Cuban refinery cuts production in half because of drop in Venezuelan oil

The oil crisis in Venezuela has struck at the center of Cuba.

The drop in Venezuelan oil deliveries to the island has led to a major cut in production at a refinery in Cienfuegos managed by the two countries, a Cuban Communist Party official has confirmed.

Lidia Esther Brunet, the party’s chief for Cienfuegos province in central Cuba, said production this year at the Camilo Cienfuegos refinery — built during the Soviet era — has been cut by half. And plans to build an adjoining petrochemical complex with Venezuelan investments have been put on hold, she added.

“The arrival of crude to be processed in our refinery has in fact been limited,” Brunet was quoted as saying by China’s Xinhua news agency. “This year it will not meet the established target, which it did every year since … [2007] and the reasons are known — the issue of contract, the issue of Venezuela and other issues.”

Brunet said the refinery would process about 9.43 million barrels this year, barely 53 percent of its target.

The cut in production could mean the loss of jobs for hundreds of employees in a province with little else to offer in an already struggling economy.

“Right now it is not processing Venezuelan crude. The deliveries dropped substantially since last year,” said one refinery employee who asked for anonymity to speak frankly about the problem.

Another employee told el Nuevo Herald that the refinery has been processing crude from Algeria. “The situation is not stable. We started up again Sunday, but sometimes you stop and start again. We’re all afraid that in the end we will wind up without a job. That would be a tremendous blow,” the employee said.

Luis Morillo, general director of the Cuba operations for PDVSA, Venezuela’s state oil monopoly, announced in July that the refinery would be partially closed “for maintenance” for periods totaling three months over the remainder of the year.

“The statements confirm what was already announced. Cienfuegos is not operating, but not because of technical problems. Rather, Venezuela does not have enough medium crude to send to the Cuban refinery,” said Jorge Piñón, interim director of the Center for International Energy and Environmental Policy at the University of Texas at Austin. “It’s not so much Cienfuegos. It’s Venezuela.”

Piñón, who has been monitoring the movement of oil tankers in the Caribbean area, said that the announcment also confirms the reduction of Venezuela supplies to the refinery. “There’s been almost no traffic to Cienfuegos in the last three or four months,” he said.

The refinery’s expansion plans included increasing its processing capacity to 150,000 barrels per day, the construction of a plant for olefins and aromatics, an expansion of its storage capacity and the reactivation of a pipeline from Cienfuegos on Cuba’s southern coast to Matanzas on the northern coast.

“The word among refinery executives is that the joint venture [Cuvenpetrol S.A.] could be closed because of the economic situation in Venezuela, and Cuba would then wait for another country to take on the 49 percent investment,” said one of the refinery employees.

“The big problem is that the refinery has never been profitable because that would have required a series of investments … that were never made,” added the employee. “There’s been no staff reduction so far, but it’s on the way.”

More than 500 people currently work at the refinery. Official figures in 2010 stated the refinery employed 780 people.

The drop in Venezuelan oil deliveries has not been felt more strongly in Cuba because Havana has imported oil from other sources, which is largely arriving at the port of Matanzas, Piñón said.

Cuban Foreign Trade Minister Rodrigo Malmierca on Monday acknowledged that the island’s economy, hammered by the Venezuelan crisis, would not achieve the government’s prediction of 1 percent growth in Gross Domestic Product this year.

Over the summer, the government announced cuts in electricity and fuel supplies, primarily at state enterprises. The central government assigned tight quotas to each enterprise and warned that if they went over, they would be forced to shut down and send employees home “on vacation.”

Part of the fuel supplied to state enterprises regularly winds up on the black market, sold to private vehicle owners. The prices of private transportation such as taxis and trucks have risen since the new quotas were established.

Cuban ruler Raúl Castro acknowledged the drop in Venezuela’s oil supplies during a speech in July but gave no details. Piñón has estimated it at 25 percent, and the Reuters news agency, quoting internal PDVSA data, put the drop during the first half of 2016 at 40 percent.

The mutual cooperation agreement between Venezuela and Cuba to exchange oil for medical services was signed 16 years ago.

The Cuban government has not reported its domestic oil production or refinery statistics for 2015.

This story was originally published November 2, 2016 at 3:18 PM with the headline "Cuban refinery cuts production in half because of drop in Venezuelan oil."