U.S. faces oil risk in Venezuela cri­sis

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - ALEX NUSSBAUM AND SHEELA TOBBEN

The tanker Para­mount Helsinki docked in Pascagoula, Miss., last month bear­ing the lifeblood of Chevron Corp.’s re­fin­ery there: 532,000 bar­rels of thick Venezue­lan oil.

Its ar­rival on July 23 was a sign of the un­easy part­ner­ship that the Amer­i­can oil in­dus­try has en­tered with a na­tion some fear is march­ing to­ward dic­ta­tor­ship.

From New Jersey down to Texas, oil com­pa­nies have come to de­pend on Venezuela’s crude to feed their re­finer­ies. Last year alone, more than 270 mil­lion bar­rels worth about $ 10 bil­lion reached Amer­i­can shores — enough to pro­duce about 5 bil­lion gal­lons of gaso­line.

Now that vi­tal flow could be stanched if, as in­dus­try lead­ers fear, Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion em­bar­goes im­ports to pres­sure his Venezue­lan coun­ter­part, Ni­co­las Maduro. The so­cial­ist au­to­crat’s al­lies were sworn in on Fri­day and will be­gin rewrit­ing the con­sti­tu­tion, push­ing aside Venezuela’s demo­cratic in­sti­tu­tions. The prospect of a U.S. re­sponse that cuts off crude has been par­tic­u­larly un­set­tling for the likes of Chevron, Phillips 66 and Valero En­ergy Corp., which have spent bil­lions cal­i­brat­ing their plants to han­dle Venezuela’s sludgy but abun­dant oil.

“The rea­son why Trump has not hit back im­me­di­ately is be­cause there are lots of con­stituen­cies,” fore­most among them U.S. re­fin­ers and any­one who drives, said Sandy Fielden, com­modi­ties re­search direc­tor at Morn­ingstar Inc. in Chicago. “A lot of dif­fer­ent par­ties will be im­pacted.”

The U.S. on July 31 froze any Amer­i­can as­sets owned by Maduro, a largely sym­bolic move. White House of­fi­cials have pre­pared a menu of pos­si­ble ad­di­tional sanc­tions, but are di­vided over whether to re­strict crude sales, ac­cord­ing to a per­son fa­mil­iar with the plan­ning. The per­son asked not to be iden­ti­fied dis­cussing in­ter­nal de­lib­er­a­tions.

An em­bargo on oil from Venezuela, the third-big­gest sup­plier to the U.S., could force a slow­down in pro­duc­tion at Gulf Coast re­finer­ies and at least a tem­po­rary spike in gas-

oline prices. That could be sen­si­tive for Trump, who re­peat­edly at­tacked Barack Obama over prices at the pump. “Gas prices are at crazy lev­els — fire Obama!” he tweeted in 2012, when gas av­er­aged around $3.60 per gal­lon around the coun­try. Re­fin­ers could turn to sup­pli­ers of heavy crude from Canada to Mex­ico to Iraq, but the move would rip­ple across global mar­kets as other cus­tomers are shunted aside. It’s un­clear how quickly al­ter­nate sources such as Canada’s oil sands, most of which al­ready go to the U.S., or Mex­ico, which is bat­tling sup­ply dis­rup­tions of its own, could fill the gap. U.S. re­finer­ies process a third of all Venezue­lan oil. Wash­ing­ton is weigh­ing the “un­cer­tain odds” that a crude ban could un­seat Maduro against “sig­nif­i­cant prospects of higher feed­stock costs and nar­rower mar­gins for Gulf of Mex­ico re­fin­ers,” Kevin Book, manag­ing direc­tor at re­searcher Clearview En­ergy Part­ners LLC, said in a note to clients last week. Venezuela In­for­ma­tion Min­is­ter Ernesto Vil­le­gas said in an in­ter­view in Cara­cas on Wed­nes­day that pun­ish­ment will merely strengthen a pres­i­dent who al­ready makes a bo­gey­man of the U.S. “If we get oil sanc­tions, they are do­ing us a fa­vor,” Vil­le­gas said. “Fuel will be more ex­pen­sive in the United States and Europe, and Ni­co­las Maduro will con­tinue in Mi­raflo­res,” he said, re­fer­ring to the pres­i­den­tial palace. Just how much a ban would el­e­vate prices de­pends on how quickly re­fin­ers could find re­place­ments, but the im­pact is likely to be short-lived, said John Auers of Turner Ma­son & Co., a Dal­las-based en­ergy con­sul­tancy. Still, re­fin­ers would feel the pinch. Auers es­ti­mated the in­dus­try has spent more than $50 bil­lion in the past sev­eral decades pre­par­ing plants for high-den­sity, high­sul­fur crude from Venezuela and else­where. Chevron, Valero and other com­pa­nies have lob­bied the Trump ad­min­is­tra­tion for cau­tion. The Amer­i­can Fuel & Petro­chem­i­cal Man­u­fac­tur­ers, a trade group, ar­gued in a July 6 let­ter that sanc­tions could have “a sig­nif­i­cant neg­a­tive ef­fect on U.S. re­fin­ers, con­sumers and our na­tion’s econ­omy.” While com­pa­nies have been trim­ming Venezue­lan im­ports for months, the na­tion is still a key sup­plier for some of Amer­ica’s big­gest re­finer­ies. Last month, the coun­try ac­counted for a more than a quar­ter of ca­pac­ity at Valero’s Port Arthur com­plex in Texas, ac­cord­ing to U.S. Cus­toms data com­piled by Bloomberg. It was 43 per­cent at Chevron’s fa­cil­ity in Pascagoula, the Gulf Coast town where the Isle of Man­flagged Para­mount Helsinki un­loaded. With so much at stake, a full em­bargo is prob­a­bly a last re­sort for the Trump ad­min­is­tra­tion, said Clearview’s Book. The White House is more likely to start with re­stric­tions on the 100,000 bar­rels a day of lighter oil and other petroleum prod­ucts that Venezuela re­ceives from the U.S. to bol­ster its own dys­func­tional re­finer­ies, he wrote.

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