Bloomberg News

Venezuela Refinery Fire Spreads as Death Toll Reaches 48

August 27, 2012

Venezuela Fights Fire at Largest Refinery After Blast

Fires continue to burn at the Amuay refinery near Punto Fijo, Venezuela, Monday. Photographer: Ariana Cubillos/AP Photo

A blaze at Venezuela’s largest refinery spread to a third storage tank as firefighters try to contain flames burning since an Aug. 25 gas explosion killed at least 48 people. Gasoline prices rallied in New York.

Oil Minister Rafael Ramirez said two of the fires at tanks holding naphtha at the Amuay refinery probably will burn out by tomorrow as firefighters contend with a third fire that started at 2:15 p.m. local time today. There was no structural damage to the processing units at the facility about 240 miles west of Caracas, he said, adding that exports haven’t been unaffected.

“We have to announce that a third tank which has had flames on its roof is also catching fire at this moment,” Ramirez, who is also head of state oil company Petroleos de Venezuela SA, said on state television. “We estimate that with the wind and conditions the two tanks should extinguish themselves by tomorrow, with this new tank we’re obliged to continue putting in all the effort to extinguish the fire.”

President Hugo Chavez, who faces elections in October, declared three days of mourning and toured the affected areas. The explosion occurred after a gas cloud formed and erupted into a ball of flames that engulfed a National Guard post as well as homes and shops in front of the refining complex. The shutdown threatens refined product supply as U.S. Gulf Coast plants halt operations as Tropical Storm Isaac heads toward the region.

Chavez said he ordered an investigation into the causes and said they won’t discard any hypotheses.

Gasoline Inventories

Venezuela has 4 million barrels of inventories of gasoline and other petroleum products and continues to produce 735,000 barrels of gasoline a day at plants, including nearby Cardon, according to Ramirez. Amuay, which has capacity to produce 645,000 barrels a day, will be restarted within two days after all of the fires have been extinguished, he said.

PDVSA, as the Caracas-based company is known, has 10 days of inventory to meet its supply obligations internally and externally, Ramirez said. The state-owned company shipped five tankers of crude oil from Paraguana yesterday, he said.

“It’s probably going to be far longer than their public statements given the track record we’ve seen of maintenance at PDVSA facilities over the last couple of years,” Andy Lipow, president of Houston-based Lipow Oil Associates LLC, said by phone. “I think it concerns the market that it could take a long time given that it’s their largest refining complex.”

Refinery Accidents

PDVSA is the sole owner and operator of the refinery. The blast is among the world’s deadliest at an oil refinery. Fifteen workers were killed at BP Plc (BP/)’s Texas City refinery in 2005, while more than 50 people died in a fire at Hindustan Petroleum Corp.’s refinery in Visakhapatnam, India, in 1997.

Amuay, Cardon and Bajo Grande form the Paraguana complex, which has a capacity of about 950,000 barrels a day. That’s second in size to Reliance Industries Ltd. (RIL)’s Jamnagar refinery in India, according to data compiled by Bloomberg. CRP, as the complex is known, supplies 67 percent of gasoline to the local market, according to PDVSA’s website. Cardon and Amuay also export refined products to the Caribbean and the U.S.

Stella Lugo, governor of Falcon state in western Venezuela, described the early-morning blast as similar to an earthquake and said more than 200 homes near the refinery were damaged. Lugo told Union Radio today that the death toll had risen to 48 from a previous estimate of 39.

Prices Rise

The National Guard stationed at the refinery bore the brunt of the deaths, including 18 troops and 15 family members, according to Vice President Elias Jaua. More than 500 homes in vicinity of the plant have been damaged, Chavez said today.

Gasoline rose to the highest level in almost four months today as some refineries shut with the approach of Isaac and the disruption at Amuay. BP and other companies have suspended some crude and gas operations in the Gulf of Mexico. The area is home to 23 percent of U.S. oil production and 44 percent of refining capacity, according to the U.S. Energy Department.

Gasoline for September delivery advanced 7.68 cents to $3.1548 a gallon on the New York Mercantile Exchange, the highest settlement since April 30.

Refiners with Texas operations that are less exposed to Isaac stand to benefit by exporting more product after the Venezuela explosion, said John Auers, senior vice president at Turner Mason & Company, a Dallas-based energy consultant.

U.S. Refiners

“On a sustainable basis, Venezuela hasn’t been able to produce much product as they used to,” Auers said by telephone. “The U.S. refiners have taken their place. Now in a short term, they certainly can step up and do even more.”

Shares in Valero Energy Corp., based in San Antonio, Texas, jumped 5.2 percent to $30.77 today, while Marathon Petroleum Corp., based in Findlay, Ohio, gained 1.7 percent to $49.60.

The fire at Amuay, which opened in 1950, highlights the risk to supplies of oil products from large, aging plants and may lead to more exports from Asia to the U.S., according to Goldman Sachs Group Inc.

Other major refinery fires elsewhere caused months of delays before full operations resumed, Nilesh Banerjee, an analyst at Goldman in Mumbai, said in a note e-mailed today.

Venezuela, one of the 12 members of the Organization of Petroleum Exporting Countries and South America’s biggest crude producer, had an average output of 2.7 million barrels of oil a day last year, according to BP statistics. Its main export markets are the U.S. and China.

Crude Exports

Venezuela was the fourth-largest source of crude for the U.S. in May, after Canada, Saudi Arabia and Mexico, at 821,000 barrels a day, based on data from the U.S. Energy Information Agency. Venezuelan product imports from the U.S. nearly doubled in the first five months of 2012 to 38,000 barrels a day from 23,000 in the year earlier period, according to the EIA. They include gasoline, fuel additives and liquefied petroleum gas.

Cardon has closed units several times this year after incidents. PDVSA had to halt production and evacuate workers from its Petropiar heavy-crude upgrader last year after a gas leak and a fire.

Jose Bodas, an oil union leader, told Globovision on Aug. 25 that PDVSA has ignored calls by workers to improve “hazardous” working conditions at refineries.

Seven out of nine planned maintenance programs for the Amuay refinery were postponed last year because of a lack of materials, according to PDVSA’s 2011 annual report.

Maintenance

Ramirez denied that PDVSA has failed to invest in maintenance and said the company spent $6 billion in the past five years on its refining circuit. Chavez also denied reports that the leak of gas had begun hours before the explosion.

“Today’s price action probably already discounts refinery outages of a few days duration,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in an e-mailed response to questions. “If refineries are in restart mode by the end of the week we could see the futures market rebalance. If the outages are extended beyond the next few days, then we’d look for more gains for gasoline and more weakness in crude.”

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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