Jamaica is not among the eight countries that Venezuela’s State oil and natural gas company Petróleos de Venezuela (PDVSA) has announced it will suspend petroleum deliveries to, under the PetroCaribe agreement. But Petrojam, the island’s Government-run oil refinery in which PDVSA has 49 per cent share, will be struggling in another two years to maintain its market share.

Reports surfaced yesterday that Venezuela’s oil ministry said on Tuesday that the suspension is due to falling crude production and low refinery utilisation. The indefinite suspension on refined product deliveries will affect Dominica, Antigua and Barbuda, Belize, El Salvador, Haiti, Nicaragua, St Vincent and the Grenadines, and St Kitts/Nevis.

Grenada, St Lucia, Suriname, Guyana, Honduras, Nicaragua, the Dominican Republic, and Cuba are the other countries not affected.

Under the PetroCaribe agreement, Venezuela uses a flexible credit mechanism to sell petroleum to Caribbean and Central American countries, which pay cash for part of every shipment and finance the rest at low interest rates.

Jamaica was among 17 regional countries that inked the PetroCaribe deal with Venezuela in 2005.

News of the suspension came a day after officials of Petrojam and its parent company, the Petroleum Corporation of Jamaica (PCJ), at a meeting of Parliament’s Public Administration and Appropriations Committee said there are difficulties ahead for Petrojam.

Group general manager at PCJ Winston Watson indicated that the oil refinery could be in trouble by as early as the end of 2019, as the market for heavy fuel oil (HFO) continues to contract. Petrojam currently controls 89 per cent of the local fuels market.

The Government will need to spend upwards of US$1 billion to complete the upgrading of the refinery, which was a part of the PetroCaribe deal. The upgrading should help Petrojam diversify its production to remain viable. At the same time, Jamaica is trying to buy back its 49 per cent share from PDVSA as cash-strapped Venezuela remains engulfed in socio-economic turmoil.

Watson noted that because of the extensive cost of the refinery upgrade, a decision was made to carry out the project in two phases.

The first phase is the Vacuum Distillation (VDU) project, which will enable Petrojam to convert HFO to asphalt and vacuum gas oil for export. This is expected to secure the company’s viability in the short term.

Watson noted that funding for the VDU is being provided from the US$100 million ($12.6 billion) which Government allocated to Petrojam last December to help buffer the negative effects of a United States executive order, which imposed restrictions on transactions with Venezuela. This had led to disruptions and delays in transactions due to the Venezuelan Government, which were being withheld by the US Federal Reserve Bank.

Watson said the Ministry of Finance has given approval for those funds to be redirected towards the refinery upgrade, and that Petrojam is now awaiting board approval to use the money.

He explained that with the Jamaica Public Service (JPS) switching from HFO to liquefied natural gas and the bunkering industry specifications changing to low sulphur fuel, by next year Petrojam will run into problems selling HFO.

Petrojam produces 50 per cent HFO, which it primarily sells to JPS for its power plants, and to the shipping industry for bunkering.

“By 2020, with the change in the marine specs for fuel, we will have a difficulty selling HFO… by the middle of next year JPS would have completed their conversion, so the theoretical concern when we are going to start getting badly affected is December 2019,” he stated.

But Watson stressed that there are some steps that Petrojam can take now to stave off the challenges ahead, such as fast-tracking the VDU and seeking out new bunkering business.

“I do not think that the entire shipping industry will suddenly wake up January 1 and stop taking HFO… you do have some countries that are still running on HFO. We have had discussion with the Chinese, for instance, and they still buy a fair bit of HFO,” he added, emphasising that these initiatives could buy Petrojam some time to make the necessary shifts in its operations.

It could take up to two-and-a-half years for the VDU to be completed, and it is anticipated that almost half of Petrojam’s business will be affected by the decreased demand for HFO. The refinery also produces diesel oil, kerosene oil, jet fuel, liquefied petroleum gas, asphalt, and gasoline.