as onshore storage tanks fill up

Highlights:

• PDVSA uses tankers for storage as onshore tanks fill up
• US actions deter ship owners, causing cargo backlog
• Chevron continues exports despite US-Venezuela tensions

Venezuela's state-run oil company PDVSA has started filling tankers with crude and fuel oil and keeping them in Venezuelan waters, as inventories have mounted due to the US seizing Venezuela-linked ships at sea, according to company documents and shipping data.

This month, the US Coast Guard intercepted the Skipper and Centuries tankers in the Caribbean Sea, both fully loaded with Venezuelan crude. The Coast Guard this week was pursuing a third empty vessel that was approaching the OPEC country's shore.

The actions targeted vessels of a so-called "shadow fleet" of ships carrying sanctioned oil. US President Donald Trump has announced a blockade of all vessels subject to US sanctions. These factors have scared many ship owners and left more than a dozen cargoes stuck in Venezuelan waters waiting to depart.

The emerging backlog, as PDVSA produces about 1.1 million barrels of crude per day, is quickly filling the company's onshore tanks, especially at the Jose terminal, which receives extra heavy oil from the country's main output region, the Orinoco Belt, according to the documents.

PDVSA began draining part of those inventories to oil tankers over the past weekend, shipping and company data showed, a strategy it has resorted to in past years to avoid cutting oil production.

Since PDVSA's main joint-venture partner Chevron (CVX.N) has not suspended exports of the crude grades they jointly produce, most inventories at Venezuela's western region, where storage capacity is very limited, are close to normal levels, the documents showed.

Chevron, however, is responsible for only about a quarter of the crude grades produced at blending stations and upgraders in the Orinoco Belt, or about 130,000 bpd. PDVSA typically exports the three other quarters to China, which has been the destination of about 80% of Venezuela's crude exports this year.

As oil exports had stabilized and risen this year, PDVSA's onshore oil stocks at Jose had reduced to between 9 million and 11 million barrels since September from a monthly peak of 14 million barrels earlier this year, according to figures provided by trade intelligence firm Kpler.

So far in December, they have already reached 12.6 million barrels, pushing up the country's total oil inventory level to 22 million barrels, the highest since August, Kpler added.

Pushing back and forward

PDVSA had been pushing customers to continue receiving oil cargoes bound for China at the Jose port through last week, but convincing them is growing difficult after the US targeted two more vessels over the weekend, company sources said.

Building floating storage has become necessary as the company negotiates price discounts and contract changes with some customers, while others begin to push to return their cargoes to the terminals, the sources added.

Last week, top officials at PDVSA discussed but then declined to declare force majeure over some crude exports, sources said, in an attempt to negotiate individually with its customers. Under force majeure, a seller frees itself from its delivery commitments for reasons out of its control set in contracts.

On Monday evening, Venezuelan President Nicolas Maduro said oil cargo deliveries for Chevron to export would continue despite the dispute with Washington, which is ratcheting up pressure on him to leave power.

"(Under) rain, thunder, or lightning, and regardless of any conflicts, the contract with Chevron will be fulfilled. We are serious, decent people," he said in a televised speech.

Chevron has repeatedly said that its operations in Venezuela "continue without disruption and in full compliance with laws and regulations applicable to its business."

On Tuesday, Venezuela's ruling-party-controlled National Assembly approved a law that introduces prison sentences of up to 20 years for anyone who promotes or finances what it describes as piracy or blockades of oil cargoes.