PDVSA Slowdown May Raise Gas Prices in Parts of U.S.

STRATFOR ^ | Dec 05, 2002 | Staff

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PDVSA Slowdown May Raise Gas Prices in Parts of U.S.
Dec 05, 2002

Summary

The operations of state-owned Petroleos de Venezuela (PDVSA) are being disrupted as thousands of oil industry workers have joined the 4-day-old national strike against President Hugo Chavez. The resulting domestic gas and food shortages could quickly incite public outrage in Venezuela, and a continued constriction of oil exports could spike fuel prices in parts of the United States.

Analysis

The operations of state-owned Petroleos de Venezuela (PDVSA) are being disrupted now that thousands of oil industry workers have joined the 4-day-old national strike against President Hugo Chavez. According to Stratfor sources and some news reports, refining operations have been stalled, natural gas and crude oil production are declining and between six and 12 tankers are idle at several loading terminals.

Already some cities are seeing shortages of certain food staples at small retailers. If the national strike lasts through the weekend, a domestic gasoline shortage could disrupt food deliveries on a much wider scale in Caracas and other cities, a situation that could quickly ignite public rage.

The strike also could create higher gas prices in parts of the southern United States within a week if PDVSA's operations remain hampered for another 48 hours.

Early Dec. 5, Chavez ordered the armed forces to take control of PDVSA's installations nationwide. The militarization of PDVSA is being carried out mainly by national guard forces, reportedly with the support of PDVSA's internal security department led by former army Col. Gustavo Perez Issa, who is considered one of the regime's hardcore supporters.

However, militarizing PDVSA will not necessarily end the company's growing difficulties because the troops don't know how to operate the complex networks of oil fields and pipelines, gas compression plants, refineries, tank farms and loading terminals. Chavez threatened to imprison PDV-Marina officials and crew members who idled six tankers in Lake Maracaibo, threats of arrest probably will not force oil workers to return to their jobs.

Meanwhile, local gasoline shortages are getting worse, and according to PDVSA sources, exports of crude oil and refined products also have been affected. The Chavez government remains tight-lipped about conditions inside PDVSA, but company president Ali Rodriguez acknowledged Dec. 5 that "sabotage" has been occurring at many PDVSA facilities.

If the Chavez regime is unable to reverse PDVSA's gradual shutdown within the next two days, exports of crude oil and unleaded gasoline to the United States likely will suffer some disruptions within five days or less, driving up U.S. gasoline prices mainly in Gulf Coast and Southeast states.

Also, the political implications for Chavez if PDVSA shuts down a substantial portion of its production and refining operations could be devastating.

For instance, the national strike already has disrupted deliveries of basic food products such as beef and milk to thousands of small bakeries, butcher shops and neighborhood grocery stores where most lower-income Venezuelans buy their food.

Supermarket chains still have inventories of processed food products, but if the strike continues into the weekend and is compounded by a national gasoline shortage, Caracas and many other cities could start running out of food by next week. Food shortages could raise social tensions quickly to violent levels.

Meanwhile, although information about conditions inside PDVSA is being controlled tightly by the Chavez regime and the company's president, news reports and Stratfor sources claim that in eastern Venezuela -- where the largest volume of light- and medium-gravity crude oil are extracted --production is falling because workers have walked off the job at high-pressure gas injection plants used to maintain oil reservoir pressure levels.

Moreover, loading operations at the Guaraguao terminal have been suspended because workers there have not received loading instructions from Caracas, where more than 80 percent of the company's workers have joined the national strike.

Operations at the El Palito refinery in central Venezuela have been affected by the walkout of more than 90 percent of the refinery's 1,300 managers and workers. El Palito refines 190,000 barrels per day of crude oil, of which more than 100,000 bpd are exported as refined products mainly to the United States. El Palito produces more than 130,000 bpd of gasoline per day.

The slowdown at El Palito already has forced the closure of the Yagua tank farm and distribution terminal that supplies gasoline, diesel and other products to several central Venezuelan states. PDVSA sources say Yagua is responsible for distributing about 20 percent of the country's daily gasoline requirements.

The 600,000 bpd Paraguana refining complex in western Venezuela also has slowed operations substantially, according to PDVSA sources who report that refining throughput was down 50 percent by late Dec. 4 due to a disruption in natural gas supplies to the complex.

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