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PDVSA: Appoaching the unthinkable
According to newspaper reports, Venezuela could be forced to import petroleum in the short to medium term. Analyst Boris Santos Gómez quotes Minister/ PDVSA President Rafael Ramirez saying that the production of heavy crude oil is becoming a major problem in the country, since there are not enough volumes of lighter crude oil to blend with the heavier oil from the Orinoco area, which now makes up the bulk of Venezuelan oil reserves. This blending, to obtain a commercial product, has been the traditional way this heavy crude oil has been marketed in the past. The other alternative, building costly, special refineries to convert the heavy crude oil into a lighter product is not feasible, since no plants of this type have been built by the government during the last 15 years.
Due to a combination of poor management, lack of strategic planning, ideological stubbornness and corruption, PDVSA is now approaching the unthinkable: importing oil! In fact, for all practical purposes something along these lines has been happening already for some time. Not only has PDVSA been importing gasoline and gasoline additives from USA to feed the domestic market, at a huge loss, but their international commitments of light oil are being largely honored by buying oil from third parties, since Venezuelan production is no longer sufficient.
The report quotes Mr. Ramirez talking as if he was the owner of the oil: “My problem is that I have too much extra-heavy oil and I need to get more naphtha to increase production [of the blend]”. Explanation: Naphtha or light crude oil are blended with the heavy crude oil to produce a lighter, commercial product.
Of course, this is not possible under present conditions. And it will not be possible in the foreseeable future under the current political regime. PDVSA is now technically bankrupt, since its assets represent a lower value than its accumulated financial obligations.
If we were playing chess we could talk about PDVSA (and Venezuela) getting very close to being checkmate. The company has no competent management, is riddled with corruption and has no money for the investments and maintenance required, while the political regime does not have enough political credibility to allow foreign companies to invest the large amounts of money that would be required to reverse the collapse.
This is a major tragedy, which is not being understood in its true magnitude
The implications of this major tragedy for Venezuela and the region are only understood by a handful of experts. The bulk of corporations investing in Venezuela, foreign governments, debtors and major supplies of goods to Venezuela, do not seem to realize how desperate the situation of the company is. And, because oil represents 96% of Venezuelan income of foreign exchange, how desperate is the situation of the nation.
The current political regime of Venezuela is responsible for this major disaster. The management of PDVSA is both incompetent and corrupt. What is happening to the Venezuelan oil industry is more than enough reason for the major civic insurgency taking place at this moment in Venezuela, although it might not be the most obvious reason.
Investors in the Venezuelan oil industry should think twice before putting more money into an industry that has been run into the ground by the government. My advice: cut your losses and run.
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Petroleumworld News 03/14/2014
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