Special Report: How China got shipments of Venezuelan oil despite U.S.
sanctions
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[June 12, 2020]
By Luc Cohen and Marianna Parraga
CARACAS/MEXICO CITY(Reuters) - Last year,
China replaced the United States as the No. 1 importer of oil from
Venezuela, yet another front in the heated rivalry between Washington
and Beijing.
The United States had imposed sanctions on Venezuela's state-owned oil
company as part of a bid to topple that country's socialist president,
Nicolas Maduro. U.S. refineries stopped buying Venezuelan crude.
Caracas' ally China, long a major customer, suddenly found itself the
top purchaser. Through the first six months of 2019, it imported an
average of 350,000 barrels per day of crude from Venezuela.
But in August, Washington tightened its sanctions on Venezuela, warning
that any foreign entity that continued to do business with the South
American country's government could find itself subject to sanctions.
State-owned China National Petroleum Corp, known as CNPC, stopped
loading oil at Venezuelan ports that month. China's import data showed
purchases started to slow, and by late 2019, abruptly stopped.
China's largest oil company, like customers in some other countries,
seemed to be knuckling under to U.S. President Donald Trump's threats,
despite Chinese President Xi Jinping's professed support for Maduro.
But China never stopped buying. Crude from Petroleos de Venezuela SA, or
PDVSA, kept arriving at Chinese ports with the help of a
Switzerland-based unit of Rosneft, Russia's state-owned oil company, and
a roundabout delivery method that made it appear as if the oil's origin
was Malaysia, Reuters has found.
Between July 1 and Dec. 31, tanker ships delivered at least 18 shipments
totaling 19.7 million barrels of rebranded Venezuelan crude to Chinese
ports, Reuters determined. That finding is based on a review of
ship-tracking data, internal PDVSA documents and interviews with four
petroleum analysts who have tracked flows of Venezuelan oil around the
globe.
A unit of CNPC chartered at least one of those tankers, meaning it was
responsible for the oil aboard, the ship-tracking data show. That
vessel, called the Adventure, took on Venezuelan crude on July 18 and
discharged it in China on Sept. 4, the data show. No charter information
was available for the other ships that offloaded crude in China.
CNPC did not respond to requests for comment.
Those 18 shipments represented more than 5% of Venezuela's total exports
in 2019, worth around $1 billion at market prices for the country's
flagship crude grade, known as Merey, based on OPEC figures. The sales
provided much-needed support to Maduro's government, though Reuters
could not determine how much was added to state coffers; PDVSA often
sells its crude at steep discounts, and some of its sales go to pay down
debt rather than generate cash.
The mislabeled shipments have continued into this year, Reuters found.
The review used data available on financial information provider
Refinitiv Eikon, photos culled from satellite imagery and Automatic
Identification System (AIS) data transmitted by oil tankers. New
York-based Refinitiv is part-owned by Reuters' parent company, Thomson
Reuters.
The shipping method - involving the transfer of oil between tanker ships
at sea – has for months been under scrutiny by the Trump administration.
Washington in February slapped sanctions on Rosneft Trading SA, the
Geneva-based subsidiary of Rosneft <ROSN.MM>, which it alleges was
helping Venezuela to export its oil using so-called ship-to-ship (STS)
transfers to mask the true origin of the crude. Rosneft denied
wrongdoing.
"The Company has always been conducting and is conducting its business
in full compliance with applicable international legislation," Rosneft
said in a June 5 statement in response to questions for this article.
Russia's energy ministry did not reply to a request for comment.
China's indirect imports of Venezuelan crude fall into something of a
gray zone, according to Peter Harrell, a sanctions expert at the Center
for a New American Security think tank in Washington.
Harrell believes U.S. sanctions give Washington authority to punish
foreign companies that purchase PDVSA oil through a middleman -
particularly if the company "knows or should have known it was
Venezuelan crude." But that does not obligate the U.S. government to
act.
"At the end of the day, these sanctions are fundamentally policy calls,"
Harrell said.
Reuters could not independently verify if China knew the oil that
reached its shores via Rosneft Trading came from Venezuela.
The U.S. Treasury Department, which enforces trade sanctions, declined
to comment.
Asked about the Reuters findings, Elliott Abrams, the U.S. State
Department's special representative for Venezuela, said in an interview
that potential U.S. sanctions against Chinese companies purchasing
transshipped crude were "on the table."
"We will be taking individual actions with respect to STS transfers,"
Abrams said.
China's General Administration of Customs did not respond to requests
for comment. The Foreign Ministry told Reuters there was nothing
improper about China's dealings with Venezuela. The ministry said U.S.
sanctions had "severely affected" relations between Venezuela and the
rest of the world, but said Beijing intends to continue trading with the
country.
Neither PDVSA, Venezuela's Oil Ministry, nor the Information Ministry -
which responds to media inquiries on the government's behalf - responded
to requests for comment. Venezuelan officials have repeatedly described
U.S. sanctions on their country as illegal and unilateral.
Oil analysts since last year have said Venezuelan oil was making its way
to China by way of STS transfers. This account is the first to reveal
the extent of those shipments and demonstrate how systematic the tactic
has been. Reuters also reviewed internal PDVSA documents that showed the
Rosneft unit was involved in moving the oil.
So much PDVSA oil was shipped to China this way that the country's total
2019 imports of Venezuelan oil averaged 283,000 barrels a day. That's
24% higher than the 228,700 barrels a day reported by Chinese customs,
according to Reuters calculations based on comparisons of the Refinitiv
Eikon data to official Chinese customs data.
That was not enough to offset entirely the impact that U.S. sanctions
had on PDVSA; U.S. refiners were importing an average of 500,000 barrels
per day when the sanctions were imposed in January 2019. But it helped
Venezuela keep its oil industry alive at a time when the drop in demand
from foreign buyers was creating a glut onshore, nearly forcing PDVSA to
halt production in key oil fields.
The STS maneuvers mirror tactics that Iran, whose oil industry is also
under U.S. sanctions, has used to ship its oil to China for years. As
Reuters documented in reports in 2019 and 2015, Iranian oil often is
labeled as coming from neighboring Iraq.[https://reut.rs/2XIOeiE]
A representative of the operator of a Chinese terminal where one such
shipment unloaded in 2019 denied that the origin of the oil was Iranian.
Alireza Miryousefi, spokesman for Iran's mission to the United Nations
in New York, said in a statement "how we sell or export our oil is no
one's business." He said U.S. sanctions on Iran's oil exports are
"illegal."
The Chinese shipments of Venezuelan crude were unusual for a variety of
reasons, oil analysts said.
STS transfers typically are used for legitimate purposes - such as
offloading oil from deep-water drilling ships or pumping oil from large
tankers onto smaller vessels that can navigate narrow or shallow
waterways. The use of this technique to transport oil from Venezuela to
China was not seen until the middle of last year, the oil analysts said.
Tankers leaving Venezuela loaded with PDVSA crude did not travel
straight to China as they had in the past. Instead, 15 tankers whose
routes were reviewed by Reuters left Venezuela and first headed for the
coast of Malaysia, tracking data show. A few miles offshore, in the
Malacca Strait, each rendezvoused with a second, empty tanker that had
pulled alongside.
The full tanker then pumped its load into the waiting vessel, and in
some cases into multiple smaller vessels. Eighteen of those receiving
ships then headed to China, where the Venezuelan crude was offloaded and
recorded as a product of Malaysia, Chinese customs records show.
Reuters could not ascertain who changed the crude's labeled origin
before it reached Chinese customs, nor whether doing so expressly
violated any maritime laws or local laws in any applicable
jurisdictions.
Michelle Bockmann, markets editor and analyst at Lloyd's List, a
shipping trade publication, said the relabeling was highly uncommon.
With the exception of Iran, Bockmann said she could not recall any other
instance of crude changing identities in this way.
The imports were a break from China's past practice. China routinely has
imported oil from countries such as Brazil and Russia using STS
transfers. But Chinese customs accurately recorded the true countries of
origin in those cases, according to Chinese customs data and Emma Li, a
Singapore-based oil analyst with Refinitiv.
In addition, Malaysia is a mid-sized oil producer that has not
traditionally sold crude to China in the volumes recorded by Chinese
customs last year, the records show. China's stated 2019 imports from
Malaysia were 400% higher than levels recorded just three years earlier,
and the highest ever recorded by Refinitiv Eikon, whose figures date to
2006.
The Malaysia External Trade Development Corporation, the government
agency largely in charge of foreign trade, did not respond to requests
for comment, nor did Malaysia's state-owned oil company Petronas.
This triangulated trade in Venezuelan oil is now in the crosshairs of
the Trump administration.
The company that lifted the oil from Venezuela for the China shipments
identified by Reuters was Rosneft Trading, according to internal PDVSA
documents reviewed by Reuters. Until late March, it was a major player
in Venezuela's oil industry. The U.S. Treasury on Feb. 18 hit Rosneft
Trading with sanctions for allegedly helping Venezuela sidestep the U.S.
pressure campaign and sell its oil abroad.
Among the tactics employed by Rosneft Trading were STS transfers, U.S.
officials allege. By using one ship to haul crude out of Venezuela, then
a second to deliver it to China, Rosneft Trading attempted to blur the
chain of ownership and disguise the oil's provenance, Abrams, the State
Department's special representative for Venezuela, told Reuters, without
providing further proof of Rosneft's intentions.
"The whole purpose is to evade, the whole purpose is to mislead," Abrams
said.
On March 28, Rosneft announced it was ending its Venezuela operations
and selling all its assets in the country to another, unnamed Russian
state-owned firm.
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Supporters of Venezuela's President Nicolas Maduro hold anti-Trump
banners during a rally against the U.S. sanctions on Venezuela, in
Caracas Venezuela, August 10, 2019. REUTERS/Manaure Quintero/File
Photo
"Rosneft has no ongoing business involvement, assets or operations
in Venezuela; therefore, there is no subject for providing further
comments," the company said in its June 5 statement to Reuters.
The Trump administration, meanwhile, gave Rosneft Trading customers
until May 20 to unwind their contracts with the company or face U.S.
sanctions. Asked whether Chinese customers were involved in hiding
the Venezuelan origin of the crude, Abrams said that Asian clients
often did not care "how it gets to them, what it's labeled, as long
as they're getting what they bought."
China's Foreign Ministry said in a statement it was not aware of the
STS transfers in question.
"The cooperation between China and Venezuela will be carried out
normally no matter how the situation changes," the statement read.
"It's legitimate and benefits the people of both countries and will
not be affected by any unilateral sanction measures."
Reuters could not ascertain the final customers for the PDVSA crude
in China. But Venezuela's heavy Merey blend is a favored feedstock
for refineries making asphalt in China, according to industry
sources there.
One of the earliest STS transfers involved the Adventure, a tanker
chartered by a CNPC subsidiary. On July 18, it took on 1.9 million
barrels of Venezuelan crude from another vessel in Malaysian waters,
then headed for China, Refinitiv Eikon data show.
The manager of the Adventure, Greece-based Eastern Mediterranean
Maritime Ltd, said it had never entered into any agreement with
PDVSA or any company sanctioned by the United States, and that it
"respects and complies in full" with U.S. sanctions. The maritime
company said the cargo's bill of lading and certificate of origin
said the oil had come from Malaysia.
PIT STOP IN MALAYSIA
Malaysia is a popular location for STS transfers of crude because of
its proximity to Singapore, one of the world's largest oil trading
and storage hubs. One of the STS transfers reviewed by Reuters
occurred near Malaysia's port of Kuala Linggi; the rest took place
outside the country's Tanjung Bruas port.
To demonstrate how these STS transfers work, Reuters used records
available on Refinitiv Eikon to reconstruct a shipment to China of 2
million barrels that left the Jose terminal in northeastern
Venezuela on Aug. 5, 2019.
The oil was carried aboard a Liberia-flagged vessel called the Delta
Aigaion, according to Refinitiv Eikon data and an internal PDVSA
document seen by Reuters. The crude was a heavy blend known as Merey
16, which is unique to Venezuela, and the customer was listed as
Rosneft Trading, the PDVSA document shows.
The Delta Aigaion sailed to waters off Malaysia near the port of
Tanjung Bruas. There, the crew used a STS transfer to offload the
Merey 16 to another tanker, the Malta-flagged Lipari, on Oct. 28,
according to Refinitiv Eikon data. The Lipari then headed for China,
discharging its crude on Dec. 12 at the port of Zhanjiang, the data
show.
(For a graphic showing the path of the two ships, see: https://tmsnrt.rs/2UpBlrH)
Refinitiv Eikon ship-tracking data shows the location of ships and
indicates how full they are. In this case, the data showed that the
draft of each ship changed dramatically while the two were in the
same location off Malaysia's coast at the same time. The draft is
the vertical distance between the waterline and the bottom of a
vessel's hull - a sign of how heavy a load it is carrying. The draft
measurements showed that the Delta Aigaion arrived in Malaysia full
and left empty, while the opposite was true for the Lipari - an
indication that an oil transfer between the two took place.
In a photo taken using a European Space Agency radar satellite and
provided to Reuters by San Francisco-based earth imaging company
Planet Labs, the Delta Aigaion and the Lipari can be seen
approaching one another to start the oil transfer on Oct 28. The
authenticity of that photo was verified by oil industry data
provider TankerTrackers.com, which specializes in satellite image
analysis for vessel tracking.
Refinitiv Eikon retrieves location information from satellite images
as well as from land-based sensors that collect data from ships'
transponders. Ships are required by international maritime law to
carry transponders to transmit information about their position,
speed and destination. The U.S. government has accused tankers and
shipping firms transporting oil from Venezuela and Iran of
manipulating this data to evade authorities, either by flashing
false destinations or simply turning off their transponders.
The Delta Aigaion, while on its way to Venezuela in July after
leaving its previous berthing in India, never indicated it was
heading to the South American country, Refinitiv Eikon data show.
The tanker listed its destination as "For Orders," a message meaning
it had not yet received instructions on where to go next.
Delta Tankers Ltd and TMS Tankers Ltd, the shipping companies that
manage the Delta Aigaion and Lipari, respectively, did not respond
to requests for comment. MMC Corp Bhd and T.A.G. Marine Sdn Bhd,
which operate the Tanjung Bruas and Kuala Linggi ports,
respectively, did not respond to requests for comment.
When the Lipari unloaded in the southwestern Chinese city of
Zhanjiang, Chinese customs labeled the crude as "Singma blend," a
grade of crude that did not exist in the market before last year.
Customs recorded the country of origin as Malaysia.
Li, the Refinitiv analyst, said the labeling of the crude as a blend
appears to be incorrect. If the crude were a blend of different
grades - a practice common in the oil industry - the STS operation
would have involved multiple vessels bringing crude from separate
origins, Li said. Ship-tracking data show no indication that this
occurred. "It doesn't look like there's any blending," Li said.
For 14 of the 18 tankers reviewed by Reuters, the grade of crude
recorded by Chinese customs was Singma or Mal, another blend that
did not exist before last year, data compiled by Li show. In other
cases, the Venezuelan crude was given the names of more established
Malaysian grades such as Miri or Kimanis, or was not specified,
according to the data compiled by Li. Merey 16, the Venezuelan
blend, was not mentioned.
ROSNEFT EXIT
The arrival of Venezuelan oil in China via STS transfers continued
through at least the first two months of 2020. During January and
February, Chinese customs once again reported no imports of
Venezuelan crude. However, nearly 130,000 barrels per day of PDVSA
oil arrived at Chinese ports in those two months from seven tankers
that had done STS operations, according to the Reuters review.
With U.S. pressure on Venezuela rising, it is unclear whether the
tactics PDVSA and its partners employed over the past year to export
Venezuelan oil will remain viable.
Even before it announced its complete withdrawal from Venezuela on
March 28, Rosneft had not lifted any crude from the country's ports
for around a month. Meanwhile, global oil prices have plunged in
recent months due to a collapse in demand resulting from the spread
of the novel coronavirus. Venezuela's crude output has dropped by
more than 20% this year to below 700,000 barrels per day.
Still, there are signs the discreet trade will continue.
With few established oil companies willing to buy oil directly from
Venezuela over fears of provoking Trump, two little-known Mexican
firms - Libre Abordo and Schlager Business Group - recently emerged
as the largest intermediaries for PDVSA crude. The companies told
Reuters they had a deal with Maduro's government to supply goods,
including corn and water trucks, in exchange for the oil, which they
then resell.
The U.S. Federal Bureau of Investigation has been investigating the
two companies, among others, as part of an inquiry into possible
violations of U.S. sanctions on PDVSA, according to three people
familiar with the matter.
The Mexican firms said swaps of goods for Venezuelan oil were
permitted under U.S. sanctions as long as no cash payments reached
Maduro's government. The companies said they have no knowledge of
any U.S. investigation into their practices.
On Feb. 11, a Panama-flagged tanker named the Athens Voyager loaded
some 700,000 barrels of crude near western Venezuela's Amuay oil
port, according to Refinitiv Eikon data. Its customer was Libre
Abordo, according to an internal PDVSA document viewed by Reuters.
On Sunday, April 5, the fully loaded Athens Voyager arrived at its
destination: the Linggi STS hub off the coast of Malaysia. There it
pumped its cargo onto a Liberia-flagged vessel named the Loyalty A
on April 17.
The manager of the Athens Voyager, Greece-based Chemnav
Shipmanagement Ltd, deferred comment to the vessel's owner, Marshall
Islands-based Afranav Maritime Ltd. The manager of the Loyalty A,
Jacinta Marine Corp of Lagos, Nigeria, did not respond to a request
for comment.
On June 2, the U.S. Treasury Department announced sanctions against
Afranav Shipmanagement for its alleged role in trading Venezuelan
oil. It said the Athens Voyager had lifted oil from Venezuelan ports
as recently as mid-February.
Afranav did not respond to requests for comment.
Libre Abordo, meanwhile, declared bankruptcy on May 31. It said its
arrangement with Venezuela had been suspended by Maduro, and that it
was the target of an international pressure campaign driven by
Washington.
In a June 8 email to Reuters, Libre Abordo confirmed that the oil
transported aboard the Athens Voyager was registered in its name. On
June 10, Libre Abordo said further that the documentation of origin
reflected that the crude came from Venezuela. The company said it
sent the oil to Malaysia, where it was offloaded to another ship at
the behest of the final customer, whose name it would not disclose.
According to Refinitiv Eikon data, the receiving vessel, the Loyalty
A, is currently en route to Qingdao, China.
(Reporting by Luc Cohen in Caracas and Marianna Parraga in Mexico
City; Additional reporting by Humeyra Pamuk in Washington, Ana
Isabel Martinez in Mexico City, Aizhu Chen in Singapore, Muyu Xu in
Beijing, Joseph Sipalan in Kuala Lumpur, Michelle Nichols in New
York, and Jonathan Saul in London; Editing by Marla Dickerson)
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