PDVSA and Valero in talks to restart Aruba refinery units

HOUSTON - Venezuela's state-run oil company, PDVSA, and U.S. refiner Valero Energy Corp are running tests to evaluate the restart of five units at the 235,000 barrel per day (bpd) Aruba refinery, which was shut last year because of high costs, according to three sources familiar with the situation.
The Aruba refinery was closed in September 2012 when owner Valero reduced its workforce and stopped units at the refinery, which cannot convert heavy crudes into light products because it lacks deep conversion plants.
Valero has been using the facility in the Caribbean to store its own refined products and also some PDVSA feed stocks, mainly heavy naphtha from the 955,000 bpd Paraguana Refining Center in western Venezuela, traders with knowledge of the operations told Reuters.
The Aruba refinery would offer PDVSA heavy fuels to mix with its own heavy crudes, along with storage space that it partially lost in 2012 after several fires in its refining network.
The sources said PDVSA could lease the units from Valero and pay for their use with oil.
"PDVSA is interested in two crude distillation units, one hydrotreater, one hydrocracker and one coker. The company is asking Valero to restart those units to process Venezuelan crude," a source from the refinery told Reuters.
PDVSA, which has well-known cash flow problems, is already leasing tanks in Aruba from Valero and paying for the space with crude sent directly to the United States, the sources added.
Valero declined to comment about a possible deal or current business arrangements, but said it has been using the refinery as a storage terminal and has maintained equipment so the plant could be restarted if a buyer was found. Valero said it buys 100 types of oil, including Venezuelan.
PDVSA did not immediately respond to a request for comment.
Aruba Prime Minister Mike Eman told local media last month that the government was interested in restarting the refinery, and that PDVSA would operate it if talks with Valero were successful. But he added that a deal was still far from being reached.
Previous talks between Valero and companies interested in buying the refinery, including PetroChina and PDVSA, did not succeed.
Having sold several international facilities starting in 2007, and with shipments to many Caribbean countries growing, PDVSA needs additional space to store its oil.
"PDVSA is delivering the crude to Valero at Venezuelan ports and Valero is sending most of it to its refineries in the United States," a trader said.
Valero imported an average of 177,830 bpd of Venezuelan crude this year, a 28.5 percent rise from last year, according to U.S. Energy Information Administration figures updated until August.
The company imported 116 cargoes of crude and jet fuel from Venezuela in 2013, while PDVSA's Citgo unit in the United States received 92, EIA data said.
Valero also told Reuters the U.S. company is supporting the construction of the Keystone XL pipeline from Canada to the Gulf Coast to replace declining supplies of Mexican and South American heavy crude oil with ample stocks from Canada.
Under the agreement, Valero is not allowed to resell the Venezuelan crude, the sources added.
PDVSA and its private partners in Venezuela need to obtain heavy naphtha to mix it with the increasing output of heavy crudes in the Orinoco belt and create diluted crude oil (DCO), as the light crudes used to generate blends such as Merey 16 decline.
Mixing is expected to increase over the next four years as half a dozen joint ventures between PDVSA and companies such as Spain's Repsol SA, Chevron Corp, Italy's ENI SpA, China's CNPC and Russia's Rosneft build upgraders to convert extra-heavy crudes into export products.
Even though the Aruba refinery is not designed to convert heavy crudes into light products such as gasoline and diesel, it could produce heavy naphtha and its location close to the Venezuelan coast would allow PDVSA to import products for its joint ventures in less than a day.
It would be a better option than buying naphtha on the open market, some traders said. But others pointed out that importing light crudes or natural gasoline to produce better blends instead of DCO would open a bigger market for PDVSA amid increasing domestic crude output in the United States.
PDVSA secures heavy naphtha once a year through tenders. The company launched an offer in November to buy up to eight 500,000 barrel cargoes in the coming months, but it has also been reluctant to import crudes.
Aruba is one of the 16 refineries owned by Texas-based Valero. It bought the Aruba plant in 2004 to have distillates and intermediate feed stocks that could be marketed in U.S. Gulf Coast, Florida, New York Harbor, the Caribbean, South America and Europe.
But growing domestic production of cheaper, lighter crudes in the United States means refineries have ramped up exports of finished products as they cut imports of feed stocks from plants such as Aruba..
With ample supplies at its U.S refineries, Valero converted Aruba into a terminal that can store up to 12 million barrels in 63 tanks, receive ultra-large crude carriers in its deepwater marine docks and fill tankers with refined products in six other docks.

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