Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy, international
politics & civilization.
Sunday's
Feature
Falling
oil production a challenge for Venezuelan President Hugo
Chavez
By
Jack Chang and Kevin G. Hall
For the better part of a decade,
Venezuelan President Hugo Chavez has spent billions of dollars
of his country's oil revenue to challenge U.S. interests, build
influence around the world and fund a self-styled socialist
revolution at home.
Yet
as Chavez moves from one international crisis to another — most
recently a near military confrontation with neighboring Colombia,
an important U.S. ally — many wonder how long his oil-funded
wild ride will last.
Not long, analysts in Venezuela and abroad said, if production
continues to decline at the country's state-run energy company,
Petroleos de Venezuela S.A., known by its Spanish initials
PDVSA.
The state oil company is responsible for 80 percent of the
exports from this country of 26 million people, but analysts
think that PDVSA is falling apart.
"PDVSA is a company on the border of collapse," said
Robert Bottome, the editor of the economic newsletter VenEconomia. "You
don't have people, you don't have a corporate strategy and
you don't have money."
PDVSA's problems are America's problems, since lost output
in any oil-producing nation results in tighter supplies and
higher global prices. Venezuela ranges from the third to the
fourth biggest supplier of oil to the U.S. market.
PDVSA's woes include falling output, insufficient investment
in current and future production, a work force bloated by patronage,
and a shortage of oil field equipment and skilled personnel
with know-how.
PDVSA is notoriously tight with financial information that
other companies usually provide, but a study of official announcements,
company figures and outside analyses suggest that it's bleeding
money and racking up huge debt, even as international oil prices
are at record highs.
Official PDVSA statements indicate that the company lost $3.6
billion last year, according to a study by the nonprofit Economic
Research Center for the Caribbean, which is based in the Dominican
Republic.
Figures from the International Energy Agency research center
show an even bigger loss last year, $7.9 billion, which would
be astonishing given skyrocketing oil prices. The difference
comes from widely divergent estimates of PDVSA's production:
The IEA calculates that Venezuela produces about 2.4 million
barrels of oil per day, about a quarter less than PDVSA says
it's pumping out.
Most independent experts use the IEA's figures, which indicate
that production at PDVSA has dropped by 800,000 barrels per
day since 1997. And despite the current high oil prices, PDVSA
appears to be running out of cash.
Falling production means that Chavez eventually will have
to cut back on popular social programs at home and on billions
of dollars in charity to foreign governments.
"There are many signs that something's wrong at PDVSA," said
Pietro Donatello, the Venezuela-based editor of the magazine
Latin Petroleum. "You put together all the pieces of the
puzzle, and things are not looking really good."
Chavez may have even less room to maneuver if U.S. officials
make good on threats to declare Venezuela a state sponsor of
terrorism because of alleged links to the guerrilla group the
Revolutionary Armed Forces of Colombia.
That designation would cut off most commercial ties between
the United States and Venezuela, including oil. Venezuela sells
more than half of its oil to the United States, which is the
only major buyer that has the capacity to easily refine Venezuela's
heavy crude oil.
Venezuela's oil minister, Rafael Ramirez, said earlier this
week that his country had begun shifting to payment not in
U.S. dollars but in euros, the currency of the European Union.
It was called a protective step against the weakening dollar,
but the move also signaled worry about potential sanctions
by the Bush administration.
Government energy officials, who didn't respond to requests
for comment, have painted a brighter picture of PDVSA. They
say that oil production has stayed largely steady at 3.3 million
barrels per day, a little more than a decade ago, and will
hit 6 million barrels per day by 2012.
That upbeat view assumes that Venezuela can obtain the financing
for a $70 billion expansion to double its oil output in four
years. The threat of U.S. sanctions would make it harder for
PDVSA to find investors.
One important obstacle to that goal was removed this week,
however. A judge in London dissolved an injunction that had
allowed ExxonMobil Corp. to freeze $12 billion in PDVSA assets
abroad. ExxonMobil and Venezuela are in international arbitration
over the government's seizure of an oil field, and the freeze
threatened Venezuela's ability to get financing for the expansion
project.
With 80 billion barrels of proven oil reserves, Venezuela
holds the world's seventh biggest reserves. PDVSA also claims
extra heavy crude-oil deposits in the country's Orinoco belt
that, if confirmed, would give Venezuela the world's biggest
oil reserves.
Venezuela's economy has boomed with the oil bonanza, growing
by 8.4 percent last year, although that's also fueled the region's
highest inflation rate. And that's a problem for Chavez, high
oil prices notwithstanding, because he's guaranteed government
workers paychecks that are indexed to inflation. Chavez's popularity,
measured in a recent national poll, has fallen to 34 percent
amid economic problems, food shortages and rising crime.
The lack of foreign investment and know-how is particularly
acute, analysts said, since Chavez fired 23,000 PDVSA employees
during and after a 2003 strike.
They've been replaced in large part by political appointees,
and the company's employee rolls have swollen to 115,000, almost
three times what they were a decade ago, two former PDVSA officials
said. The government says they've grown only to 75,000, though
Chavez has said he wants to increase that to about 114,000
by the end of next year.
The lack of expertise has dragged down everything from the
maintenance of drilling equipment to planning for future production.
Production costs also jumped by 27 percent in 2006 while sales
grew by 20 percent, PDVSA figures show.
Adding to the problem, foreign companies, including lenders
of drilling rigs, are reluctant to work with Venezuela after
Chavez seized the operations of ExxonMobil and other multinationals.
The result has been a shortage of drilling rigs and other equipment
needed to keep production flowing.
Former PDVSA director Eddie Ramirez, a Chavez opponent who
isn't related to Rafael Ramirez, said the company also had
invested heavily in social programs rather than in oil production,
which had further hurt efficiency. PDVSA figures show that
the company spent $13.8 billion in social funding in 2006,
double the 2005 amount.
"It's distracting from the company's principal mission
... selling oil," Ramirez said. "You can't ask an
oil company to take on what should be a function of the state."
Signs of trouble have come in bits and pieces so far, with
the whole suggesting a company in need of cash.
Starting in January, PDVSA began requiring clients to pay
for their oil eight days after purchase, rather than the standard
30 days. It's also been selling off foreign properties, including
a Houston refinery in which it had held a 41 percent share.
That's thrown Chavez's revolution in doubt, even in an age
of $109-a-barrel oil. How long the oil boom will keep him flush
remains to be seen.
PDVSA'S
problems are "leading to his downfall," Eddie
Ramirez said of Chavez. "Between a PDVSA that he didn't
control and an inefficient one, he preferred an inefficient
PDVSA."
(Hall reported from Washington.)
McClatchy Newspapers 2008
Falling
oil production a challenge for Venezuelan President Hugo
Chavez
By Jack Chang and Kevin G. Hall | McClatchy Newspapers
Posted on Friday, March 21, 2008 email | print tool nameclose
tool goes here
View larger image
CARACAS, Venezuela —
Jack
Chang is a journalist, winner in the Foreign Correspondent
category of Embratel, Brazil best news (Chang cover this
story form Caracas). Kevin G. Hall is National Economics
Correspondent in McClatchy Newspapers
(Hall reported from Washington.). Petroleumworld does not
necessarily
share these views.
Editor's
Note:This commentary was originally published by McClatchy
Newspapers, Friday, March 21, 2008. Petroleumworld reprint
this article in the
interest of our readers.
All
comments posted and published on Petroleumworld, do not
reflect either for or against the
opinion expressed
in the
comment as an endorsement of
Petroleumworld. All comments expressed are private comments
and do not
necessary reflect the view of this website. All comments
are posted and
published without liability to Petroleumworld.
Fair use Notice: All works published by Petroleumworld are
in accordance
with Title 17 U.S.C. Section 107, this material is distributed
without
profit to those who have expressed a prior interest in receiving
the
included information for research and educational purposes.
Petroleumworld
has no affiliation whatsoever with the originator of this article
nor is
Petroleumworld endorsed or sponsored by the originator. Petroleumworld
encourages persons to reproduce, reprint, or broadcast Petroleumworld
articles provided that any such reproduction identify the original
source,
http://www.petroleumworld.com or else and it is done within
the fair use as
provided for in section 107 of the US Copyright Law. If you
wish to use
copyrighted material from this site for purposes of your own
that go beyond
'fair use', you must obtain permission from the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld
03/23/08
Copyright© 2008 respective author or news
agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone
provided it mentions Petroleumworld.com as the source. Other
stories you have to get authorization by its authors.
