Return of U.S. oil sanctions would clip Venezuela's output gains

A possible reimposition of U.S. oil sanctions on Venezuela next month would stagnate the OPEC-member country's crude output, wiping out the small gains it has achieved in recent years, as per Hydrocarbonprocessing.

Washington said in January it will allow the expiry of a temporary license it granted last year to Venezuela as part of negotiations for a fair presidential election if the government does not allow an internationally observed election with participation of a candidate chosen by the opposition.

The U.S., which first imposed oil sanctions on Venezuela in 2019, in October granted the license that has allowed state oil company PDVSA to resume crude exports to some of its established customers, ease price discounts and slowly boost oil output to 783,000 barrels per day (bpd) last year, compared with 569,000 bpd in 2020.

Production is expected to barely grow through 2026, declining from then on if oil sanctions are fully restored, said Francisco Monaldi, an expert on Latin American energy policy with Rice University's Baker Institute.

If the temporary license is extended or granted again at least partially, that would fuel a larger increase, driving output to slightly above 1 million bpd from 2025 on, according to a forecast by consultancy Rystad Energy shown by Monaldi at a conference organized by Harvard University.

"There is still room for a scenario where U.S. license 44, granted in October, is renewed at least partially if (Venezuelan President Nicolas) Maduro does the bare minimum to meet the electoral conditions set as part of the Barbados agreement," Monaldi said.

It remains unclear what will happen with other authorizations granted by Washington since 2022, including to producers Chevron, Eni, Repsol REP.MC and Maurel & Prom. If those individual licenses remain, production might still decline but not collapse, Monaldi said.

Maduro and the opposition last year signed a pact in Barbados setting conditions for a presidential election later this year. They included international observation, the withdrawal of legal bans to opposition candidates and guarantees for a transparent process. Maduro has failed to progress on most.

Chevron's Vice President of Midstream Colin Parfitt told Reuters on Tuesday risks related to the license in Venezuela remain. However, the company plans to continue producing Venezuelan oil and exporting to the U.S. "as long as we have the license."

Chevron does not have long-term incentives to invest in Venezuela under the current license, Parfitt added, so any production increase will remain limited by that.

We remind, Chevron, a prominent player in the energy sector, has joined forces with its partners in the Tamar reservoir situated off Israel's Mediterranean coast, announcing a substantial investment of $24 million to bolster the production of natural gas from the offshore field. This financial commitment forms an integral part of a meticulously crafted two-phase strategy aimed at significantly enhancing the natural gas production capacity of the Tamar field to approximately 1.6 billion cubic feet/day. Located west of Ashkelon, this initiative is strategically designed to meet the burgeoning energy demands within Israel while concurrently facilitating the export of gas to Egypt.

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Asia's exports of diesel slumped to a multi-year low in February, and while volumes may recover in March on rising shipments from China and India, it's likely prices will come under further downward pressure, said Hydrocarbonprocessing.

A total of 6.6 million metric tons of diesel were exported from Asia in February, down from January's 8.13 million and the weakest monthly figure for at least two years, according to data compiled by LSEG Oil Research.

Despite the drop in diesel supply, the profit margin on the key transport fuel remained weak, suggesting demand growth remains tepid at best. The profit of making a barrel of gasoil, the building block for middle distillate fuels such as diesel and jet kerosene, at a typical Singapore refinery GO10SGCKMc1 ended at $22.01 on Monday, down from the previous close of $22.17.

The margin has been trending weaker since August last year, when it peaked at $36.13 a barrel on Aug. 28. The profit on gasoil is likely to come under further pressure this month as higher volumes of diesel are expected to be shipped in Asia, especially from leading exporters China and India.

China's exports of diesel were 713,290 tons in February, down from January's 986,200, according to LSEG, as refiners kept more of the fuel for the domestic market to meet any increased demand over the week-long Lunar New Year holidays, when millions of people travel to see relatives.

With key domestic sectors like construction and manufacturing remaining under pressure, it's likely that China's refiners will seek to lift exports in March and April, especially since the profit margin on diesel remains attractive to them, assuming they are able to make the fuel from discounted crude oils from Russia and Iran.

India's shipments of diesel were 2.01 million tons in February, down from 2.02 million in January and some 29% below the recent peak of 2.84 million in December.

It's expected that more Indian diesel will head to Asia as cargoes are diverted from Europe, partly because of lower demand as the Northern Hemisphere winter ends and partly because of the attacks on shipping in the Red Sea by Yemen's Houthi rebels, which has forced vessels to take the longer, and costlier, route around the Cape of Good Hope.

This trend can already be seen in the LSEG data, with India's diesel exports to the West being assessed at 665,960 tons in February and 280,000 in January, a marked drop from December's 1.28 million and 1.12 million in November.

India's exports to Asia were 700,440 tons in February and 716,420 in January, up from 371,320 in December and November's 393,050. If India continues to switch diesel exports to Asia from Europe, and China does export more as expected, the profit margin on diesel is likely to come under further pressure.

The main factor that may ease some downward pressure is Asia's refinery maintenance season gets underway in March and typically lasts through April and May.

We remind, Since early January 2024, U.S. refinery utilization has decreased 11%, falling as low as 81% during the two weeks ending February 9 and February 16, and briefly dropped below the five-year (2019–23) low. Although U.S. retail average prices for gasoline and diesel are below 2023 prices for this time of year, decreasing regional inventories for the major U.S. refining regions increased retail prices for both fuels last month.


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Uzbekistan plans to build a gas chemical complex at a cost of more than USD10 billion in the Khorezm region in the northwest of the country, said Interfax.

"In conclusion to the first day of a visit to Khorezm region, President Shavkat Mirziyoyev held a working meeting with the leadership of the Energy Ministry, Uzkhimprom JSC and a major foreign investment company. They discussed issues concerning the joint implementation of a major gas chemical project with total investment of more than $10 billion," the press release said.

Construction is scheduled for 2024-2028 and the project is expected to create 3,000 jobs. The complex will have capacity to produce 2.5 million tonnes of polymer products per year.

"The implementation of the project will give new momentum to the development of the gas chemical industry and become one of the industrial flagships of the new Uzbekistan," Mirziyoyev said at a meeting with regional officials on Friday.

It was reported earlier that Uzbekistan intends to launch a gas chemical complex to process 5 billion cubic meters of gas annually in the Surkhandarya region by the summer of 2024. The cost of the project, which is being carried out by foreign company Surhan Gas Chemical Operating Company using technology licensed from Shell (SPB: RDS.A), is $2.9 billion. The complex is being built based on the 25 Years of Independence field.

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Japan’s Mitsubishi Gas Chemical (MGC) will suspend its production of orthoxylene (OX) and phthalic anhydride (PA) at its Mizushima site from mid-January 2025, and is selling off its 50% stake in CG Ester Corp, effectively exiting the plasticizers business, said the company.

Continued unprofitability, aging equipment, and forecasts of shrinking demand prompted MGC’s decision to halt OX and PA production next year, the company said in a statement on 26 February. MGC produces 30,000 tonnes/year of OX and 40,000 tonnes/year of PA at its Mizushima site.

OX is mainly used as a raw material for PA, as well as for solvents and pharmaceutical and agrochemical intermediates. PA is used as a raw material for plasticizers. In a separate statement, MGC said that it has sold off its 50% stake in plasticizers maker CG Ester Corp to its partner JNC Corp in a deal worth yen (Y) 734m ($4.9m).

The share transfer was scheduled for 29 March this year, after which, CG Ester will be fully owned by JNC. CG Ester can produce 70,000 tonnes/year of plasticizers via two production sites in Mizushima and Ichihara, according to its website.

CGE will cease manufacturing at its Mizushima plant by March 2025 and will take over operations of JNC Petrochemical Corp’s manufacturing facility in Ichihara and will also continue to operate its own facility at the site, JNC Corp said in a statement.

We remind, Mitsubishi Heavy Industries Compressor International Corporation will supply critical turbomachinery packages to Dow for their Fort Saskatchewan Path2Zero Project – the world’s first net-zero scope 1 and 2 CO2 emissions ethylene cracker.

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Africa's richest man Aliko Dangote is planning to set up an oil trading arm, likely based in London, to help run crude and products supply for his new refinery in Nigeria, six sources familiar with the matter said, as per Hydrocarbonprocessing.

The move would reduce the role of the world's biggest trading firms, which have been negotiating for months to provide the refinery with financing and crude oil in exchange for products exports. The giant 650,000 barrel-per-day refinery is set to redraw global oil and fuel flows and the trading community is closely watching the way it will operate.

Dangote, whose wealth is estimated by Forbes at $12.7 billion, did not reply to several comment requests. BP, Trafigura and Vitol among others have met Dangote in Lagos and London in recent weeks to offer loans for the some $3 billion in working capital the refinery needs to buy large amounts of crude, trading sources told Reuters.

The traders asked the refinery to repay loans with fuel exports but so far they have signed no deals as Dangote worries they would reduce his control of the project – and potentially his profit, the sources said. Dangote has also met state-backed firms in his search for cash and crude.

"He is going to try and do it himself," an industry source told Reuters. Sources told Reuters the new trading team will be led by ex-Essar trader Radha Mohan. He joined Dangote in 2021 as director of international supply and trading, according to his Linkedin profile. Two sources said the team was in the process of hiring two new traders.

The refinery took nearly a decade to complete -- and came in at a cost of $20 billion, some $6 billion over budget.

The plant has refined around 8 million barrels of oil between January and February and will take months to get to full capacity. So far, Vitol has prepaid for some product cargoes to help the refinery buy crude, while Trafigura has swapped some crude oil in exchange for future fuel cargoes, sources with knowledge said. Geneva-based Vitol and Trafigura declined to comment.

We remind, Trading house Vitol has bought the first naphtha cargo produced for export by Nigeria's new 650,000-bpd Dangote oil refinery. Dangote issued a tender to sell the 60,000 metric ton cargo earlier this month for Feb. 23-29 loading. Vitol declined to comment.

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