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Oliver L Campbell :
Venezuela and its OPEC quota

 



President Chavez has recently announced he believes OPEC should approve an increase to Venezuela's quota. This makes sense because little is gained if the country spends billions of dollars increasing production capacity in the Orinoco Oil Belt but cannot then produce the oil. PDVSA says it will increase production to four million barrels per day by end 2015, and President Chavez has just informed us the country will produce nine million barrels per day by 2031. A summary of the figures is given below:

Increase of OPEC Quota

Present quota

3,000,000 b/d

Quota required end 2015

4,000,000 b/d

Quota required end 2031

9,000,000 b/d

Venezuela could ask for the increase of a million barrels now, though I don't know if you can ask for increases before the production capacity has been attained, The important thing is that OPEC are made aware that Venezuela will seek to increase its quota by 2015. However, asking for an increase of a further 5 million barrels to take the total to 9 million barrels is not really feasible. First, so much can happen between 2015 and 2031--PDVSA has a record of missing production targets--and, second, an increase of that magnitude could mean other OPEC countries would need to compensate with a decrease in their quotas.

Let's look at three possible scenarios:

1) World demand for OPEC crudes continues to increase steadily and there are no new producers. In this case, it is possible Venezuela could increase its quota periodically without any problem.

2) World demand for OPEC crudes continue to increase steadily but there are new producers. Brazil, which expects to produce six million barrels per day by end 2020, could become an OPEC member. Even if it does not, its production will still impinge on the volume OPEC will produce.

3) World demand is sluggish for a number of years and OPEC cannot increase the quotas of its members. Venezuela would then find it very difficult to ask for an increase in its own quota.

OPEC does not divulge how it allocates quotas, but it is a safe bet to assume production capacity is the first criterion followed by the amount of oil reserves. I believe Venezuela should lobby OPEC to include population as a third factor. Where countries largely depend on oil income to fund their budgets, the more citizens you have, the more money you require. Under that criterion, Saudi Arabia, the United Arab Emirates and Kuwait have excess quotas and could be excluded from future increases. Brazil has a population of 193 million so, if it joined OPEC, it would expect a quota of six million barrels per day by 2020.

Neither does OPEC publish individual quotas, so the following table is

only a guide as to production based on the "educated guesses" of a group of experts. Though too much confidence should not be placed on the production figures, they serve to show that Venezuela would benefit if population were taken into account.

OPEC QUOTAS 2011

 

Production

Population

Algeria

1,200

35

Angola

1,506

19

Ecuador

428

14

Iran

3,334

75

Kuwait

2,220

3

Libya

1,472

7

Nigeria

1,703

158

Qatar

729

2

Saudi Arabia

8,014

26

UAE

2,225

5

Venezuela

2,010

30

Total OPEC

Th. b/d 24.841

Millions

Another matter Venezuela could discuss with OPEC is a change from production quotas to export quotas--the sum of crude and products. This idea has been put forward by others and seems sensible. After all, international prices are affected by the exports of OPEC countries and not by their national consumption. For instance, Venezuela consumes nationally 600,000 b/d, equivalent to 20% of its crude production.

A major setback is that Venezuela has little clout to insist on an increase of its quota. A threat to leave OPEC would not be believed--Venezuela was a founder member of OPEC and Pérez Alfonso would turn in his grave. Also, Venezuela uses its influence in OPEC to back high prices. This means Venezuela will have to negotiate quota increases as best it can, on a periodic basis, as its production capacity increases.

Saudi Arabia provides a third of OPEC production and other countries could press OPEC to exclude Saudi Arabia from future quota increases. This would allow Venezuela, and other countries with legitimate reasons to increase their production, to take up the amount that would have been allocated to Saudi Arabia--possibly the United Arab Emirates and Kuwait as well.

The fact is an increase to one country at the expense of another will be difficult to negotiate with OPEC, and Venezuela cannot expect to get its own way all the time. The entry of other countries like Brazil in OPEC will leave less scope for increases, and so will any increased production from producing countries outside OPEC-- which could include Brazil if it does not join that organisation. With such difficulties on the horizon, Venezuela should start lobbying for the increase of the first million barrels per day without delay. I suspect it will be an uphill struggle.

11.08.11

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Oliver L Campbell , MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where his father worked in the gold mining industry. He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he returned to the UK with his family and retired early in 2002. Petroleumworld does not necessarily share these views.

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Petroleumworld News 08/15/2011

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