Venezuela is carrying out an “exhaustive” inspection of its biggest refinery before attempting to restart processing after extinguishing a four-day fire yesterday caused by an explosion that killed 48 people.
State-owned Petroleos de Venezuela SA is “in no hurry” to restart the Amuay refinery and will allow for at least a one-day cooling-down period, Oil Minister Rafael Ramirez told reporters yesterday in Falcon state near the plant.
PDVSA, as the company is known, continues to export oil and petroleum products stored at Amuay’s dock and sees no disruption to its internal or external shipping obligations, Ramirez said. New York gasoline futures have retreated the last two days after nearing a four-month high Aug. 27 amid concern the shutdown threatened product supplies as U.S. Gulf Coast plants halted operations with Tropical Storm Isaac heading toward the region.
“We’re carrying out a cooling process of all areas that suffered intense heat generated by the fire,” Ramirez said. “Because we are dispatching, because we have sufficient storage, because we have all our plants in perfect shape, we have no need to hurry to re-activate an operation.”
Production may restart in two to three days, Jesus Luongo, head of the Paraguana refining complex said on state television yesterday. Strong winds could cause the fires to reignite and if that happens firemen will use foam to extinguish them, he said.
Hercules cargo planes were used to help extinguish flames on two storage tanks at Amuay Aug. 27. A blaze at a third tank flared up at least twice yesterday before being contained.
A gas leak that formed a cloud at the refinery exploded at 1:10 a.m. on Aug. 25, sending a ball of flame into the air and destroying a National Guard post and damaging about 500 homes. President Hugo Chavez, who faces elections in October, declared three days of mourning and ordered an investigation.
Amuay, which has the capacity to process 645,000 barrels a day, is part of the Paraguana complex 240 miles west of Caracas. While Ramirez described the situation as “chaos with fires everywhere” when he first arrived on the scene Aug. 25, he said damage was limited to 9 of 686 storage tanks.
Venezuela has stockpiles of 4.2 million barrels of gasoline and other petroleum products and continues to produce 735,000 barrels of the motor fuel a day at plants, including nearby Cardon, according to Ramirez. PDVSA shipped five tankers carrying 876,000 barrels of crude from Paraguana on Aug. 26, he said yesterday.
“This gives us 10 days of inventory,” Ramirez said. “On top of that, the inventory presupposes you aren’t producing anything. There’s no way we can have a problem.’
PDVSA’s benchmark dollar bonds have risen 1 cent to 88.95 cents on the dollar since markets opened after the explosion. The yield on the Caracas-based company’s 8.5 percent bonds due in 2017, with $6.15 billion outstanding, has fallen 28 basis points, or 0.28 percentage point, to 11.38 percent this week.
If the fire burned through any piping, instruments or pumps then resumption of production could take longer than PDVSA is estimating, said Kevin Waguespack, vice president of Baker O’Brien, a Dallas-based energy consulting firm.
Extent of Damage
“The longer a fire burns, the greater the possibility for extensive damage,” Waguespack said in an e-mail. “Maybe we’re talking a matter of weeks or a couple of months.”
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 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.
Luongo, the complex’s general manager, said that while PDVSA has a clear plan for resuming production at Amuay, the time line will change depending on what an inspection of the plant reveals.
“Based on the technical analysis, we will make the decisions on re-starting the units,” he told reporters yesterday. The cooling period may last into tomorrow, he said today on state television.
Stella Lugo, governor of Falcon state in western Venezuela, described the early-morning blast as similar to an earthquake. Lugo told Union Radio on Aug. 27 that the death toll had risen to 48 from a previous estimate of 39. There have been no other official comments about a death toll since Aug. 26.
Gasoline for September delivery slipped 2.41 cents to $3.102 a gallon at 11:50 a.m. on the New York Mercantile Exchange. The contract slid 0.91 percent yesterday after reaching $3.205 on Aug. 27, the highest level since April 30, amid concern the Venezuelan fire and Isaac would curb supplies.
PDVSA’s Ramirez said yesterday that the company’s “accurate information” on the Amuay event means that there hasn’t been any variation in oil prices from the explosion and ensuing fires and that Hurricane Isaac has been the main driver.
BP and other companies suspended some crude and gas operations in the Gulf of Mexico. The area is home to 23 percent of U.S. oil output and 44 percent of refining capacity, according to the U.S. Energy Department.
Other refineries that supply the Caribbean could stand to benefit from a prolonged shutdown at Amuay, said Baker O’Brien’s Waguespack.
“Refineries that can put product on the water might have a physical advantage, but I would expect most refineries in the general Atlantic Basin would benefit if gasoline shortages become a concern,” Waguespack said. A rising gasoline crack spread, or the profit for refiners for converting crude oil to fuels, “would benefit many plants,” he said.
Valero Energy Corp (VLO:US) and Phillips 66 stand to be the main beneficiaries of a prolonged delay in resumption of production, Brian Youngberg, an analyst at Edward Jones in St. Louis, said in an e-mail.
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.
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.
After a refinery accident the operator will often turn to its trader to purchase products and cover supply ahead of any spike in prices, Robert MacMinn, a principal at clean product trader CAN-OP based in Thunder Bay, Canada said.
“This has played out as ‘refinery upset 101’ from a transparency perspective,” MacMinn said in an interview. “Once a refiner is covered then the full extent of the damage and more realistic repair estimates typically surface. From a trading perspective, full disclosure is problematic until you plug the real or potential supply gap.”
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