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Sanctions evasion suspected as Russian tankers go dark
The US has banned imports of Russian oil and gas, while the UK will phase out oil imports by the end of the year. Bloomberg
Susceptible to ‘criminal manipulation’
Venezuela's PDVSA seeks oil tankers in anticipation of U.S. sanctions easing
An oil tanker is docked while oil is pumped into it at the ships
terminal of PDVSA's Jose Antonio Anzoategui industrial complex in the
state of Anzoategui April 15, 2015. REUTERS/Carlos Garcia Rawlins/File
Photo
CARACAS/HOUSTON, March 31 (Reuters) - Venezuela's state-run energy firm PDVSA is in talks to buy and lease several oil tankers amid a possible expansion in exports, according to three sources and a document seen by Reuters, a sign the country expects U.S. sanctions on its petroleum sector to be eased.
Russia's invasion of Ukraine has set off a global hunt for new oil supplies, especially the heavy oil produced by Venezuela. A high-level meeting between U.S. and Venezuelan officials in Caracas this month opened the door for talks over sanctions imposed on PDVSA in 2019, which were later reinforced by former U.S. President Donald Trump as part of his "maximum pressure" campaign to oust Venezuelan President Nicolas Maduro.
The Trump administration's sanctions in 2020 led to a total cut of export authorizations covering most foreign energy firms in joint production with PDVSA. The suspension left companies including Chevron Corp (CVX.N), Eni SpA (ENI.MI) and Repsol SA (REP.MC) with billions of dollars in unpaid dividends and debts that had been settled through Venezuelan oil cargoes. read more
Executives from PDVSA's maritime arm, PDV Marina, and the company's Trade and Supply division recently met with several firms offering tankers. All were willing to take Venezuelan crude or refined products as payment for the vessels, according to the document and sources who spoke on condition of anonymity.
"PDVSA's tanker fleet is too short for any increases in oil production for domestic refining or exports," one of the sources said.
PDVSA did not reply to a request for comment.
DILAPIDATED FLEET
PDVSA's aging fleet, composed of about 30 owned tankers, has been forced to mostly remain in Venezuelan waters after underinvestment and lack of repairs for more than a decade, according to Refinitiv Eikon data and sources.
The country's crude oil and petroleum exports have tumbled under U.S. sanctions, to about 650,000 barrels per day (bpd) last year, from more than 1.5 million bpd in 2018.
U.S. sanctions stopping PDVSA from renewing its vessels' insurance and classification, which certifies they are seaworthy, have in recent years curtailed the firm's ability to use the ships for exports, leading it to rely largely on a group of third-party tankers that often lift crude at Venezuelan ports, sources and documents from the state company showed.
In one of the proposals seen by Reuters, a company whose name was redacted from the document, offered five Aframax tankers, each with the capacity to transport up to 700,000 barrels of oil, under a lease contract with an option to buy them.
It required PDVSA to pay between $22,500 to $35,000 per day for up to 12 months to lease each vessel under a time-charter contract. Those ships would progressively be replaced by new ones after the first year with payment for the new tankers through four million barrels of Venezuelan fuel oil valued at $300 million, according to the proposal.
That company also proposed to blur PDVSA's ownership of the new tankers through a chain of intermediaries, which would reduce the risk of retentions or seizures by the United States if sanctions remained in effect.
PDVSA in 2020 offered to ship its own oil, figuring in the costs in crude supply deals to help customers that struggled to hire vessels due to U.S. sanctions, but the contracts were short-lived due to lack of enough Venezuelan vessels.
The company that year also lost three of four very large crude carriers it bought from China over payment disputes. Earlier this year, PDVSA had to send a crew to rescue the remaining one, which was in distress for weeks in Asia.
Washington between 2019 and 2020 blacklisted vessel owners and operators that carried Venezuelan oil, but in the last year has not enforced similar maritime sanctions. Still, many shipping firms continue to avoid Venezuelan waters because of the U.S. measures, forcing large price discounts on the South American country's oil.
EXCLUSIVE Venezuela's PDVSA seeks oil tankers in anticipation of U.S. sanctions easing
An oil tanker is docked while oil is pumped into it at the ships
terminal of PDVSA's Jose Antonio Anzoategui industrial complex in the
state of Anzoategui April 15, 2015. REUTERS/Carlos Garcia Rawlins/File
Photo
CARACAS/HOUSTON, March 31 (Reuters) - Venezuela's state-run energy firm PDVSA is in talks to buy and lease several oil tankers amid a possible expansion in exports, according to three sources and a document seen by Reuters, a sign the country expects U.S. sanctions on its petroleum sector to be eased.
Russia's invasion of Ukraine has set off a global hunt for new oil supplies, especially the heavy oil produced by Venezuela. A high-level meeting between U.S. and Venezuelan officials in Caracas this month opened the door for talks over sanctions imposed on PDVSA in 2019, which were later reinforced by former U.S. President Donald Trump as part of his "maximum pressure" campaign to oust Venezuelan President Nicolas Maduro.
The Trump administration's sanctions in 2020 led to a total cut of export authorizations covering most foreign energy firms in joint production with PDVSA. The suspension left companies including Chevron Corp (CVX.N), Eni SpA (ENI.MI) and Repsol SA (REP.MC) with billions of dollars in unpaid dividends and debts that had been settled through Venezuelan oil cargoes. read more
Executives from PDVSA's maritime arm, PDV Marina, and the company's Trade and Supply division recently met with several firms offering tankers. All were willing to take Venezuelan crude or refined products as payment for the vessels, according to the document and sources who spoke on condition of anonymity.
"PDVSA's tanker fleet is too short for any increases in oil production for domestic refining or exports," one of the sources said.
PDVSA did not reply to a request for comment.
DILAPIDATED FLEET
PDVSA's aging fleet, composed of about 30 owned tankers, has been forced to mostly remain in Venezuelan waters after underinvestment and lack of repairs for more than a decade, according to Refinitiv Eikon data and sources.
The country's crude oil and petroleum exports have tumbled under U.S. sanctions, to about 650,000 barrels per day (bpd) last year, from more than 1.5 million bpd in 2018.
U.S. sanctions stopping PDVSA from renewing its vessels' insurance and classification, which certifies they are seaworthy, have in recent years curtailed the firm's ability to use the ships for exports, leading it to rely largely on a group of third-party tankers that often lift crude at Venezuelan ports, sources and documents from the state company showed.
In one of the proposals seen by Reuters, a company whose name was redacted from the document, offered five Aframax tankers, each with the capacity to transport up to 700,000 barrels of oil, under a lease contract with an option to buy them.
It required PDVSA to pay between $22,500 to $35,000 per day for up to 12 months to lease each vessel under a time-charter contract. Those ships would progressively be replaced by new ones after the first year with payment for the new tankers through four million barrels of Venezuelan fuel oil valued at $300 million, according to the proposal.
That company also proposed to blur PDVSA's ownership of the new tankers through a chain of intermediaries, which would reduce the risk of retentions or seizures by the United States if sanctions remained in effect.
PDVSA in 2020 offered to ship its own oil, figuring in the costs in crude supply deals to help customers that struggled to hire vessels due to U.S. sanctions, but the contracts were short-lived due to lack of enough Venezuelan vessels.
The company that year also lost three of four very large crude carriers it bought from China over payment disputes. Earlier this year, PDVSA had to send a crew to rescue the remaining one, which was in distress for weeks in Asia.
Washington between 2019 and 2020 blacklisted vessel owners and operators that carried Venezuelan oil, but in the last year has not enforced similar maritime sanctions. Still, many shipping firms continue to avoid Venezuelan waters because of the U.S. measures, forcing large price discounts on the South American country's oil.https://www.reuters.com/business/energy/exclusive-venezuelas-pdvsa-seeks-oil-tankers-anticipation-us-sanctions-easing-2022-03-31/
Russia seeks new ways to sell its $20-billion-a-year gold output
Olimpiada mine, Russia. Image from Polyus
Russia’s huge gold industry is searching for new ways to sell its metal, such as exporting more to China and the Middle East, as sanctions choke off its traditional sales routes.
That’s left Russia’s gold sector wondering how to sell the roughly 340 tons it mines each year that’s worth about $20 billion. There aren’t many non-sanctioned banks that can realistically handle such volumes. And while the government granted miners general export licenses two years ago that allow them to export directly, few have used the process so far because they’ve preferred to rely on banks’ sales infrastructure.
That may soon change though, as Russian miners are considering direct exports, and both producers and lenders are exploring sales in Asia and the Middle East, according to people familiar with the matter.
Polymetal International Plc is one producer looking to use direct exports, with opportunities for sales to the United Arab Emirates and China, a spokesman said. Some other large miners have started talks with Chinese and UAE-based companies as well, according to two people familiar with the matter, who asked not to be identified as the information isn’t public.
The Bank of Russia was once the biggest sovereign buyer of gold, scooping up almost all of the country’s mined output before it paused purchases in early 2020. Its pledge to start buying again will help absorb some of the supply that can’t be exported.
“There are very good budget revenues,” said Natalia Orlova, economist at Alfa-Bank. “Now they can be saved only through gold purchases.”
While the central bank boosted its gold holdings significantly through 2019, transactions are likely to be more muted going forward.
The central bank is limiting the price at which it’s willing to buy at 5,000 rubles a gram, roughly $1,880 an ounce at the current exchange rate and below international prices. The planned purchases are designed to support gold miners’ sales because of the difficulty exporting, and the domestic market won’t be able to absorb those volumes, according to two officials close to the central bank who asked not to be identified.
The central bank didn’t immediately respond to a request for comment.
Retail potential
More business could also come from the domestic retail market. The government canceled value-added tax on such purchases — a move that had long been discussed — following the fallout from the war in Ukraine.
“We are seeing a significant increase in demand for gold in retail,” the Polymetal spokesman said. “Banks are ready to pay for it using international benchmark price, and not at 5,000 rubles.”
Although gold prices don’t tend to react to supply and demand fundamentals in quite the same way as other commodities such as base metals, energy or agriculture, the prospect of reduced Russian exports would cut global supplies.
“The gold market is usually in surplus,” said Suki Cooper, an analyst at Standard Chartered Plc. “If Russia’s demand grows, its mine output is not reintroduced to the international market and the excess supply is mopped up by ETFs, the gold market could be closer to balance for the first time since 2015.”
(With assistance from Eddie Spence and Ranjeetha Pakiam)
China's Largest Oil Refiner Sinopec Reports 114% Profit Increase in 2021
China’s largest oil refiner China Petroleum and Chemical Corporation (Sinopec) said its net profit surged 114 percent year on year to 71.21 billion yuan ($11.19 billion) in 2021, registering the best performance in the past 10 years.
Its revenue totaled 2.74 trillion yuan last year, up 30.2 percent year on year.
Domestic crude oil output reached 35.15 million tonnes last year, overseas crude oil output was 4.18 million tonnes and natural gas output was 33.97 billion cubic meters, according to the company.
Meanwhile, the company’s total sales volume of refined oil was 221 million tonnes last year, among which domestic sales of refined oil products totaled 171 million tonnes, a year-on-year increase of 2.0 percent.
Sinopec said its capital expenditure for 2022 is set at 198 billion yuan ($31.10 billion), up 18.4 percent from a year ago, mainly focusing on exploration and development of oil and gas, construction of natural gas production, supply, storage and marketing system, and new energy business.
The company expects that market demand for refined oil will continue to recover, and the demand for natural gas and petrochemical products will continue to grow in 2022. Given the impact of geopolitics, changes in global supply and demand, inventory, and the national carbon goals, the risk of oil price fluctuations is expected to increase.
Saudi Aramco Further Tightens Its Ties To China
Saudi Aramco, is looking at several further opportunities to expand its downstream dealings with China.
Saudi Arabia’s state-owned oil giant, Saudi Aramco, is looking at several further opportunities to expand its downstream dealings with China, according to recent comments from the company’s chief executive officer, Amin Nasser. During the conference call to report the company’s latest results, he stated: “We’re currently working with a number of opportunities with Sinopec, and are also exploring a good number of opportunities with other players in Asia – all for mainly highly integrated complexes with more than 50 percent liquid to chemical that would represent a huge growth opportunities.” Any deals with Sinopec would augment the existing joint Saudi Arabia-China refining and petrochemical complex to be built in northeast China. The original deal for Saudi Aramco and China’s North Industries Group (Norinco) and Panjin Sincen Group to build the US$10 billion 300,000 barrels per day (bpd) integrated refining and petrochemical facility in Panjin city was signed in February 2019. Due to the ongoing negative financial effects on Saudi Arabia of its first disastrous Oil Price War from 2014 to 2016, as analysed in depth in in my new book on the global oil markets, the plans were shelved later that year.
Talks to resuscitate the idea then began again at the beginning of 2020 until Saudi Arabia launched another calamitous oil price war in April of that year, which again caused massive economic damage to Saudi Arabia and served to compound the economic pain on Saudi Aramco – already struggling under the weight of a huge dividend debt burden. With the turnaround in oil pricing since the beginning of the third quarter of last year, talks to go ahead with the refinery again resumed, together with the plan for Saudi Aramco to supply it with up to 210,000 bpd of crude oil feedstock, and it is expected to be operational in 2024.
These new downstream projects with Sinopec follow this year’s earlier series of meetings in Beijing between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation were to finally seal a China-GCC Free Trade Agreement and “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat,” according to local news reports.
However, although the specific meetings between Saudi and Chinese officials at this event may have served to expedite some specific projects, such as those currently being discussed with Sinopec, the seeds of extensive broad and deep co-operation between the two countries were truly sown when Saudi Arabia’s Crown Prince Mohammed bin Salman (MbS) was desperately looking for a way to save face by completing his much-vaunted IPO of Saudi Aramco amidst widespread shunning of the offering by the West. As analysed in depth in my 2019 book, China offered MbS a way out by simply buying the entire stake – at that time 5 percent was the stated amount to be offered – in a straight private placement.
This would have two huge benefits for MbS, firstly, raising the money that Saudi Arabia needed immediately, and secondly, not requiring any public disclosure of the offer price per share. This latter factor would allow MbS to assure the senior Saudis, who by that time were sceptical of his abilities to lead the country when the time came, that he had managed to hit the US$2 trillion valuation for the whole of Aramco that he had publically set as a benchmark for IPO success. Although the offer was eventually declined, the fact that China had offered itself as a backstop bid for MbS’s most important public project to that point was not forgotten, and nor were the corollary desires of China to forge closer links with Saudi Arabia going forward.
Although there have been recent reports of Saudi Arabia considering accepting Chinese yuan instead of US dollars for Chinese, this is in fact nothing new and was examined in depth in my 2019 book and previous articles dating back to 2017. To recap from that book: “China sought to tie in its assistance in taking the pressure off MbS [through a private placement to China for the complete stake in Saudi Aramco] with the notion of Saudi Arabia accepting the yuan (the trading unit of the renminbi currency) in payment for crude oil supplies.”
This was a key strategy in China’s desire for its renminbi currency to more properly reflect the country’s increasing importance in the global financial architecture that was evidenced as early as the G20 summit in London in April 2010. At this summit, Zhou Xiaochuan, then-governor of the People’s Bank of China (PBOC), flagged the notion that the Chinese wanted a new global reserve currency to replace the U.S. dollar at some point.
The long-planned sequencing for this to occur was: the renminbi’s inclusion in the IMF’s Special Drawing Rights (SDR) reserve asset mix (which happened in October 2016); increasing its use as a trading currency (which naturally followed that); its use as the key currency of an international energy trading exchange (which occurred with the launch of the renminbi-denominated Shanghai International Energy Exchange in 2018); and increasing calls from big oil producers and other major trading nations to use the renminbi (which has occurred frequently since the renminbi’s inclusion in the SDR mix).
By the time of China’s suggestion to rescue the ailing Saudi Aramco IPO, the renminbi had already been included in the SDR mix but it had still not hit the mainstream in terms of breadth and depth if usage internationally. Therefore, Beijing succeeding in leveraging the Saudis into accepting yuan for oil would have been – and remains – a huge step for the renminbi’s wider acceptance, especially as other producers in the Middle East might be expected to follow suit.
Despite any objections to the idea that the U.S. might have harboured, the Kingdom’s then-Vice Minister of Economy and Planning, Mohammed al-Tuwaijri, told a Saudi-Chinese conference in Jeddah at the end of August 2017 that: “China is by far one of the top markets…We will also access other technical markets in terms of unique funding opportunities, private placements, panda bonds and others.” He added: “We will be very willing to consider funding in renminbi and other Chinese products, and [the] Industrial and Commercial Bank of China and other divisions have shown interest for us to do that.”
These comments came at around the same time as the visit of high-ranking politicians and financiers from China to Saudi Arabia, which featured a meeting between King Salman and Chinese Vice Premier, Zhang Gaoli, in Jeddah. At these meetings, according to comments at the time from then-Saudi Energy Minister, Khalid al-Falih, it was also decided that Saudi Arabia and China would establish a US$20 billion investment fund on a 50:50 basis that would invest in sectors such as infrastructure, energy, mining, and materials, among other areas. The Jeddah meetings in August 2017 followed a landmark visit to China by Saudi Arabia’s King Salman in March of that year during which around US$65 billion of business deals were signed in sectors including oil refining, petrochemicals, light manufacturing, and electronics.
The fact that the ‘One Belt One Road’-related investments made by China come with considerable caveats allowing Beijing to secure key strategic tracts of land or sea in lieu of debts owed or investments made – including Iran’s major airports and naval ports under the 25-year deal with China, Sri Lanka’s Hambantota Port, and Djibouti’s Doraleh Port – may be regarded by Saudi Arabia and several other Middle Eastern states as being little different to the conditions attached to U.S. investment since the end of the Second World War. For the U.S., though, news just before Christmas that Saudi Arabia is now actively manufacturing its own ballistic missiles with the help of China, may not be regarded as part of a reasonable rebalancing of power in the Middle East, especially in light of Washington’s current and ongoing efforts to address Iran’s nuclear ambitions.