Business

Venezuela blast raises questions over refinery maintenance

Friday, August 31, 2012    

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CARACAS, Venezuela - THE deadly blast and fire at Venezuela's biggest refinery are prompting critics to question whether the state oil company has been neglecting maintenance while helping fund government programmes under President Hugo Chavez.

Analysts say the disaster at the Amuay refinery could also mean a financial hit for state-run Petroleos de Venezuela SA by forcing it to further increase imports of fuel for domestic consumption.

The refinery remained shut down Wednesday, a day after firefighters put out the last of the blazes that had raged in fuel tanks since the explosion early Saturday. Prosecutor General Luisa Ortega said the death toll had been raised to at least 42 and eight people are reported missing.

In recent years, Chavez's government has increasingly used a share of earnings from the state oil company, known as PDVSA, to bankroll social programmes known as "missions". Its contributions to such programmes rose from less than US$1.6 billion ($143 billion) in 2004 to US$10.4 billion last year.

The government's pressure on the company to generate funds for programmes that shore up Chavez's support has led to a "deterioration that PDVSA has had in its refining activities", said Asdrubal Oliveros, an economist and director of the consulting firm Ecoanalitica.

He said the state oil company has concentrated bigger investments in oil production to prevent output from slumping "but has neglected other activities, among them refining".

The Venezuelan press this week has reported on details of a PDVSA annual report that acknowledges difficulties and delays in maintenance work on refineries.

Oliveros and other oil industry experts say insufficient maintenance has made disasters likelier, and they also argue that management has worsened in recent years. Government officials counter that PDVSA has invested US$6 billion in maintaining refineries during the past five years.

The company's earnings have increased with higher oil prices in the past couple of years, but its debt has also risen, reaching more than US$34.8 billion last year.

It remains unclear how much money the disaster may cost PDVSA.

"That is evidently going to generate bigger supply problems in the country than those that already exist," said oil expert Juan Carlos Sosa, who heads the Venezuelan consulting company Petroleo YV.

He said he expects the refinery shutdown will lead to increased fuel imports, meaning more government spending on fuel at international prices.

Sosa said rising imports of gasoline and other refined fuels even before the disaster reflected problems at Venezuelan refineries that have prevented them from keeping up with demand.

In the first half of this year, fuel imports by PDVSA reached US$4.9 billion, up 86 per cent from the US$2.6 billion in imports during the same period last year, according to official figures.

That included 54,000 barrels of gasoline per day that Venezuela imported from the US in April, the last month for which figures were available. That monthly average was 38 per cent higher than what Venezuela was buying from the US during the same month last year, according to the US Energy Information Administration.

Sosa and other analysts say Venezuela has been importing more fuel in recent years both because people are using more and because refineries aren't keeping up. Sosa said that's partly due to maintenance problems.

In other countries, such a refinery disaster would likely bring higher costs at the pump for customers. But Venezuela has for decades offered its citizens highly subsidized gasoline at the cheapest prices in the world: about nine US cents per gallon (two US cents per liter).

Oil Minister Rafael Ramirez has said Venezuela has plenty of fuel on hand to meet domestic demand in the aftermath of the disaster and won't have to increase imports, but he has not discussed the possible financial impacts for the state oil company.

Ramirez said a gas leak led to the explosion. The precise causes are under investigation.

As for the government's response to the gas leak, there are unanswered questions, said Javier Larranaga, a fomer manager at the refinery complex who was fired in 2003 along with thousands of others from PDVSA for supporting an anti-Chavez strike.

Larranaga said the Paraguana Refining Center, which includes the Amuay refinery, had a safety plan to rapidly evacuate workers and nearby neighbourhoods in such an incident. He said he doesn't understand why, after the gas leak was detected, about an hour passed before the explosion and still no one ordered an evacuation of surrounding areas.

Larranaga also said the refinery is equipped with a system that in the event of a gas leak can produce a "water smoke screen" to prevent the gas from spreading and allow time for people to be evacuated.

"The control system and emergency response wasn't activated, or was activated and didn't work," he said.

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