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Venezuelan oil company PDVSA may withdraw from the 320,000 barrel-per-day Isla refinery it operates in Curacao to protest U.S. military operations on the Caribbean island, Ultimas Noticias newspaper reported on Saturday, citing an interview with Venezuela's oil minister.

Venezuela may order state-run PDVSA to abandon its lease of the Isla refinery because the U.S. military has been staging "provocations" on Venezuela from Curacao, Oil Minister Rafael Ramirez was quoted as saying.

PDVSA has operated the Isla refinery since 1985 under a long-term lease with the government of Curacao, a Dutch island 40 miles (65 km) north of the Venezuelan coast.

A PDVSA spokesman did not return a phone call seeking comment.

Venezuelan President Hugo Chavez, who has said the United States is plotting to invade his country, in December accused Curacao of allowing the Unites States to launch spy flights over Venezuelan territory from the island.

Dutch officials rejected the accusations, and the U.S. government has denied any plans for military incursion into Venezuela.

The Isla refinery processes mostly Venezuelan crude oil, and PDVSA has in recent years tried to negotiate a purchase of the plant from Curacao's government.

Gasoline and other refined products from Isla are shipped to the United States, South America and other fuel markets.

PDVSA has faced a series of operational and emissions issues at Isla. Refinery units were shut for months last year due to power supply problems.

A Curacao judge ruled last May that PDVSA would have to carry out investments worth $100 million at the plant to reduce sulfur and other particulate pollution, or eventually face multimillion dollar fines.

PDVSA has complained that tougher emissions standards in Curacao would cost up to $1.5 billion to comply with.

Story by Eyanir Chinea and Joshua Schneyer from REUTERS

Reuters, February 27, 2010 04:27PM EST

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