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Barclays Capital: Venezuelan oil exports:
Myths, doubts and realities
- Considering one inherent risk to Venezuelan assets to be the persistent doubts about the actual level of oil exports, we have tried to verify these figures by looking at what the rest of the world reports as imports from Venezuela. Even if what we found is not conclusive, the differences with respect to the official data are minor. Moreover, there is a declining trend that we expect to stop this year.
- The level of exports estimated and the small differences from the official data
lead us to maintain our view that Venezuela does not have a problem of cash
constraints, but is suffering for the idiosyncrasies of its policies.
How much oil is PDVSA exporting?
Venezuelan assets have historically had a high correlation with oil prices; however, despite the increase in the latter in recent weeks, the former have not registered a major improvement. Part of the reason is the headline risk that is exacerbated by speculation and misinterpretation, reinforced by the lack of transparency of the Venezuelan institutions. Among the doubts that persist in the market, the principal one affecting Venezuelan assets is the actual level of the country’s oil exports. Certainly, it is a critical variable that determines the sustainability of Venezuela balance of payments and the capacity of the public sector to pay, since 95% of overall exports are concentrated in the oil sector and oil provides approximately 50% of government revenues. Moreover, in an economy that is being basically driven by public expenditures, oil exports also
determine the capacity of the government to stimulate economic activity.
One way to address this question is simply to look at oil export figures reported by the Central Bank of Venezuela (BCV) and PDVSA, since reported oil data mainly come from the national oil company. Until 2003, the central bank used to have an office in PDVSA headquarters to double-check the numbers. These official figures point to total oil production of 3.1 mbd in H1 10, with exports of 2.44 mbd, down from 2.75 mbd in the same period in 2009, due mainly to an increase in domestic consumption because of the electricity crisis. At this level, oil exports generated approximately USD61bn for 2010. One of the sources of the controversy is that the OPEC figures contradict the official Venezuelan ones, claiming average oil production of only 2.3 mbd for 2010.
PDVSA has constantly said that the source of this difference is that the OPEC figures do not take fully into account the Orinoco belt production, some condensates and other products.
It should also be mentioned that given the lack of credibility in the international
markets, PDVSA hired a British firm called Inspectorate to verify its level of oil exports.
Since 2009, it has basically certified the level of net oil exports, defining them at 2.3 mbd on average during 2010, equal to the official figures.
Another method is to compare what Venezuela reports about its level of exports and what the rest of the world reports that it is importing from it. We did this exercise with data for 43 countries from the United Nations commodity trade statistics database for 2005-09. As shown in Figure 1, the total value of imports coming from Venezuela reported by these countries, on average, is 88.4% of the exports reported by the BCV. However, in this sample, Cuba’s figures are not updated, while the Netherlands Antilles and US Virgin Island do not include in their data oil imports that are re-exported. Nonetheless, there seems to be consensus that Venezuela does export oil, at least, to Cuba; there are agreements of mutual cooperation between both nations, and PDVSA has become a partner of the Cuban company Cupet to operate and process Venezuelan crude oil in its Cienfuegos refinery.
PDVSA, in fact, reports that it sent, on average, 113k b/d in 2008 and 2009 to Cuba. For the US Virgin Islands, the US Energy Information Administration (EIA) reports that the US imported, on average, the equivalent of 277k b/d in 2009 and 262k b/d until October 2008 in petroleum products. Since we cannot identify any significant oil exports from other countries to the US Virgin Islands, we infer that most of it was imported from Venezuela and processed in PDVSA’s refinery in St. Croix. The company reports that it sent, on average, approximately 260k b/d in 2008 and 2009. Similar inferences can be derived in the case of the Netherlands Antilles, from whom Argentina reports that it imported USD20.0bn in 2006-09 in petroleum products. This could be close to the value of most of PDVSA’s refinery production in Curacao, to which the company reports to have exported 190k b/d in 2009 and 212k b/d in 2008.
Considering the estimated value of oil exports to Cuba, the Netherlands Antilles and the US Virgin Islands at the average price of the Venezuelan oil basket, we do not find a major deviation from the official export data published by Venezuelan institutions. The total value actually exceeds that reported by the BCV by 10% on average. This margin of error could be due mainly to the inclusion of the cost of insurance and freight Additionally, we do not
completely discount that some of the oil processed in these countries could have been bought from other producers. Officially, PDVSA said that it bought USD11.3bn in 2009.
However, these purchases are used to satisfy international contracts that PDVSA is not able to satisfy with its own production, and we could not find the percentage of this purchase that goes to Venezuelan soil, nor the percentage that goes directly to PDVSA clients. We verified oil exports from other oil producing countries (Mexico, Ecuador, Colombia and Brazil) to Venezuela and did not find any significant amount.
Using a different source, and trying to estimate the amount of oil exports in USD, we also found no major discrepancies with the official data. According to the EIA, the US imported from Venezuela 1.1 mbd in 2009 and 1.0 mbd in 2010 (up to October). Moreover, China reports that it imported USD4.32bn in 2009 and USD5.80bn in 2010 (up to November) from Venezuela, and India reports USD1.8bn and USD3.9bn (until September), respectively. Since most of these imports are oil, we estimate that oil exports from Venezuela to these two
countries was approximately 300,000 b/d in 2009 and increased to approximately 444,000 b/d in 2010. Doing a similar exercise for the rest of the countries in our database, we estimate total oil exports from Venezuela of 2.5 mbd in 2009 and 2.4 mbd in 2010. Our estimates show an average difference of just 6.2% since 2007 with respect to the exports reported by PDVSA.
However, of this amount, we estimate that approximately 2.0 mbd is sold at market conditions and 0.4 mbd under preferential conditions.
How much money is Venezuela actually receiving?
According to these figures and assuming a similar level in 2011, Venezuelan oil exports could reach USD71.7bn in 2011 and USD83.2bn in 2012, given our commodities team’s price estimates for the Brent benchmark at USD91/b and USD105/b, respectively, which implies a Venezuelan oil basket at approximately USD82/b and USD91/b. From this amount, we discount approximately 50% of the value of the exports sold under preferential conditions, which is financed over the long term. We also subtract the payments due to the loans received through the Chinese Fund, which we expect to be USD3.1bn in 2011 and USD4.2bn in 2012. Therefore, net oil exports could increase to USD62.1bn in 2011 and USD71.8bn in 2012.
From these figures, we cannot come to a final conclusion regarding oil exports. Our sample does not include all the countries in the world, since some of them do not publish these data, and PDVSA could still have some margin to distort the figures by buying oil in the international markets. But our calculations clearly indicate that actual oil exports will be nearer to the official figures than the ones published by OPEC and other analysts. Therefore, we maintain our view that Venezuela does not have a problem of cash constraints, but is suffering for the idiosyncrasies of its policies: a capital control that results in an overvalued and subsidized exchange rate, which creates a demand that surpasses the available supply, creating the illusion of scarcity and necessitating the issuance of external debt to reduce the pressures on
the non-official exchange rate. Of course, this generous supply of international paper, which clearly outpaces demand, and the headline risk provoked by President Chavez are the principal reasons for the skyrocketing sovereign spreads. To have a clearer idea of the liquidity position of Venezuela, we will analyze in a future note its cash flow in deeper detail.
Source: El Universal
Barclays Capital is the investment banking division of Barclays Bank PLC. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was published by Barclays Capital on Jan 27. 2011. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 02/10/2011
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