As Venezuelan Deliveries Wane, Allies Tap Traders for Pricey Fuel

HOUSTON/CARACAS, Venezuela's shipments of crude oil and fuel to its allies have fallen to a five-year low as a weak economy hits its ability to uphold accords that former President Hugo Chavez struck to lower energy costs for friends and expand his diplomatic clout.

Total shipments under cooperation deals with Latin American and Caribbean countries dropped 11 percent in 2013 to 243,000 barrels per day (bpd), the lowest level since 2007, according to recent data from Venezuela's state-owned oil company PDVSA.

Several factors are behind the decline: lower oil output and weak economic growth at home, a domestic refinery network that has not fully recovered from a severe accident in 2012, and financing agreements with China that divert much of the OPEC nation's oil production to Asia.

Some of the beneficiaries of the cheap oil are now being forced to turn to other sources.

In the eights months through August, countries from Jamaica to Argentina that have supply pacts with Venezuela have bought 140 cargoes of crude, components and fuel for transport and power generation on the open market, according to tender information compiled by Reuters.

More than two thirds of those were for Ecuador, one of Venezuela's closest allies.

His 2005 Petrocaribe accord required members to pay cash for just 40 percent of every shipment, and let them finance the rest for 25 years at low interest rates, or make in-kind payments with products ranging from rice to blue jeans.

But mounting economic problems in the South American country have strained the programs. As far back as 2010, Venezuela had started buying fuels from third parties to meet quotas for the accords.

Since then, fuel exports has slipped further and PDVSA's financial position has weakened, limiting its ability to assist allies even though Chavez's hand-picked successor, President Nicolas Maduro, backs the deals.

The U.S. government can also benefit as it looks to regain its influence in Latin America and the Caribbean.

U.S. Vice President Joe Biden last month announced the Caribbean Energy Security Initiative, a plan to reduce the region's reliance on "high-cost imported fuel and electricity", promising financing for projects to revamp power generation.

(downstreamtoday  Edited by Topco)