The OFAC’s new licenses regime for Venezuela
Maurel et Prom’s installations in Lake Maracaibo, Venezuela.
On May 6th, the OFAC approved Maurel et Prom’s specific license in relation to its Petroregional del Lago joint venture, in Lake Maracaibo. The Paris-based company submitted its bid back on September 1st, 2023 before General License 44 was introduced.
GL 44 allowed for transactions related to Venezuelan oil for six months, starting in October. On April 17th, the Biden administration announced that upon its expiration the following day, GL 44A would be introduced to create a wind-down period. During that time, companies can seek non-public special licenses.
According to the M&P press release, the specific license allows for US banks and other entities to engage with the company with regards to its Petroregional del Lago joint venture, located in Lake Maracaibo.
In November, M&P signed a Chevron-style deal to bring production to 50,000-64,000 b/d from 16,500 b/d. This Chevron model allows for the private partner in joint ventures to have greater control over operations and finances.
Shortly after, it was made public that Reliance Industries, an Indian oil refiner, renewed its bid for a license to buy crude from the South American country. Before the 2019 round of sanctions, Reliance was the second-largest individual buyer of Venezuelan crude, behind CNPC.
Colombia’s Ecopetrol is also seeking a license from the OFAC to import natural gas from Venezuela, as the country is forecasted to have a deficit of the fuel for 2025. According to Ecopetrol president Ricardo Roa, it is also urgent to repair the gas pipeline connecting with Venezuela from the Colombian side, which will take 10 to 12 months.
In the last year, multiple oil companies, including Reliance, have requested specific licenses from OFAC, especially while GL 44 was in force. None was approved during that period, safe for one related to Chevron. The US oil giant was granted a license in November 2022 (GL 41); a year later GL 8M was introduced for four US companies that offered services to Chevron’s operations.
Repsol and Shell will continue to operate with comfort letters. Repsol already has a strong presence in oil and gas, and is seeking to double its production this year in its current joint ventures to 40,000 b/d. The Spanish company is also in talks for new projects. Meanwhile, Shell is working on a new venture with Trinidad’s National Gas Company to exploit the Dragon offshore gas field.
In view of these developments, it seems that the Biden administration is favouring the return of non-US oil companies to Venezuela. That is, to gradually re-insert Venezuela into global oil and gas markets, without facing political backlash in the runup to the US presidential election in November.
This situation should change in the short term, as it makes little sense for US strategic interests to deliberately leave out American companies while opening the door to the rest.
New environment causing losses
On May 1st, Vice President Delcy Rodriguez said that the country suffered $2bn in losses from April 18th. Though the figure was not explained in detail and cannot be confirmed, anecdotal evidence from traders suggests that more tankers are reluctant to dock in Venezuela even during the wind-down period, while shipping and insurance costs have risen. The government’s press office declined to comment.
Local traders have also reported new problems when dealing with the international banking system, after earning a respite under GL 44. Venezuela’s Merey crude has also seen its discount to Brent—a US benchmark—broaden again, after having narrowed from $30 before GL 44 to less than $10 at the start of the year. Shipments are also increasingly rerouted to Asia, which is geographically further away and thus more costly.
