US embassy cable - 05CARACAS773

C O N F I D E N T I A L  CARACAS 000773 
 
SIPDIS 
 
 
NSC FOR CBARTON 
ENERGY FOR DPUMPHREY & ALOCKWOOD 
TOKYO FOR SFLATT 
 
E.O. 12958: DECL: 03/10/2015 
TAGS: EPET, VE 
SUBJECT: VENEZUELA:  CRUDE DIVERTED FROM U.S. TO CHINA AND 
INDIA? 
 
REF: CARACAS 713 
 
Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b) 
and (d) 
 
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SUMMARY 
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1. (C) A Venezuelan shipping agent has reportedly brokered 
the lease of two VLCCs (very large crude carriers) to PDVSA 
for use in shipping crude to China and India.  Our source 
believes this trader is now negotiating the lease of two 
additional VLCCs.  Another source reports that the Energy 
Ministry has instructed traders to start to divert any 
shipments they can away from the U.S. to other buyers.  End 
Summary. 
 
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VLCC LEASE 
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2. (C) A U.S. executive whose company has had long term 
involvement in the sales, marketing and transport of 
Venezuelan heavy oil, informed econoff March 11 that Wilmer 
Ruperti, a Venezuela-based shipping agent and trader, closed 
a deal recently for the lease of two VLCCs to Venezuelan 
state oil corporation Petroleos de Venezuela (PDVSA) for use 
in shipping crude to Asia.  These will reportedly be 
five-year leases.  The U.S. executive believes Ruperti is now 
brokering the lease of two additional VLCCs with companies 
identified as World Wide Tankers and/or Fredrickson.  He 
believes the VLCCs will be operated by Novoship, a Russian 
company. 
 
3. (C) The U.S. executive asserts that as contracts for the 
sale of Venezuela's Mesa and Santa Barbara crudes held by 
ConocoPhillips, ExxonMobil, Premcor and Valero expire they 
will be replaced with sales to India and China as well as 
other Far East buyers.  The additional freight costs will, he 
said, be off-set because once the VLCCs off-load their 
Venezuelan cargo they will go to India to load Basra or other 
Arabian Gulf crudes for other Asian, European or U.S. 
destinations.  He added that although PDVSA will lose money 
relative to selling into the U.S. market (as much as $6 per 
barrel according to the one contract with China we have seen 
so far), this would be acceptable because of gains to 
Venezuelan businessmen such as Ruperti who will be expected 
to use at least some of the money they have made in support 
of the Chavez Administration. 
 
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DIVERTING CONTRACTS FROM U.S.? 
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4. (C) Separately, an ExxonMobil manager told econoff March 
10 that a long term source had informed him early in the week 
of March 7 that the Energy Ministry has instructed "traders" 
to start to divert any shipments they can away from the U.S. 
to other buyers. 
 
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COMMENT 
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5. (C) If these reports are true, the GOV is taking actions 
in support of President Chavez's public statements about 
selling oil to Asian markets, and in contradiction to Foreign 
Minister Rodriguez's recent affirmations that the GOV would 
continue to sell oil to the U.S. and would cover exports to 
Asia through increased production (see reftel).  The lease of 
VLCCs would also serve to put some teeth into his threats to 
cut off oil shipments to the U.S. 
 
6. (C) A good part of the approximately 1.5 million barrels 
per day of Venezuelan oil that flows into the U.S. market, 
however, is sold under long-term supply agreements to CITGO 
and other buyers such as those listed above.  According to 
 
 
the Form S-4 filed by CITGO with the SEC on January 18, 2005, 
PDVSA's supply agreements with the individual CITGO 
refineries expire in 2006 through 2013.  The S-4 goes on to 
state that the supply agreements give either party a right to 
terminate the agreements upon six months notice if PDVSA no 
longer retains an ownership interest.  Although the GOV is 
showing an increasing willingness to disavow contract terms, 
it is likely that those supply agreements will be honored 
unless PDVSA sells CITGO or there is a major rupture in the 
bilateral relationship.  The GOV's continued need for massive 
amounts of cash to finance its aggressive social spending 
program would also militate against a major shift away from 
the U.S. market in the near term.  But crude shipments to 
China and India, even if on a token scale for now, should be 
considered as an expanded market development effort on the 
part of the GOV and as fulfillment of President Chavez's 
public statements. 
Brownfield 
 
 
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      2005CARACA00773 - CONFIDENTIAL