'Glory days' long past, Venezuela will struggle to recover its lost oil production
By Brian Scheid / Platts
Petroleumworld 02 25 2019
As Venezuela emerges from its dire political, economic and humanitarian crisis, its lifeblood oil industry will play a central role in steering the country toward recovery.
But state oil company PDVSA is in shambles, with plummeting output unlikely to rebound for years and skittish foreign investors not expected to infuse needed cash into the nation's crumbling fields, upgraders, pipelines, refineries, and ports.
As embattled President Nicolas Maduro and US-backed opposition leader Juan Guaido continue to vie for power, analysts say the longer US sanctions stay in force, the deeper PDVSA's predicament.
Looming sulfur regulations on marine fuels and potential global climate change policies that have already steered investors away from carbon-intensive crudes will further challenge PDVSA, which has been banking on its heavy crude reserves in the Orinoco Belt to fuel future production growth.
"When you think about the fact that it's hard to get the majors to even think about investing in the Arctic or they don't want to do Canadian oil sands, they're not going to go back and do Orinoco," Amy Myers Jaffe, director of the Council on Foreign Relations' energy security and climate program, said in an interview. "That was even more expensive and it's in a foreign country with political risk. How realistic is it that these companies would plunk down billions of dollars to go into Venezuela to do heavy oil?"
Venezuela's crude production in January fell to 1.16 million b/d, according to the latest S&P Global Platts survey of OPEC member output. That is just one-third of peak levels of nearly 3.5 million b/d in 1998.
In just one year, output has dropped nearly 30% as two decades of financial mismanagement, political purges and underinvestment have decimated PDVSA, which was once a model state-run oil company held in as much international esteem as Saudi Aramco.
It could shrink even further to 500,000 b/d by year's end, some analysts say, if US sanctions, which severely restrict crude and product flows in and out of Venezuela, continue to be enforced.
US officials have said they will only lift the sanctions if Maduro gives up the presidency, but the leader, who claimed re-election last year in a vote that many international observers say was rigged, has so far resisted efforts to topple him.
A return to the "glory days" of Venezuela oil production "will take a decade, tens of billions in foreign investment, and a nationwide kumbaya of fast-moving political reconciliation and petro-recovery," Scott Modell, a managing director of consultancy Rapidan Energy Group, told S&P Global Platts.
Modell said that even under the "rosiest" of scenarios, which would likely require a rapid power transition, lifting of US sanctions and an influx of foreign investment, production in Venezuela could recover only 400,000 to 500,000 b/d over the course of six to 12 months.
PDVSA has become increasingly reliant on partnerships with international oil companies to pump crude.
Just over half of Venezuela's production currently comes from joint ventures in the Orinoco Belt between PDVSA and IOCs, including Chevron.
Output at those projects declined in 2018 by about 10%, but production at fields solely operated by PDVSA at Lake Maracaibo in the country's northwest and in the Maturin Basin in the east have fallen more dramatically -- by 30%, according to Emily Sandys, an industry analyst at the US Energy Information Administration.
Analysts said a significant boost in foreign investment would be near impossible without significant changes to Venezuela's Chavez-era hydrocarbons law, which boosted production royalty payments to the government and severely limited stakes private companies could hold in oil production projects.
Since assuming the title of interim president after swearing himself in, Guaido has pledged to revamp the hydrocarbons law, but has not outlined any concrete proposals. He has also named new board members to Citgo, PDVSA's US refining subsidiary, and has identified stabilization and maintenance of PDVSA's oil operations as the first objective of the transitional government.
The US designed the Venezuela sanctions to prevent a total collapse of Venezuela's oil sector, since much of the success of a transition government will hinge on PDVSA's ability to boost production, Trump administration sources said.
The US has granted general licenses for some US companies in Venezuela's upstream sector, allowing them to continue their work while sanctions are in effect. Under one such license, Chevron, Halliburton, Schlumberger, Baker Hughes and Weatherford International were authorized to continue work in Venezuela for at least six months.
"The oil and gas sector is the key pillar of the Venezuelan economy, and it will be going forward," Sandra Oudkirk, a deputy assistant secretary in the State Department's Bureau of Energy Resources, told Congress last week. "Keeping the US corporate presence there with their best practices ... is, we believe, one of the best ways to ensure that in the future Venezuela is able to return to prosperity and an economy that functions normally."
We invite you to join us as a sponsor.
Circulated Videos, Articles, Opinions and Reports which carry your name and brand are used to target Entrepreneurs through our site, promoting your organization’s services. The opportunity is to insert in our stories pages short attention-grabbing videos, or to publish your own feature stories.
Story by Brian Scheid from Platts / SPGlobal.
spglobal.com 02 22 2019
Hit your target - Advertise with us
PW 300.000 plus request per week
Copyright© 1999-2019 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.
Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.Write to firstname.lastname@example.org
By using this link, you agree to allow PW
to publish your comments on our letters page.
Any question or suggestions,
please write to: email@example.com
Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels