(Adds status of crude upgraders)
HOUSTON, June 11 (Reuters) - The U.S. unit of Venezuela's state-run oil producer PDVSA is increasing purchases of crude on the open market because it cannot get sufficient deliveries from its struggling parent company, traders said on Monday.
Citgo Petroleum has been buying crude from multiple countries worldwide as PDVSA has been unable to comply with the contractual volume of heavy crude due to falling output and port congestion slowing deliveries, according to the traders.
Declining oil production, lawsuits by creditors, shortages of spare parts for terminals and executive braindrain have all reduced PDVSA's ability to export oil. Most recently, U.S.-based ConocoPhillips' actions to seize PDVSA assets to cash in on a $2 billion arbitration award have added to the firm's export issues.
Crude exports are Venezuela's main source of revenue, but the OPEC member has seen deliveries fall sharply in the last few months, dropping to 1.17 million barrels per day (bpd) in May from 1.24 million bpd in April, according to Thomson Reuters trade flows data.
Citgo in recent weeks has been buying Colombian and Ecuadorean heavy crude on the spot market, as well as Azeri Light from the Black Sea region and Arab heavy and medium crudes, according to the Reuters data and traders.
From January through April, Citgo was the customer most affected by PDVSA's inability to fulfill its contracts, according to the Venezuelan company's internal data. PDVSA's oil output this year has fallen to 1.62 million bpd, a 33-year low.
Citgo has a 273,000-bpd contract to import Venezuelan Merey crude from PDVSA, but PDVSA has not sent a single cargo of that grade in over a month, forcing Citgo to buy spot cargoes of diluted crude oil (DCO) from joint ventures, according to the traders and Reuters data.
PDVSA has sent other grades, including Corocoro and Pedernales, but only in small volumes.
"They are mainly looking for Latin American heavy grades," said a trader who sold two spot crude cargoes to Citgo for June delivery.
Citgo can process up to 749,000 bpd of crude in three U.S. refineries. In the past, PDVSA supplied as much as 40 percent of Citgo's crude requirements, but volumes have been slowly declining for years.
The subsidiary has a "contingency plan" for diversifying imports if Venezuelan supply declines further, according to a Citgo employee, who declined to be identified as the information was private. The plan has not yet been activated, the person added.
As of June 11, PDVSA had 23 million barrels worth of crude to be shipped from the port of Jose and through new ship-to-ship (STS) transfers off its Paraguana Refining Center (CRP), according to Reuters vessel tracking and trade flows data.
Since early June, PDVSA has been notifying customers about its need to employ STS operations. The backlog has decreased to 72 vessels this week from over 80 tankers last week, according to Reuters data, as PDVSA has focused on loading the largest vessels first and rejected nominations for receiving new tankers in June until it finishes loading those already in line.
"Each STS operation is taking almost a week," said a shipping source. "Costs are higher, special vessels are needed and PDVSA operators have to be moved from other ports. It's a lot of work."
Large tankers chartered by Valero Energy, Vitol, Nayara Energy and Reliance Energy of India, and China National Petroleum Corp (CNPC) were waiting on Monday near Jose port for crude.
ConocoPhillips' bid to claim $2 billion from arbitration led to a tanker backlog representing nearly a month's worth of shipments at its main terminal.
Citgo was expecting to receive about 6 million barrels of Venezuelan Merey crude in June, one of the traders said.
Instead, it imported a 516,000-barrel cargo of DCO that discharged last week and several other cargoes of the same grade have set sail to its refineries, according to the Reuters data.
The pressure for Venezuelan oil eased up slightly in early June as Citgo's 157,500-bpd Corpus Christi refinery halted its fluid catalytic cracker (FCC) due to a fire.
But declining production of upgraded crude at PDVSA's joint ventures in the Orinoco Belt, the country's largest producing region, has limited the barrels Citgo normally could access in place of Merey.
Of four crude ventures that process up to 620,000 bpd of oil for exports, two are undergoing maintenance and a third is expected to start major maintenance later this month, according to two sources close to the projects.
(Reporting by Marianna Parraga in Houston; additional information by Mircely Guanipa in Punto Fijo, Venezuela; editing by Chizu Nomiyama, Marguerita Choy and G Crosse)