RIL to Use Naphtha Supplies for Venezuelan Crude Payment

India’s Reliance Industries Ltd. (RIL), which operates the world’s largest refining complex,  plans to partially pay for crude oil purchases from Venezuela using naphtha supplies, according to the reports. This decision follows U.S. approval granted in July 2024, allowing the company to resume oil trade with the sanctioned South American nation.

Background

Reliance had to halt direct crude oil purchases from Venezuela in April 2024 due to re-imposed U.S. sanctions. However, after re-submitting a request in May,  they were granted approval, enabling the resumption of trade which aligns with the company’s history of similar transactions with Venezuela’s state-owned oil company, PDVSA, where naphtha is utilized as a diluent for Venezuela’s heavy crude.

Naphtha Supply Arrangement

This new deal allows RIL to partially pay for Venezuelan crude with naphtha, a refined product sourced from the U.S. The balance of the crude purchase will be paid in dollars and the arrangement is expected to ease Venezuela’s need for naphtha, which is important for diluting its heavy crude, while making sure of a steady supply of crude for RIL’s refineries.

Refining Capacity & Operations

RIL operates two major refineries in Gujarat, India, with a combined processing capacity of approximately 1.4 million barrels per day (bpd). The advanced technology of these refineries allows them to process heavier and cheaper crudes, such as Venezuela’s Merey crude.

Challenges & Delays

Despite the authorization, challenges remain. Venezuelan oil production has not scaled up quickly enough to meet the demand from both existing and new customers. Loading schedules at Venezuelan ports have been overbooked, leading to delays of up to 60 days in some cases. RIL last received 2 million barrels of Venezuelan oil in June 2024, but concerns persist regarding potential disruptions if the U.S. alters its stance on Venezuela.

Conclusion: In conclusion, RIL’s plans to use naphtha for partial payment offers a solution to continue its oil trade with Venezuela while navigating the complexities of U.S. sanctions. However, the success of this arrangement will depend on Venezuela’s ability to meet production demands and maintain stable delivery schedules.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.