Venezuelan Refinery Blast Death Toll Reaches at Least 26

A gas explosion at Venezuela’s biggest oil refinery yesterday killed at least 39 people and injured 86, shutting down the Amuay refinery, located about 240 miles west of Caracas.

Stella Lugo, governor of Falcon state in western Venezuela, described the blast which occurred at 1:15 a.m. yesterday as similar to an earthquake and said 219 homes near the refinery were affected. Paraguana, which comprises the Amuay, Bajo Grande and Cardon refineries, is the world’s second-biggest refinery complex.

“There was a gas leak that caused an explosion and the blast caused severe damage to a national guard post and an adjacent housing complex,” said Rafael Ramirez, the country’s oil minister and head of state oil company Petroleos de Venezuela SA. Videos posted on the Internet by witnesses showed flames and smoke billowing from the area.

PDVSA, as the state-owned oil producer is known, is the sole owner and operator of the refinery. The blast is among the world’s deadliest at an oil refinery. Fifteen workers were killed at BP Plc (BP/)’s Texas City refinery in 2005, while more than 50 people died in a fire at Hindustan Petroleum Corp.’s refinery in Visakhapatnam, India, in 1997.

The national guard stationed at the refinery bore the brunt of the deaths, including 18 troops and 15 family members, Vice President Elias Jaua said on television. Six bodies are as yet unidentified. Firefighters hope to extinguish blazes at two storage tanks within hours, he added.

Production Halt

Amuay, with the capacity to process 645,000 barrels of oil a day, was halted as a result of the explosion, Ramirez said. The Paraguana complex has a capacity of about 950,000 barrels a day, second in size to Reliance Industries Ltd. (RIL)’s Jamnagar refinery in India, according to data compiled by Bloomberg.

The fire didn’t cause any structural damage to the main refining units and PDVSA has 10 days of inventory to meet its supply obligations internally and externally, Ramirez said.

“The U.S. distillate market is tighter than a drum, any sustained refinery outage that calls on more Gulf Coast exports is problematic,” Robert MacMinn, a principal at clean product trader CAN-OP based in Thunder Bay, Canada, said by e-mail.

The refinery will resume operations within two days, Ramirez said yesterday. The blast affected nine storage tanks for crude and products, he said.

Offshore Storage

PDVSA won’t declare force majeure on its exports from Amuay, a mechanism to temporarily suspend the obligation to make shipments due to unforeseen events, and will set up floating storage facilities offshore to compensate for the damaged tanks, Reuters reported, citing a phone interview with Ramirez.

President Hugo Chavez, 58, who is currently campaigning for re-election in October, said he’s “profoundly saddened” by the incident and declared three days of mourning across the country. Chavez said he’s ordered an investigation into the explosion.

The electoral council suspended until Sept. 2 a practice run scheduled today for the Oct. 7 elections, electoral council President Tibisay Lucena said in a televised press conference.

The government already has been contending with the collapse of a bridge on the main highway from the capital to the east of the country, flooding in areas of Sucre state and a prison riot that killed 25 people on Aug. 20.

Tropical Storm

Energy companies including BP have begun suspending some crude and gas operations in the Gulf of Mexico region as Tropical Storm Isaac heads toward Cuba and the Florida Keys. The area is home to 23 percent of U.S. oil production and 44 percent of refining capacity, according to the U.S. Energy Department.

Venezuela, one of the 12 members of the Organization of Petroleum Exporting Countries and South America’s biggest crude producer, had average output of 2.7 million barrels of oil a day last year, according to BP statistics. Its main export markets are the U.S. and China.

The accident is the latest outage affecting Venezuela’s oil processing industry, Andy Lipow, president of Houston-based Lipow Oil Associates LLC, said by phone.

Cardon has closed units several times this year after incidents, and PDVSA had to halt production and evacuate workers from its Petropiar heavy-crude upgrader last year after a gas leak and a fire.

Jose Bodas, an oil union leader who is critical of the government, told Globovision that PDVSA has ignored calls by workers to improve “hazardous” working conditions at refineries.

Safety Standards

PDVSA has an “ongoing challenge” in implementing “very high safety standards” that are up to par with other refineries around the world, Roger Tissot, managing director at Tissot Associates and a Latin American energy analyst, said in a telephone interview.

“It’s something that was known that they had a problem with safety standards, but now with this tragedy, they cannot ignore it anymore,” Tissot said. “To me, this is really a wake-up call for PDVSA to really, really improve their safety standards.”

Seven out of nine planned maintenance programs for the Amuay refinery were postponed during 2011 because of a lack of materials, according to PDVSA’s 2011 annual report.

Jesus Luongo, head of refining at the Paraguana refining complex, ruled out lack of maintenance as a cause of the accident, saying PDVSA has invested $6 billion in maintenance of refineries in the past three years.

“We have a rigorous maintenance program,” Luongo said on state television. “I’d like to debunk emphatically that line of thinking that says that events occur because of a lack of maintenance.”

Drilling Rig

In 2010, a failure in the floating device of an offshore drilling rig caused the Aban Pearl to sink off the eastern coast of Venezuela. PDVSA rescued all 95 people on board.

Venezuela was the fourth-largest source of crude oil for the U.S. in May, after Canada, Saudi Arabia and Mexico, at 821,000 barrels a day, based on data from the U.S. Energy Information Agency.

The incident will probably have little effect on crude prices, while possibly putting “upward pressure” on gasoline and distillate prices, Lipow said. The refinery supplies a “significant portion” of its products to the domestic market, he said.

The accident is one of the worst at a refinery in recent memory, Lipow said. “This is one of the extremes. It’s quite extensive.”

To contact the reporters on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net; David Wethe in Houston at dwethe@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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