Venezuela fuel imports update: the derroche continues

Venezuela is buying ever more finished motor fuel from the USA. In January, it bought a record 113,000 barrels a day of the stuff. Meanwhile, it halted purchases of MTBE and special naphthas, which I previously referred to as the “good” imports. It’s grim.

Source: US EIA

Source: US EIA

Also, the US increased motor fuel sales to some of Venezuela’s normal trade partners. On the following chart, you can see that US gasoline sales to several other countries rose to their highest in years in January. (On the US side, this was offset by relatively low sales to Mexico.)

Source: US EIA

Source: US EIA

Motor gasoline sales to Argentina tied the US’s all-time record, at 16,000 bbl/day. Sales to Ecuador rose to a 20-month high. Sales to Panama surged to a record 37,000 barrels a day.

It would take a lot of research to confirm, but I suspect that what this all says is that Venezuela’s refinery situation is hurting the country even more than we all thought. Aside from the cost of importing 113,000 barrels a day of finished motor fuel — at a price of about $2.60 a gallon, or $12.3 million a day  First, there is the cost of outsourcing the refining to abroad. It sells crude for less than $100 a barrel and buys back finished motor fuel, which in the US goes for about $2.60 a gallon, or $109.2 a barrel, with shipping from the US adding to the cost. Assuming a conservative additional cost of about $15 a barrel, that is $1.7 million a day. There is also an opportunity cost that appears to be on the order of tens of thousands of barrels a day more of foregone income, again a loss of at least $10 a barrel. (Paragraph CORRECTED April 1 following reader comment.)

Just to bring this all down to earth, if this keeps up, the government of Venezuela is now spending an annualized $4.5 billion on Mission Cheap Gasoline, by far the country’s biggest social program, for the prime benefit of rich assholes with 4x4s. And it is foregoing another billion bucks a year of income, because maintaining adequate industrial safety at an oil refinery was just too much trouble. You’d think this was Pemex.

7 thoughts on “Venezuela fuel imports update: the derroche continues

  1. PDVSA Observer

    Your calculations are way off. If Venezuela refines less of its own oil and therefore has to import refined products from the US you DON’T calculate the cost of that to the country by multiplying the cost of the imported product times the amount imported. Yet you seem to have done just that in this post.
    You should think about it a little more, see your mistake, and then correct it.

    Thanks

    1. sapitosetty Post author

      That makes no sense. They are buying the stuff from the US. The price in the US is around $2.60 a gallon. If they buy a gallon, the cost to Venezuela is indeed 1 x $2.60. Am I missing something or are you?

      Maybe you assume they are re-exporting the fuel? But I think it’s pretty clear that isn’t the case. Or maybe you assume they are selling the fuel they are importing? But that’s not the case either — they give the fuel free to the filling stations, which in turn sell it for damn-near-free to drivers.

      Or to put it another way, how about you do the calculation: what is the cost to Venezuela of these imports?

      1. PDVSA Observer

        The mistake you are making (which really should be obvious) is that you are assuming that the 100,000 barrels per day that Venezuela previously refined has disappeared off the face of the earth, which of course it hasn’t.
        Assume previously Venezuela refined 100k barrels of oil per day and gave it away for free. That is a loss, but that is an ongoing loss that has been there all along and is well known.
        Now a fire destroys their ability to refine that 100k per day. So what do they do? Two things.

        First, that oil that they used to refine and consume domestically they now export and get market prices for it – say $100 per barrel. Second, they have to import an equal amount of refined products, as your post indicates, and for that lets say they pay $110 per barrel.

        Knowing that what is the change to their financial position? Simple, it is the cost of what they now import ($110 x 100,000 barrels) minus the cost of what they now export ($100 x 100,000 barrels) or $10 x 100,000.

        The key point is that the cost here is the price differential between exporting crude oil and importing refined products and of course that price differential is a small fraction of the cost of crude oil. Using these numbers, which are roughly accurate, the cost to Venezuela if they do this for a year is $365 million. Not trivial but not even remotely close to the numbers you gave.

        Your calculations in effect assumed that Venezuela stopped producing 100k barrels of oil at the same time due to refinery problems caused them to import refined products. But that is not at all what happened.

        As you can see, your numbers are therefore very far off – possibly by a factor of 10. You really should fix that.

  2. Dr. Faustus

    “Venezuela is now spending an annualized $4.5 billion on Mission Cheap Gasoline, by far the country’s biggest social program,..”

    In February of 1989 the government tried raising the price of gasoline. That action inspired the very large leftist factions in Venezuela, many of them trained in Cuba, to take to the streets. It brought about the ‘Caracazo’ and perhaps 3,000 dead. Now that ‘they’ are in power, the low price of gasoline has become a socialist right, a sacred cow. Behind Mission Cuba, Mission Cheap Gasoline may be in fact one of the largest social programs in the country for the middle class. It’s insanity on an Orwellian scale. What is frightening is that this policy can never change until Venezuela hits absolute rock bottom. That day may be fast approaching.

  3. Bois

    OK – Correct me if I’m wrong.
    1. PDVSA exports $10 million of crude and puts the money in the bank.
    2. Then they import $11 million of gasoline and take their $10 million plus another million out of the bank to pay for it.
    3. Now, – they take that $11 million of gasoline and give it away.
    The way I figure it is it cost PDVSA $11 million, am I figuring this wrong?

    1. sapitosetty Post author

      You’re right, but the point is that this only costs $1 million more than it cost before the Amuay explosion. Since this post is about how much harm was caused by the Amuay disaster, the commenter is correct.

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