McPherse Thompson, Assistant Editor - Business
Jamaica has been assured that its supplies of oil will not be interrupted, despite a massive fire that shutdown the PDVSA's largest refinery last Saturday.
The fire, which erupted at the Amuay refinery in western Venezuela, lasted for more than three days. But Jamaica's state-owned oil refinery Petrojam, which buys its oil from Venezuela, said that after the explosion, PDVSA indicated that the plant should resume operations by today, August 31.
"Subsequent to the explosion, Venezuela has assured the continuity of supply of both crude and clean (finished) products to Jamaica," said Petrojam's Public Relations Officer, Latoya Pennant, in emailed responses to questions posed by the Financial Gleaner.
"Should operations resume in the time frame indicated, the impact on Jamaica at this time, as far as we are aware, should be minimal," she said.
The Associated Press reported earlier this week that the intense fire at the Amuay refinery, which claimed the lives or more than 40 people and was extinguished on Tuesday, was one of the factors contributing to increasing oil prices, which rose to more than US$96 a barrel that day.
However, commenting on the implication of the explosion on the prices at which Jamaica buys petroleum products, Petrojam said it was important to note that the factors affecting the prices of crude oil and finished products vary.
other contributing factors
And while it could not speak definitively to the report about the fire as a cause of the increasing prices, Petrojam said "there are other factors that are contributing to current oil price movements", among them Tropical Storm Isaac and its impact on the Gulf of Mexico's oil and refinery operations.
On Tuesday, the United States government reported that nearly 94 per cent or 1.3 million barrels per day of oil production in the Gulf was halted as a precautionary measure in preparation for the passage of the tropical storm, which later strengthened into a Category 1 hurricane.
Refinery owners reportedly often shut down operations in advance of a storm. This is explained by the reality that the facilities consume vast amounts of electric power and generate steam to cook crude oil into gasoline, diesel, jet fuel and heating oil. If a refinery loses power suddenly, operators can't properly clear the partially cooked oil out of pipes, and restarting the refinery can take several days or even weeks.
If refineries instead conduct what is described as an orderly shutdown, they can restart as soon as power supply is again guaranteed.
ripple effect from gulf coast region
Petrojam said the refinery closures in the Gulf Coast region have also impacted crude and product prices differently, in that gasolene prices have increased as refineries have halted operations.
"At the same time, the price of crude oil has decreased due to reduction in demand from these same refineries. Now that the impact of the storm has been determined, you will note the price of crude oil is starting to go back up in anticipation of these same refineries resuming operations," Petrojam said.
"In addition," it said, "the prices at which Venezuela sells crude to Jamaica is market-determined based on the West Texas Intermediate reference prices. The impact of any price movements would, therefore, not be unique to Jamaica, but to all who purchase petroleum products in the region."
Petrojam also pointed out that "the explosion at the Amuay refinery does not affect the price of crude oil to Jamaica" because it supplies finished products, not crude.
The Amuay refinery is reportedly among the world's largest refineries and is part of the Paraguana Refining Centre, which also includes the Cardon refinery. Together, they process about 900,000 barrels of crude per day and 200,000 barrels of gasolene.
Venezuela supplies about two-thirds of Jamaica's petroleum needs under the deferred financing arrangement of the PetroCaribe Energy Cooperation Agreement, a bilateral concord entered into in August 2005.
Under the agreement, Jamaica is allowed a quota of at least 21,000 barrels of oil per day. Jamaica currently pays 40 per cent of the the PetroCaribe oil bill upfront to Venezuela, while 60 per cent is converted into a long-term loan used by Jamaica for development and project financing.