MOSCOW (Sputnik), Tommy Yang — China is unlikely to fill the void in Venezuela’s crude oil exports if the United States decides to introduce harsh sanctions on the South American nation’s oil sector, experts told Sputnik.
The US State Department strongly condemned the election for the National Constituent Assembly in Venezuela on July 30, calling it a "flawed" election and accusing Venezuelan President Nicolas Maduro of "casting aside the voices and aspirations of the Venezuelan people."
On top of imposing sanctions against 13 high-ranking Venezuelan officials, including Maduro, media reports suggested the Trump administration is also considering wider sanctions that could target the South American country’s oil industry, which could bring devastating consequences to its already fragile economy.
NO UNCONDITIONAL ASSISTANCE
Some industry analysts suggested that major crude oil consumers in Asia, such as China, could benefit from potential US sanctions on Venezuela and fill in the void by boosting its imports from the South American nation. But Chinese industry experts told Sputnik that it is unlikely for China to increase its crude oil imports from Venezuela significantly and pick up the slack left by the United States.
"Crude oil from Venezuela accounted for about 5 percent of China’s total oil imports in the first half of this year. We don’t see any sign of explosive growth. China is definitely willing to lend a hand to Venezuela for geopolitical reasons. But it won’t be unconditional. It depends on domestic demand in China," Li Li, a Guangzhou-based analyst on oil markets with ICIS, a leading intelligence provider for the global petrochemicals and energy markets, told Sputnik.
Li pointed out that one reason China might not be able to expand oil imports from Venezuela as much was the quality of its crude oil, which is considered to be heavy and difficult to process.
"The quality of crude oil from Venezuela is a bit special, as it is considered to be heavy [due to its high density]. Not all refineries can boost their production, even if they want to," the analyst explained.
SLOW PROGRESS ON JOINT REFINERY PROJECT
The Chinese and Venezuelan governments reached a tentative agreement to build a joint-venture refinery project in Jieyang in south China’s Guangdong province in 2009. But no additional details of the project emerged until June this year.
The CNPC said it reached an agreement with the PDVSA on the joint refinery project on June 7, as both sides agreed to the advance the development of the proposed refinery with a processing capacity of 400,000 bpd. The project is expected to become operational by 2020.
Li, the oil industry analyst, suggested that this proposed refinery project faces a lot of challenges ahead, because domestic market for refined oil products in China is rather saturated, making it difficult for new refinery projects to be added.
"Domestically, there is no demand for additional refining capacity, as the market is already saturated. There is little market space for gasoline and diesel in China. It would be more difficult for refineries to sell other byproducts from the heavy crude oil from Venezuela," Li stressed.
Official figures from Chinese customs showed that the nation’s crude oil imports reached a record of 9.2 million bpd in March, topping the United States as the world’s largest importer. Chinese crude oil imports stayed strong in the first half of 2017, taking in 8.55 million bpd, up 13.8 percent from a year ago.
COMPLETE IMPORT BAN UNLIKELY
An import ban on Venezuelan crude oil would force US refineries to seek alternative sources from neighboring countries such as Canada or Mexico. But limitations in infrastructure would make it difficult to move Canadian oil to the refineries in the Gulf Coast, David Mortlock, a nonresident senior fellow with the Atlantic Council’s Global Energy Center, said in a research note on the prospects of US sanctions on Venezuela.
Mortlock added that filling the void with crude oil from the Middle East, which comes at a higher cost, could reduce profit margins for US refineries and cause gasoline price hikes in the United States.
Chinese oil industry analysts argued that it was unlikely for the US government to impose a completely ban on oil imports from Venezuela.
"Despite his vigorous rhetoric, US President Donald Trump has not taken any substantial actions against Venezuela. It’s still more of a war of words. The US only imposed a complete oil import ban on Iran, because of nuclear threats. That’s a much more serious problem than the issue with Venezuela. I think it’s unlikely for the United States to do the same to Venezuela," Gao Jian, an oil markets analyst at Shandong-based industry researcher SCI99, told Sputnik.
PRICING ADVANTAGE
"The price for Venezuelan crude oil exported to China is much lower than offerings from other countries, as its quality is also lower. It wouldn’t be hard for Venezuela to find other potential buyers in the international markets," the expert noted.
The Shandong-based analyst noted that average price for Venezuelan crude oil to China in June was $39 per barrel, which is about $10 cheaper than Brazilian oil’s price of $48.9 per barrel. The benchmark Brent Crude has been trading at around $50-52 since the beginning of August.
