  |
Venezuela: Where oil is everything
By Andrew Maykuth,
Staff Writer
The Philladelphia Inquirer
CIUDAD OJEDA, Venezuela
Petroleumworld.com 06 19 06
Venezuelans love to ask visitors this question, because they already know the answer:What are you paying for gasoline these days in the United States?
"Three dollars a gallon?" said Nelio Soto, feigning surprise before delivering the punch line. "I can fill up my entire car for less than that."
Soto, who drives a 1988 Buick, pays 12 cents a gallon at the pump. In the world's fifth-largest oil-exporting country, where the state subsidizes fuel, conservation is not an issue. Venezuela's highways are full of aging American gas-guzzlers. When the revolution comes, this is where the Hummers will go.
In Venezuela, petroleum is everything - it accounts for one-third of gross domestic product, 80 percent of export earnings, and 100 percent of the national sense of entitlement to cheap gasoline.
Soaring worldwide oil prices and 9 percent growth rates have bankrolled President Hugo Chavez's generous social programs under his Bolivarian Revolution, as well as his campaign to build an international anti-American alliance.
The oil windfall has also emboldened the leftist president to threaten to divert Venezuela's exports from the American market to competitors in China and India, even though the Asian markets would be costlier to serve. Currently 60 percent of Venezuela's production goes to the States.
As if Venezuela were not doing well enough when oil costs $70 a barrel, Chavez in recent months has moved to snatch an even bigger share of the bonanza. His government has imposed hefty increases in taxes and royalties on the foreign oil companies working here. It has taken majority shares in oil-producing joint ventures, forcing the multinationals to take smaller roles.
Despite the bigger stake, economists say it is only a matter of time before Venezuela's oil income fails to satisfy its obligations to pay for a growing array of social programs, discounted oil to neighboring countries, and projects with dubious economic returns, such as a $1 billion refinery in Cuba or a proposed $20 billion 5,000-mile natural-gas pipeline across the continent.
"The law of economics says that, sooner or later, the expenses will catch up," said government critic Jose Toro-Hardy, a former director of the state oil company Petroleos de Venezuela, known by its initials, PDVSA. "What we see right now is a very artificial economy."
"It's hollow growth," said Robert Bottome, publisher of the Caracas-based newsletter Veneconomia. "Most people believe once the price of oil falls, it will be unsustainable."
Much of the skepticism is based on the fact that Venezuela's oil production is declining. Output has slipped from more than 3.2 million barrels a day - Venezuela's quota under OPEC - to about 2.5 million barrels. The decline has not affected income, because oil prices have climbed far faster - the price of Venezuelan crude has gone up more than sixfold since Chavez came to power in 1999.
Analysts blame PDVSA for the decline in productivity, saying the national oil company has made insufficient reinvestments to maintain output - an oil field will deplete by 20 percent annually without upgrades. PDVSA also lost substantial technical expertise after it fired half its workforce, 25,000 employees, three years ago following a crippling anti-Chavez strike.
The reduction in output seems barely visible here in Ciudad Ojeda, on the shores of Lake Maracaibo in the heart of Venezuela's traditional oil-production area. Most of Venezuela's proven 78 billion barrels of reserves lie around this lake, whose surface is covered by a thick blanket of pea-green duckweed.
Venezuelan high-sulfur crude supplies a number of refineries in the United States, including several run by PDVSA's subsidiary, Citgo. A heavy crude from the Boscan field near Lake Maracaibo also supplies the Citgo asphalt refinery in Paulsboro, N.J., one of the largest producers of paving material in the Northeast.
The oil platforms that rise from Lake Maracaibo are impressive - a virtual city built on open water as far as the eye can see, connected to the shore by high-tension powerlines and pipelines. But many of the wells are sealed: The underground reservoirs are tapped out.
The Maracaibo oilfields, though vast, are in long-term decline.
Instead, Venezuela's future lies about 500 miles east of here, in the Orinoco River valley, which possibly contains the biggest reserves in the world.
The Orinoco Belt holds more than 1.2 trillion barrels of extra-heavy oil - a thick, tarry substance that must be refined in Venezuela before it is exported as synthetic crude oil. Government officials estimate that the Orinoco Belt may contain more than 250 billion barrels of recoverable synthetic crude. That would make Venezuela the biggest source of oil in the world, topping Saudi Arabia.
The Orinoco crude was unexploited until recent years because it was unprofitable to produce - until the price of oil started to rise.
In the 1990s, Venezuela offered discounted taxes and royalties to induce international oil companies such as ConocoPhillips, Exxon Mobil Corp. and Total S.A. to develop the Orinoco. After a $16 billion investment, four international "strategic alliances" began producing synthetic crude in 2001. Production now totals about 600,000 barrels a day, or nearly one-quarter of Venezuela's total output.
But with oil prices climbing and the Chavez government adopting a more hostile attitude toward Big Oil, Venezuela raised the royalty rate for the Orinoco Basin projects from 1 percent to 16.8 percent in 2004 - and Chavez recently said he would increase it to 30 percent. The government also wants to increase taxes on the four projects from 34 percent to 50 percent.
Although the Orinoco projects are still profitable at current crude prices, the oil companies are upset about the way the Chavez government changed the terms of the agreements. There is some concern that Chavez might be tempted to expropriate the partnerships.
"The oil companies want to seem like good corporate partners," said Pietro D. Pitts, editor of LatinPetroleum.com. "But they're really very scared."
Oil analysts say the oil companies are accustomed to working in difficult countries with unpredictable governments, and by comparison to some places where oil can be found - Iran, Nigeria, the former Russian republics - Venezuela still is attractive.
"You've been taken for more than you were willing to be taken, we don't like the structure, but, hell, governments don't last forever," said Alberto Quiros, the former head of Shell's Latin American operations, who is now an industry consultant.
"They may hit them with higher taxes, but I don't think they're talking about 100 percent expropriation or nationalization, which is what really bothers oil companies."
Until the relationship stabilizes, Big Oil may be reluctant to bring its capital and technical expertise to expand the Orinoco production, which is what oil experts say Venezuela - and the world's petroleum consumers - need.
Ali Rodriguez, the former head of PDVSA who is now Venezuela's foreign minister, said the country still wanted international investment and understood the need to guarantee a fair return.
"We're conscious that there is an increase in energy demand throughout the world, and we're conscious that we should contribute to satisfying that demand," Rodriquez said in an interview. "And we're also conscious that that will require private participation, complementing the efforts of the state."
He said oil companies remain "eager to work with us."
- Andrew Maykuth at 215-854-2947 or amaykuth@phillynews.com.
The Philladelphia Inquirer 06 18 06
Copyright ©2006 The Philladelphia Inquirer. All Rights Reserved.
Your
feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.
Write to editor@petroleumworld.com
Any
question or suggestions, please write to:
editor@petroleumworld.com
Best
Viewed with IE
5.01+
Windows
NT 4.0, '95, '98 and ME +/ 800x600 pixels