Venezuela’s fuel crisis is not just about gasoline. The diesel crisis is causing delays in supplies chains and boosting inflation. Armando Díaz dives into the causes and consequences.
By Caracas Chronicles – Armando Díaz
Sep 8, 2021
The first time the diesel shortage started to become evident was probably one year ago. The infamous lines in front of gas stations were only for vehicles that run on gasoline, diesel (or gasoil, as it’s known in Venezuela) engines seemed to have been spared. Today, the lines are as bad for both.
Antero Alvarado is a consultant and the regional director of Gas Energy LA. He explains that a year ago PDVSA could still import diesel in exchange for crude oil, through swaps. Back then, PDVSA would produce some diesel that was high in sulfur, lower quality than the one being imported. This output would cover the industrial, electric, and transportation sector, which includes heavy freight and passengers. “In November 2020, these exchanges of diesel and crude oil were suspended,” Alvarado says, “as part of the maximum pressure strategy by the Trump administration, which was looking for PDVSA to stop exporting altogether and causing an inventory collapse, resulting in Maduro being overthrown. But none of that happened.”
The sanctions were the cherry on top for Venezuelan refineries which, must be said, had been suffering a prolonged abandonment.
“They were in very bad shape, but little by little they’ve been recovering production; compared to the beginning of the year, when it was very low.” The State managed to get a hold of a large shipment of diesel in May, Alvarado explains, “no one knows where it came from, but it was able to supply the domestic market.”
In fact, PDVSA handles constant dispatches of ghost tankers, vessels that arrive in Venezuela with their trackers off, fake names and, in most cases, unknown cargoes. During the height of the diesel crisis (which hasn’t gone away), Venezuela might’ve received other shipments to keep stocks at a minimum and to distribute to Cuba as it has done with other fuels that are critical to the island.
“Today PDVSA doesn’t depend that much on imports as before because they’ve been fixing refineries, but you still need between fifteen and twenty percent more to cover the demand,” says Alvarado.
Some oil experts estimate that before the pandemic, Venezuela consumed between 60,000 and 65,000 diesel barrels per day. According to data by FEDECÁMARAS’ Digital Observatory of Productivity, 89.4% of companies linked to construction, food, and other sectors were having problems buying fuel. They estimate that monthly demand requires 9,259,405 lts. of diesel. Mariel Velma, executive director of the Cámara de Transporte del Centro, pointed out that 90% of heavy freight units are being affected.
Antero Alvarado insists that restrictions on these swaps have never made sense. “They thought that PDVSA would be the most affected, but in the end, it’s the people who are affected. Everything runs on diesel. And for the government, they have become the perfect excuse.”
It’s known that Venezuelan refineries could process up to 1.3 million barrels of heavy and extra heavy crude per day, but between all the refineries they hardly reach 12% of their operative capacity, as Francisco Monaldi, from the Baker Institute, has explained. In terms of diesel, Monaldi has said that in 2016, 120,000 barrels were produced per day, while the number is closer to 30,000 today.
Former president of PDVSA, José Toro Hardy, claims that the company’s decline began with the mass dismissals Chávez did in 2003. Over 20,000 employees were fired from PDVSA, most of them with over fifteen years of experience. “PDVSA never recovered from that loss,” he says.
Through the years, problems became evident, although in the first five, good maintenance still allowed minor imperfections. In 2008, things started to get more serious, and in 2014, when oil prices dropped, a deadly combination of poor maintenance and unprepared staff completed the formula. In 2008, the oil company produced 3.26 million barrels of crude per day. In 2020, it hit the 400,000 mark, the lowest in 80 years.
Toro Hardy regrets that this new episode happens during the sowing season. Agro-industrial machinery depends on diesel fuel, just like the transport from the production centers to the consumer. “If there’s no electricity they turn to electric generators which run on diesel.” Toro Hardy pans across the national map and points the most hurt: the Andean states, Falcón, Monagas, Lara, Nueva Esparta, Bolívar, Zulia, and Carabobo.
The Industry Cooled Down
In Valencia, right in the middle of the country, where in the second half of the 20th century 39 industrial facilities were built, in over five thousand hectares, to supply products to all of Venezuela and export to other countries through Puerto Cabello, very few of those industries remain active.
Antonello Lorusso, president of the Cámara de Medianos y Pequeños Industriales y Artesanos de Carabobo (the Carabobo Chamber for Small and Medium-sized Entrepreneurs and Artisans), has seen the downfall of companies, especially since 2015. “It’s the result of a lack of investment and the drop of the GDP. Not because of the sanctions”. Lorusso has a company that distributes food supplies to different regions. His workers sleep five or six nights in a row, in a gas station, to get about 200 liters of diesel. “That’s not enough to do a 200 km round trip.”
Lorusso feels that, as time goes by, problems keep adding up and even if they look for solutions, a new conflict always comes up. The crisis has led to over 400 companies attached to CAPEMIAC to produce below 20 percent. It’s a fluctuating number. Sometimes it goes up to 35 percent, but each time the low point is lower. In spite of having such low production levels, the Instituto Municipal de Ambiente (the Municipal Institute of the Environment) keeps increasing the taxes. “We produce less, but we get charged more,” Lorusso says.
With the diesel shortage, most workers struggle to get to their jobs. Lines in some of the bus stops of Carabobo’s capital are enormous. “It’s very expensive for the staff to commute on a daily basis. You can imagine that not having our employees makes us less productive,” Lorusso says.
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Read More: Caracas Chronicles – Diesel shortage strangles Venezuelan wholesalers
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