ID:240447
    Date:2009-12-17 17:28:00
    Origin:09CARACAS1567
    Source:Embassy Caracas
    Classification:CONFIDENTIAL
    Dunno:
    Destination:VZCZCXRO9415
RR RUEHAO RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS
RUEHTM
DE RUEHCV #1567/01 3511728
ZNY CCCCC ZZH
R 171728Z DEC 09 ZFF3
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 0169
INFO OPEC COLLECTIVE
WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
    
C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001567 
 
SIPDIS 
ENERGY FOR ALOCKWOOD AND LEINSTEIN, DOE/EIA FOR MCLINE 
HQ SOUTHCOM ALSO FOR POLAD 
TREASURY FOR MKACZMAREK 
COMMERCE FOR 4332/MAC/WH/JLAO 
NSC FOR DRESTREPO AND LROSSELLO 
AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA 
AMEMBASSY OTTAWA PASS TO AMCONSUL QUEBEC 
AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE 
 
E.O. 12958: DECL: 2019/12/17 
TAGS: EPET, EINV, ENRG, ECON, CH, VE 
SUBJECT: Venezuela: PDVSA Experiencing Quality Control Problems 
 
CLASSIFIED BY: Darnall Steuart, Economic Counselor, DOS, Econ; 
REASON: 1.4(B), (D) 
 
1. (C) SUMMARY: PDVSA is experiencing quality control problems with 
refined product and upgraded crude oil and is bearing significant 
costs due to these problems.  The Venezuelan national oil company 
has prioritized the supply of gasoline and other petroleum products 
to its domestic market over its international clients.  One PDVSA 
executive estimated that exports to China of fuel oil average 
330,000 barrels/day and 132,000 barrels/day of crude petroleum.  He 
also claimed that some 70% of its current 100,000 workforce are not 
involved in PDVSA's core petroleum business.  END SUMMARY. 
 
 
 
Problems with Crude Oil and Petroleum Product Quality 
 
--------------------------------------------- ---------------------- 
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2. (C) According to PDVSA XXXXXXXXXXXXX, PDVSA is experiencing quality control 
problems with refined product and upgraded crude oil that it did 
not experience five years ago.  During a meeting with Petroleum 
AttachC) (PetAtt) on December 15, XXXXXXXXXXXXX stated that his office 
receives on average three quality control complaints per week when 
PDVSA crude and petroleum product shipments arrive at foreign ports 
of destination and do not comply with contracted purchase 
specifications.  He contrasted the foreign quality claims against 
quality problems discovered during loading of tankers in Venezuela, 
claiming that PDVSA discoveries of product quality problems are 
magnitudes greater. 
 
 
 
3. (C) XXXXXXXXXXXXX, in order to resolve a quality control 
complaint from a foreign client, PDVSA often has to offer a 
sizeable discount on a future sale of crude or petroleum product to 
the foreign client.  The cost to a foreign customer of handling the 
low quality Venezuelan shipments is significant.  XXXXXXXXXXXXX claimed 
that it is more cost effective for PDVSA to correct the problems in 
Venezuelan ports before the tanker is loaded, accepting the 
demurrage costs of having the tanker idly waiting.  XXXXXXXXXXXXX 
characterized these hidden costs as greatly affecting PDVSA's 
bottom line.  He added that he believed that PDVSA is importing 
gasoline components from U.S. suppliers as well as from Brazil's 
Petrobras. 
 
 
 
4. (C) XXXXXXXXXXXXX shared that PDVSA has prioritized shipments and 
transfers of crude and product domestically over the loading and 
export of crude and product to international customers, often 
paying high demurrage charges for tankers forced to wait outside 
the ports.  XXXXXXXXXXXXX maintained that keeping the domestic Venezuelan 
market supplied with gasoline has increased the already substantial 
level of tanker traffic along Venezuela's coast due to the 
significant problems with PDVSA's refinery network.  He noted that 
PDVSA's lack of financial resources and investment has prevented 
PDVSA from building a domestic pipeline network between the 
refineries, ports, and domestic distribution centers. 
 
 
 
5. XXXXXXXXXXXXX 
 
 
 
Production and Export Estimates 
 
CARACAS 00001567  002 OF 002 
 
 
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6. (C) XXXXXXXXXXXXX, who claims to have access to all of PDVSA's export 
and production figures due to his position and function, estimated 
current PDVSA crude oil production at 2.3 million barrels per day. 
[NOTE: Press reports from December 15, reported that OPEC's current 
estimate of Venezuelan production is 2.3 million barrels per day. 
END NOTE.]  XXXXXXXXXXXXX stated that on average PDVSA sends five very 
large cargo carriers (VLCC) or ten million barrels of fuel oil from 
its Curacao refinery each month to China.  [NOTE: PetAtt estimates 
that 10 million barrels/month roughly equals 330,000 b/d. 
International press reports on December 17 citing Chinese Customs 
data for August through October 2009 indicate China imported only 
68,000 barrels/day of heating oil from Venezuela over that time 
period.  END NOTE.]  Furthermore, each month PDVSA exports on 
average two VLCCs or four million barrels of crude oil from Puerta 
La Cruz to China.  [NOTE: PetAtt estimates that 4 million 
barrels/month roughly equates to 132,000 b/d.  END NOTE.]  He added 
that PDVSA is not exporting much petroleum to PetroCaribe member 
states (no more than 150,000 barrels/day) and that the largest 
recipients are Nicaragua and the Dominican Republic.  Finally, he 
said that PDVSA's exports to Europe are minimal and that it rarely 
sends a cargo to India. 
 
 
 
PDVSA Workforce 
 
-------------------------- 
 
7. (C) Commenting on Minster Ramirez's comments that PDVSA's total 
workforce today is approximately 100,000 people, XXXXXXXXXXXXX claimed 
that only 30,000 are actually working in the traditional PDVSA 
areas of petroleum exploration, production, and refineries.  [NOTE: 
In 2003, President Chavez ended a PDVSA workers strike by firing 
20,000 workers of PDVSA's total employment of 40,000.  Prior to the 
strike, Chavez had complained that PDVSA's employment was too high. 
END NOTE.]  He claimed that PDVSA's expansion into other sectors, 
including downstream transportation and sales, and the GBRV 
missiones (e.g. the state-owned chain of discount food stores, 
Mercal and PDVal), etc., accounts for the other 70,000 workers. 
 
 
 
BIO 
 
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8. XXXXXXXXXXXXX 
 
 
 
9. (C) COMMENT: The impact of the deterioration on PDVSA's 
refineries on its quality control operations and the added costs of 
correcting shipments that are outside of contracted specification 
ranges or of making foreign customers whole could represent a 
significant risk for the national oil company.  The relatively 
modest level of crude and fuel oil sales to China and Petrocaribe 
members underlines the continued importance of the U.S. as 
Venezuela's primary petroleum export market.  The export figures to 
China are consistent with President Chavez's stated goal of seeking 
to develop alternative markets for Venezuelan petroleum products. 
END COMMENT. 
DUDDY