CERAWeek: Venezuela will need to rebuild much
of its oil industry - Schlumberger
Daniel Yergin, Vice Chairman, IHS Markit (Chair), Chairman, CERAWeek, John Hess, Chief Executive Officer, Hess Corporation, Ashok Belani, Executive Vice President Technology, Schlumberger Limited, Miguel Gutiérrez, Chairman, YPF S.A.
By Al Greenwood / ICIS
Petroleumworld 03 14 2019
Venezuela's oil industry is in such a state of disrepair that a good part of it will need to be rebuilt, an executive with Schlumberger said on Tuesday.
Venezuela's oil production has fallen sharply, and many have blamed the decline on neglect, looting and the loss of personnel.
"It is pretty badly broken," said Ashok Belani, executive vice president of technology for Schlumberger. He made his comments during a panel held at the CERAWeek by IHS Markit conference.
Belani recounted talking to the company's resident manager in Venezuela on Monday. He asked for a list of items he could discuss during a panel.
"The list is very, very long," Belani said. Venezuela lacks rigs, pumps, mud and personnel.
Some of the country's diluent facilities are in such bad shape that they will need to be rebuilt, Belani said. Venezuela's heavy oil grades need diluent so it can be transported.
Pump jacks are not working. Because of a shortage of storage facilities, when oil producers cannot ship out crude, they have to shut in wells.
Some compressors are not working because their parts have been cannibalised, Belani said.
The recent power outages in Venezuela are likely to have caused the nation's oil production to decline further, he said. It may have fallen to 600,000-700,000 bbl/day.
Venezuela will require more than just reviving its oilfields, he said. "You are almost rebuilding an industry."
Years ago, Venezuela's energy industry was in much better shape. It was just over a decade ago that Braskem was considering building a $3.5bn petrochemical complex in Venezuela with producer Pequiven.
However, the country squandered its wealth under the administration of former head of state Hugo Chavez.
Foreign debt rose from $25bn in 2004 to $150bn in 2012, said Ricardo Hausmann, professor, Center for International Development; professor, Practice of Economic Development, John F Kennedy School of Government, Harvard University.
By 2012, Hausmann said, Venezuela was spending as if the price of oil was $200/bbl.
To continue borrowing, Venezuela began pledging oil production as collateral. This policy would deny the country an important source of foreign revenue, since oil accounts for nearly all of its exports.
This proved ruinous once oil prices declined. To preserve its foreign reserves and to maintain its debt payments, the country imposed severe currency controls, preventing companies from obtaining the dollars they needed to import equipment.
These imports had become all the more critical to the country, because the government had nationalised large sections of the economy and imposed price controls on products. The result hollowed out Venezuela's private sector, and the country lost capacity to meet domestic demand for goods and equipment.
By the end of 2017, the government began to default on its global bonds.
For Venezuela to recover, Hausmann said the country needs to remove the foreign exchange controls and to receive some kind of debt restructuring so it can import the goods and material it needs to rebuild its economy.
In the long run, Venezuela will have to increase exports so it can fund its reconstruction, Hausmann said.
The likely source of those exports would be the oil industry, which is now dominated by the state energy producer PDVSA, Hausmann said.
Current law limits outside participation in Venezuelan oil production to minority stakes in joint ventures with PDVSA, he said.
This needs to change. PDVSA's management, finances and operations are insufficient to stage a recovery by itself, Hausmann said. "We need to open up the oil industry with private investment."
Venezuela has the world's largest oil reserves and a diaspora experienced in the energy industry, Hausmann said. The reserves reduce geological risk, and returning Venezuelans can provide the know-how needed to revive oil production.
It is unclear how Venezuela will adopt these changes under the current administration of Nicolas Maduro, who succeeded Chavez.
Maynard Holt, CEO of investment bank Tudor, Pickering and Holt, said a change of government could be the impetus to attract the money needed to rebuild the country.
Maduro is now in a dispute with Juan Guaido over who is the legitimate head of state. Guaido could provide the change in government that would attract the money and the people needed to rebuild the economy. So far, Maduro has shown no signs of leaving office.
"You have to remember that in the late '90s, Venezuela was one of the best places in the world to invest," Holt said.
CERAWeek runs through Friday.
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Story by Al Greenwood from ICIS News.
icis.com 03 13 2019
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