MOSCOW (MRC) -- Iranian state firms have started preparations to revamp Venezuela's largest oil refinery, the 955,000-bpd Paraguana Refining Center, four people close to the talks said, following a contract to repair its smallest facility, said Reuters.
A deal would deepen an energy relationship that has become a lifeline for Venezuela's dilapidated oil industry amid a crisis caused by decades of mismanagement and underinvestment, and aggravated by U.S. sanctions on the South American country.
The Middle Eastern nation, also sanctioned by the United States, has supplied President Nicolas Maduro's government with fuel and diluents for making exportable crude grades, and since 2020 has provided parts to repair and update Venezuela's 1.3 MMbpd refining network.
A unit of state-run National Iranian Oil Refining and Distribution Company (NIORDC) this month signed a 110 MM-euro (USD116 MM) contract with Venezuelan state oil firm PDVSA to repair and expand the 146,000 bpd El Palito refinery, in the country's central region.
Its next project is Paraguana, a two-refinery complex that is among the world's largest, through a contract now being negotiated, the people said. The center, known as CRP, operated at just 17% of capacity in April, according to independent estimates. Earlier this year, Iranian state firms supplied Paraguana with parts for restarting a gasoline-making unit. The equipment, manufactured in North America, arrived in Venezuela from China after the Iranians handled procurement and transport, a person with knowledge of the purchase said.
Many Chinese firms avoid direct business with Venezuela to reduce sanction-related risk or unpaid bills, only agreeing to deals if a third-party handles orders and payments, that person added. PDVSA, which has not publicly disclosed details of recent pacts with Iran, did not reply to a request for comment. NIORDC did not immediately reply to a request for comment.
PDVSA has in recent years tried and failed to attract foreign investment for its refineries, including a scrapped deal with Chinese firms. It has been more successful with oilfield services and maintenance firms willing to accept payment in crude and fuel to avoid Venezuela's notorious unpaid invoices.
But million-dollar capital injections increasingly are needed to secure an adequate fuel supply for the country, whose demand is slowly recovering to pre-pandemic levels. As Iran Oil Minister Javad Owji was visiting Caracas in early May, two supertankers carrying Iranian oil were discharging in Venezuelan waters as part of a swap arrangement the state companies kicked off last year.
We remind, Venezuela has begun importing Iranian heavy crude to feed its domestic refineries, documents from the state-run oil company PDVSA showed, a deal that widens a swap agreement signed last year by the U.S. sanctioned countries. The two nations last year initially agreed to a swap deal, with PDVSA importing Iranian condensate to dilute and process its extra heavy oil for export. In return, Venezuelan crude is being shipped via the National Iranian Oil Company (NIOC).
As per MRC, Venezuela's exports of oil and refined products last month recovered to mid-2021 levels, boosted by sales of its flagship crude grade and fuel oil bound for Asia, according to tracking data and documents from state-run oil company PDVSA. Higher exports come as Russia's invasion of Ukraine and resulting shipping bans and financial sanctions could spur demand for Venezuela's crude and residual products, traders said. Oil importers this week have rejected Russian vessels, sending buyers searching for new crude and fuel supplies.