Venezuela Crude Refinery Burns a Fourth Day After 48 Killed

Firefighters battled a blaze at Venezuela’s biggest oil refinery for a fourth day today, pushing out forecasts for resuming production. Gasoline traded near a four-month high in New York.
President Hugo Chavez said firemen extinguished the fire in one of the tanks holding naphtha at the Amuay refinery even as a third one started at 2:15 p.m. local time day before yesterday. The flames could still be seen raging from several miles away last night. There was no structural damage to the processing units at the facility about 240 miles (384 kilometers) west of Caracas and exports haven’t been affected, Oil Minister Rafael Ramirez said.
“Breaking news: at this moment we’ve extinguished the fire in tank 400 of Amuay,” Chavez wrote on his Twitter account at 11:40 p.m. yesterday. “Efforts to extinguish the fire in tank 403 have advanced 75 percent.”
Chavez, who faces elections in October, declared three days of mourning for the 48 killed by the refinery accident and has toured the affected areas. An explosion occurred after a gas cloud formed and erupted into a ball of flames that engulfed a military post as well as homes and shops in front of the refining complex. The shutdown threatens supplies of refined products as U.S. Gulf Coast plants halt operations with Tropical Storm Isaac heading toward the region.
Chavez said he ordered an investigation into the accident.
Gasoline Inventories
Venezuela has stockpiles of 4 million barrels of gasoline and other petroleum products and continues to produce 735,000 barrels of the motor fuel a day at plants, including nearby Cardon, according to Ramirez. Amuay, which has capacity to produce 645,000 barrels a day, will be restarted within two days after all of the fires have been extinguished, he said.
PDVSA, as the Caracas-based company is known, has 10 days of inventory to meet its supply obligations internally and externally, Ramirez said Aug. 25. The state-owned company shipped five tankers of crude oil from Paraguana Aug. 26, he said that day.
“It’s probably going to be far longer than their public statements given the track record we’ve seen of maintenance at PDVSA facilities over the last couple of years,” Andy Lipow, president of Houston-based Lipow Oil Associates LLC, said by phone. “I think it concerns the market that it could take a long time given that it’s their largest refining complex.”
Refinery Accidents
PDVSA is the sole owner and operator of the refinery. The blast is among the world’s deadliest at an oil refinery. Fifteen workers were killed at BP Plc (BP/)’s Texas City refinery in 2005, while more than 50 people died in a fire at Hindustan Petroleum Corp.’s refinery in Visakhapatnam, India, in 1997.
Amuay, Cardon and Bajo Grande form the Paraguana complex, which has capacity of about 950,000 barrels a day. That’s second in size to Reliance Industries Ltd. (RIL)’s Jamnagar refinery in India, according to data compiled by Bloomberg. CRP, as the complex is known, supplies 67 percent of gasoline to the local market, according to PDVSA’s website. Cardon and Amuay also export refined products to the Caribbean and the U.S.
Stella Lugo, governor of Falcon state in western Venezuela, described the early-morning blast as similar to an earthquake. Lugo told Union Radio yesterday that the death toll had risen to 48 from a previous estimate of 39.
The National Guard stationed at the refinery bore the brunt of the deaths, including 18 troops and 15 family members, according to Vice President Elias Jaua. More than 500 homes in vicinity of the plant have been damaged, Chavez said yesterday.
Prices Rise
Gasoline rose to the highest level in almost four months yesterday as some refineries shut with the approach of Isaac and the disruption at Amuay. BP and other companies have suspended some crude and gas operations in the Gulf of Mexico. The area is home to 23 percent of U.S. oil production and 44 percent of refining capacity, according to the U.S. Energy Department.
Gasoline for September delivery advanced 7.68 cents to $3.1548 a gallon at regular trading on the New York Mercantile Exchange yesterday, the highest settlement since April 30. It fell 0.4 percent to $3.1416 in electronic trading at 6:47 a.m. in New York.
Yesterday’s “price action probably already discounts refinery outages of a few days duration,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in an e- mailed response to questions yesterday. “If refineries are in restart mode by the end of the week we could see the futures market rebalance. If the outages are extended beyond the next few days, then we’d look for more gains for gasoline and more weakness in crude.”
Refiners with Texas operations that are less exposed to Isaac stand to benefit by exporting more product after the Venezuela explosion, said John Auers, senior vice president at Turner Mason & Company, a Dallas-based energy consultant.
U.S. Refiners
“On a sustainable basis, Venezuela hasn’t been able to produce as much product as they used to,” Auers said by telephone. “The U.S. refiners have taken their place. Now in a short term, they certainly can step up and do even more.”
Shares in Valero Energy Corp. (VLO), based in San Antonio, Texas, jumped 5.2 percent to $30.77 yesterday, while Marathon Petroleum Corp., based in Findlay, Ohio, gained 1.7 percent to $49.60.
The fire at Amuay, which opened in 1950, highlights the risk to supplies of oil products from large, aging plants and may lead to more exports from Asia to the U.S., according to Goldman Sachs Group Inc.
Other major refinery fires elsewhere caused months of delays before full operations resumed, Nilesh Banerjee, an analyst at Goldman in Mumbai, said in a note e-mailed yesterday.
Venezuela, one of the 12 members of the Organization of Petroleum Exporting Countries and South America’s biggest crude producer, had an average output of 2.7 million barrels of oil a day last year, according to BP statistics. Its main export markets are the U.S. and China.
Crude Exports
Venezuela was the fourth-largest source of crude for the U.S. in May, after Canada, Saudi Arabia and Mexico, at 821,000 barrels a day, based on data from the U.S. Energy Information Agency. Venezuelan product imports from the U.S. nearly doubled in the first five months of 2012 to 38,000 barrels a day from 23,000 in the year earlier period, according to the EIA. They include gasoline, fuel additives and liquefied petroleum gas.
Cardon has closed units several times this year after incidents. PDVSA had to halt production and evacuate workers from its Petropiar heavy-crude upgrader last year after a gas leak and a fire.
Jose Bodas, an oil union leader, told Globovision on Aug. 25 that PDVSA has ignored calls by workers to improve “hazardous” working conditions at refineries.
Seven out of nine planned maintenance programs for the Amuay refinery were postponed last year because of a lack of materials, according to PDVSA’s 2011 annual report.
Maintenance
Ramirez denied that PDVSA has failed to invest in maintenance and said the company spent $6 billion in the past five years on its refining circuit. Chavez also denied reports that the leak of gas had begun hours before the explosion.
Repairs to the refinery once the fire is put out will take three to five days if damage is confined to storage tanks, James Williams, an economist at WTRG, an energy-research firm in London, Arkansas, said by phone. Bringing the refinery back online may expose faulty equipment that slows a full recovery in production, leading Venezuela to compete to import gasoline that otherwise would go to other countries, Williams said.
“You have to warm everything back up,” he said. “The real problem is the refinery infrastructure which has been poorly maintained.”
Source: Bloomberg