Chart Talk: Venezuela’s Subsidized Fuels Range from Free to Cheap

Venezuela may have many challenges, both internal and external, but one place the OPEC member’s populace feels less pain in is at the pump.

In Venezuela, fuels are either subsidized or unsubsidized, with prices ranging from cheap at $0.02/gallon on the low end, to even free for certain segments of the population.

Specifically, subsidized diesel for the transport sector and compressed natural gas (CNG) for the domestic sector are free, according to details from ChemStrategy. Free—or nearly so, since many drivers tip attendants at full-service gasoline stations with cash or even foodstuffs ranging from pasta and rice to coffee.

The Venezuelan government views access to gasoline and other fuels as essential for growth and offers subsidies to certain groups. The transport sector, which moves important goods such as food or medicine across the Caribbean country, remains a beneficiary of the subsidy.

Despite occasional internal social flare ups around raising fuel prices, the subsidies have ultimately been maintained, despite the financial burdens of state-owned Petróleos de Venezuela SA (PDVSA).

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In Venezuela, where cheap fuel is still seen as a birth-right, the government understands the delicate tight-rope it has to walk to avoid social unrest. The riots of February 1989 are fresh in the minds of many, especially the older generation.

Then, a popular rebellion against International Monetary Fund-imposed measures led to the so-called “El Caracazo” riots in Caracas, Venezuela, mainly over higher gasoline prices. Officially, 276 deaths were counted, while unofficially 3,000 Venezuelan citizens disappeared, according to details published by the Venezuelan government of President Nicolás Maduro.

Cheap gasoline also has a cost

Venezuela, home to the world’s largest oil reserves and the massive Orinoco Heavy Oil Belt known as the Faja, is also a site of free gasoline, if you can find it.

Subsidized premium gasoline, a 95-octane grade, is just $0.02/gallon. But in most cases, you need a special government card to get access at that price.

But getting it still isn’t easy. When gasoline at a PDVSA-branded station is available at that price, the queues can stretch for miles. And drivers aren’t afraid to spend a night or two in their old cars, often without working air conditioning units in near triple-digit Caribbean temperatures.

Some vehicles don’t even make it to the queues and are instead seen stranded on the roads and highways without gasoline. But leaving a vehicle unattended for too long on any Venezuelan roadway is an invitation for theft.

At the so-called “international” gasoline stations that tend to accept credit cards from abroad or payments in U.S. dollars, the queues are shorter since the price is $1.89/gallon. This compares to a U.S. national average price of $3.82/gallon as of Aug. 28, according to AAA.

Diesel and CNG prices for the industrial sector are also on the high end of fuel prices for Venezuelan standards, which are an average $0.35/gallon and $1.60/MMbtu, respectively, according to ChemStrategy.

PDVSA owns six refineries spread across Venezuela—Amuay, Cardón, Bajo Grande, El Palito, Puerto La Cruz and San Roque—with a combined processing capacity of 1.3 MMbbl/d. However, years of underinvestment in regular maintenance, accidents and cannibalization of parts have drastically reduced utilizations rates, on average, below the 30% range, according to energy analysts covering Venezuela. That complicates PDVSA’s ability to fully satisfy domestic demand.

Ideological ally Iran has come to Venezuela’s rescue in recent years with shipments of much-needed gasoline and diesel, especially after the U.S. imposed oil sanctions on Venezuela in 2019. Iranian workers also continue to provide assistance to PDVSA to rehabilitate its refineries.

But the Iranian gasoline comes at a cost since its octane grade is on average closer to 87, sources tell Hart Energy.

The sources say the lower grade gasoline could jeopardize gasoline tanks and engines. A tell-tale sign, many argue, of the Iranian gasoline can be smelt at any PDVSA gasoline station – and the odor lingers inside vehicles well after driving off after filling up their tanks with fuel.