Oil-for-loan debts cost Venezuela’s PDVSA hardwon India market share
CARACAS/ HOUSTON/ NEW DELHI: Venezuela’s state-run oil company, PDVSA, has spent at least a decade trying to build business ties and boost shipments to refineries in India, where crowds once welcomed the late socialist leader Hugo Chavez with cries of ‘Viva!’ Now, the ailing firm is being forced to slash sales to its crucial trade partner.
Venezuela has given up the fight for coveted market share in India because of a combination of declining crude production and heavy obligations under oil-forloan deals with China and Russia, according to internal PDVSA data and two people familiar with the company’s strategy and operations.
Caracas needs the oil to pay debts to China and Russia, key political allies that have together lent Venezuela at least US$ 50 billion in exchange for promised crude and fuel deliveries.
PDVSA and the Venezuelan Oil Ministry did not respond to requests for comment.
In 2013, when Venezuela exports and oil prices were high, PDVSA raked in nearly US$14 billion from India, the world’s fastest growing large economy.
By last year, after an oil price crash, that figure had plummeted to US$ 2.7 billion, according to a Reuters analysis of the PDVSA data.
That means less cash income for the isolated South American economy, deepening a recession that has left many citizens skipping meals amid food shortages and soaring inflation.
Oil accounts for almost all of Venezuela’s export revenue, and many of Venezuela’s customers pay for oil in kind – with food or medical supplies, for example.
India is among the few trading partners that buy large volumes of PDVSA oil with cash.
So lower sales to India’s refineries are further eroding the company’s cash flow – and its ability to pay mounting debts to suppliers and service providers, which have caused delivery delays and cancellations around the globe.
The shift stems from a crude production decline of 10 per cent last year, to 2.38 million barrels per day ( bpd), due to a lack of investment and payment delays to providers.
The falling output means PDVSA could increasingly lose business in India to Iranian, Iraqi and Brazilian companies.
The internal PDVSA data also show that Venezuela – which sits on the world’s largest crude reserves – managed to maintain its place as No. 3 crude supplier to India last year.
It delivered about 413,000 bpd, behind only Saudi Arabia and Iraq.
But PDVSA expects shipments to India to drop to 360,000 bpd this year, according to an internal PDVSA report reviewed by Reuters.
Those cuts are already happening: Venezuelan crude exports to India plunged 16 per cent in January compared to a year earlier, according to Thomson Reuters trade-flows data.
India has made up the gap with supplies from the Middle East, including imports from Iran that have surged since the lifting of US sanctions last year.
Venezuelan crude is heavy and harder to refine.
In a market that is still oversupplied after a two-year glut, higherquality crude is plentiful and not much more expensive.
“The current quality of Venezuelan crude could incentivize the partner to seek other providers,” PDVSA said in an internal report, in a section on India labeled ‘ threats.’
While India is tapping new sources of crude, the country continues to view Venezuela as an important part of its diversified supply, India’s Oil Minister Dharmendra Pradhan told Reuters.
“We are depending on Venezuela. We have some investments in Venezuela’s exploration and production,” Pradhan said in an interview.
“They are going through a temporary crisis, but I’m hopeful they will still be a good partner to our supply chain.” Venezuela still has some cards to play in India - the world’s fourth-largest refiner and a country that imports nearly three quarters of its crude. — Reuters