Business News Americas (BNamericas)
October 3, 2003
the Bitor subsidiary of Venezuela’s state oil company PDVSA is negotiating with its foreign clients to increase the price of orimulsion by about 50% to US$45 a ton, a Bitor source told
The Venezuelan government’s announcement in early September that it will not sign any more orimulsion contracts and absorb Bitor’s operations into PDVSA East has caused foreign power companies to worry that PDVSA could cut off their fuel supply. However, PDVSA intends to fulfill Bitor’s existing contract obligations, the source confirmed, albeit with substantial price increases. Bitor wants “to optimize the profitability of the business,” the source said. It’s “logical” that Venezuela’s government wants to negotiate the best price it can get for its heavy crude reserves, but that doesn’t mean it should abandon companies that have already converted their plants to use orimulsion, the president of the Anzoategui chapter of Venezuela’s oil chamber, Jose Antonio Perez told BNamericas.
Bitor is the world’s only producer of orimulsion, so has its clients over a barrel, as they have already invested heavily in converting coal-fired thermoelectric plants to burn orimulsion. Faced with the alternative of Bitor cutting supplies altogether, the clients have no choice but to negotiate.
“Once these plants have been converted to use orimulsion as fuel, you definitely can’t turn around and say that tomorrow we are not going to produce any more and leave you hanging with your plant already built,” Perez said. Orimulsion, a 70:30 mix of extra heavy crude and water, currently sells for about US$32-US$33 a ton, which analysts say is so cheap that it is undercutting crude oil prices. PDVSA realized that “in an environment of declining oil prices, the thought of competing against yourself and OPEC may be thought of unfavorably by other OPEC members,” Canadian research group Energy Probe‘s executive director Tom Adams told BNamericas. In addition, “there was an expectation that orimulsion would become a very popular fuel and that hasn’t materialized,” Adams added. Orimulsion is a “good business” for Venezuela owing to its large quantity of reserves, some 267 billion barrels, and the government should even consider using orimulsion to generate power at home, Perez said.