Venezuela: The Country of Cheapest Gasoline

Picture source: www.freepngimg.com

Which country has the cheapest gasoline or petrol in this world?

The answer is - Venezuela (5000 Venezuelan Bolivar, almost US$ 0.025, approx Rs. 2.00 per litre).

Another allied question - which country, on earth, has largest proven reserve of crude petroleum oil?

Here also the answer is - Venezuela.

But the intriguing fact is that in spite of having biggest oil reserve of the world, today Venezuela is importing gasoline or petrol from Iran to meet its domestic demand!

A flotilla of five tankers consisting of Fortune, Forest, Petunia, Faxon and Clavel with on-board mainly gasoline and intermediates to produce gasoline, worth about US$ 45.5 million, reached the ports of Venezuela in the last week of May - first week of June 2020. The interesting part was that all these tankers were Iranian flagged. 

The combined capacity of all the five tankers was about 175,000 metric tonnes. The probable load-port was Persian Gulf Star Refinery, Bandar Abbas, Iran and were loaded sometime in Mar 2020. In the history of petroleum business, this was for the first time, such kind of oil trade happened between an Islamic republic country and a nation of South America.

Venezuela is one, out of five, founder member of Organisation of Petroleum Exporting Countries (OPEC) - established in Sept 1960. It has world's largest proven crude oil reserve (302,809 million barrels). In the country, the first commercial well was dug on the shores of Lake Maracaibo in 1914. Oil export revenue contributed 99% of the export earning of the country. Though it has the largest reserve of crude oil, presently it is staring at import of refined products to meet its requirement.

OPEC

The country is in its sixth year of recession. Last year, inflation was astronomical 800,000%. Economy is devastated and scarcity of food, medicine and fuel etc., is acute all over the country. Pandemic COVID-19 has only turned the situation from bad to worse. Political problems, coupled with economic crisis, has crippled the nation for past several years. Deterioration of law and order situation has forced nearly five million people to leave the country. USA has unilaterally imposed economic sanction on Venezuela by declaring the country’s election as null and void. It has declared that the election was rigged and hence winning of Nicolas Maduro in the election, was illegal. Besides USA, this view is endorsed by UK and several other countries.

The country was exchanging crude oil for gasoline imports with Roseneft, the Russian oil giant. US imposed sanctions on Roseneft in Feb-Mar 2020 which forced Roseneft to wind up from Venezuela.

Pandemic coronavirus has further complicated the situation. Health workers are forced to wait in the queue for gas, before proceeding to the hospitals. An overnight wait in the queue may result in getting somewhat 30 litres as the commodity is rationed.

Refineries of Venezuelan National Oil Company - Petroleos de Venezuela S.A. (PDVSA) are working on reduced throughput due to various reasons, ranging from shortage of skilled manpower, non-availability of spare parts for repair and maintenance, irregular power supply, corruption, and mismanagement of course. Against a total capacity of 1.3 mbpd, it had processed only 0.11 mbpd and 0.215 mbpd in Mar and Apr 2020, respectively.

PDVSA

Total number of cars in the country is about 5 million, catered by about 1800 gas stations. It is in dire need of gasoline for last couple of months. Long queues of cars are visible at the petrol bunks of Caracas, the capital of Venezuela and outside. People are waiting in serpentine queue for long hours for gas. Black marketing of the fuel where it costs somewhere near to $2 per litre vs official rate of $0.02 per litre, is rampant.The flotilla was carrying about 1.53 million barrels of gasoline and alkylate which might meet the requirement for nearly a month, with present rate of consumption.

PDVSA Gas Staion

After completion of a journey of more than 14,000 kms, on 26 May 2020 tanker Fortune, first in the series, berthed and discharged at a port connected to El Palito refinery of PDVSA in Puerto Cabello, state of Carabobo, Venezuela. The capacity of El Palito refinery of PDVSA is more than 140,000 barrels per day (bpd). However, Puerto la Cruz refinery of capacity of 187,000 bpd continued to be non-operational.

Subsequently, tanker Forest moored at another port in west Venezuela, linked to Cardon refinery, the second biggest refinery of the country.

Tankers Petunia, Faxon and Clavel docked at the jetties, later on.

On the other hand the sender country - Iran, was net importer of gasoline but due to coronavirus endemic, local demand of gasoline has plummeted. That made sense to export the product.

Autographed by H.E Dr. Ali Chegeni, Ambassador of Iran to India

Meanwhile, US made various efforts to stop this shipment of gasoline from Iran to Venezuela. US Navy deployed for anti-drug trafficking operations the U.S.S Detroit, U.S.S Lassen, U.S.S Preble and U.S.S. Faar, from its naval force, along the said sea route.

On the diplomatic front it issued demarches (warnings) to various governments, port authorities, shipping agencies and ship owners, insurance companies etc., about the possibility of facing sanctions, in case they became party to the voyage, directly or indirectly.

However, the Iranian vessels have reached the destination without any hindrance or disruption from US side.

Besides supplying gasoline and intermediates (alkylate), it has been assumed that Iran has provided machinery and technicians by air (Mahan Airlines of Iran) for trouble shooting and immediate resumption of production of gasoline at Cardon refinery (310,000 bpd capacity) of Venezuela. A multi-dimensional support were provided by Iran to Venezuela through supply of refined gasoline, gasoline additives, technical expertise and spare parts for refinery maintenance.

Alkylate is a mixture of branched-chain paraffinic hydrocarbons (iso-heptane and iso-octane mainly) with high-octane number. The high octane number provides good antiknock properties and thus alkylate is considered as a premium blending stock for gasoline. With alkylate parcel, Venezuela will be able to ramp up domestic production of gasoline faster.

Effective 01 June 2020, with the imported gasoline, monthly quota system as well as dual pricing system were put in the place. This ended the age-old practice of cheapest gasoline for the citizens in the world. In a month, two wheelers and car owners would get 60 and 120 litres of gasoline respectively at a subsidized price of 5000 Venezuelan Boliver (US$0.025) per litre. Beyond that limit, gasoline would have to be purchased at US$ 0.50 per litre. It goes without saying that motorists mopped up the domestic quota as soon as the stations started selling gasoline. Imported gasoline would be distributed through select 200 gas stations operated by private contractors.

US has stated that the payment terms were in gold. The aircrafts of Mahan Airlines which brought man and materials from Iran to Venezuela, have carried back gold in the return trips. It was said that in the month of Apr 2020 alone, 9.0 tons of gold (international value of US$ 500 million) was transferred from Venezuela to Iran.

Venezuela is having gold, worth US$ 1 billion, stashed in vaults of Bank of England, London. President Maduro has asked for released of the gold for fighting COVID-19. Venezuelan opposition leader Juan Guaidó has opposed this move. Since UK does not recognise Maduro as President, it has refused to release the gold.

Both the countries, Iran and Venezuela, are facing U.S sanctions for some reason or other. According to the economic sanctions, unilaterally imposed by the US, export of oil by both these nations are restricted. For Venezuela, US sanctions have restricted the types and sources of fuel it can export (hitting its major income) and import.

With this kind of oil trade between Iran and Venezuela, a new club is emerging in the horizon where the countries facing economic sanctions from US are cooperating with each other and consolidating the position.

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