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Venezuelan Production Data: Does Anybody Care?

By Juan Carlos Boué

Recently a major British newspaper published an exclusive story in which a whistleblower within the International Energy Agency (IEA) claimed that certain key variables in the agency’s World Energy Outlook had been deliberately massaged in order to underpin an unjustifiably rosy scenario for future global oil output.¹ The anonymous “senior official” stated that, for some time now, the agency’s forecasts had been “underplay[ing] the rate of decline from existing oil fields while overplaying the chances of finding new reserves” in response to American pressures to that effect (the story quoted a “second senior IEA source, who has now left but was also unwilling to give his name”, who made it clear that “a key rule at the organization was that it was imperative not to anger the Americans”). Over the following days, The Guardian put out a number of stories elaborating on the topic of how the agency’s own personnel “had expressed deep misgivings about the way energy statistics are being collected and interpreted at the Paris-based organization,” both to The Guardian and to other parties (including UK Members of Parliament).² The cumulative effect of these revelations was succinctly summed up in a comment by the paper’s business editor on Mr Macalister’s original article: “The IEA’s credibility is on the line.” ³

The fact that the IEA’s reputation is being called into question at this particular juncture is rather unfortunate, in terms of the resolution of the controversy surrounding some other disputed figures produced by the agency – namely its estimates of Venezuelan crude oil production. It will be recalled that, since mid-2002, very significant divergences have been evident between the crude oil output figures put in the public domain by the Venezuelan government, on the one hand, and by the IEA (and other specialized oil industry trade journals and consultancies that follow its lead on these matters) on the other. For the Venezuelan government, these divergences (whose root cause and evolution is explained at length in MEES, 4 May) have been a source of some irritation. For instance, they were to blame for OPEC assigning Venezuela an unrealistically low quota baseline in September 2007 (a baseline which Venezuela therefore had to repudiate explicitly) and, since September 2008, they have also been responsible for obscuring the degree to which Venezuela has been complying with its production cut commitments.

Given the very wide-ranging ramifications that flawed output estimates can have (not only over potential disputes surrounding compliance with quotas, but also in terms of credit-worthiness, security of supply concerns, etc), it is probably safe to say that, had the Venezuelan government been a private firm, the distorted picture derived from the figures published by the IEA and other secondary sources would have led by now to some form of legal action, regardless of whether such distortions were willful or not. However, the Venezuelan Ministry of Energy and Petroleum never considered that the road towards an expedite resolution of the misunderstandings a propos Venezuela’s crude oil output led through the libel courts. And neither did it think that satisfactory results could be obtained by highlighting its own output figures, and assuming an openly confrontational stance over the inaccurate figures being reported by the IEA and other secondary sources (indeed, both the market and the industry at large have always had access to the correct output figures as a result of Venezuela’s participation in the Joint Oil Data Initiative (JODI), so it was reasonable for the ministry to conclude that any attempt to give wider diffusion to its JODI figures would be greeted with a resounding: “Well, they would say that, wouldn’t they?”). Therefore, the ministry decided to pursue a third option, predicated on four key assumptions, to wit:

Any uncorroborated output figures put out by Venezuela would be dismissed out of hand by the IEA and other secondary sources, on the grounds that the Venezuelan government had a ‘credibility’ issue, with the pat explanation that talk is cheap (whether these grounds had any merit to them was beside the point).

The claim made by IEA and other secondary sources that they prepare their production estimates with due care and, above all, in good faith, had to be in principle accepted at face value. The corollary to this was a further assumption that, despite apparent biases, all secondary sources (including the IEA and the US Department of Energy – DOE) would be inclined to evaluate new evidence regarding Venezuelan output with an open mind and good will, if for no other reason that they would not relish developing a reputation for being purveyors of a particularly dry and unexciting brand of science fiction, in case it were proven a posteriori that their estimates were, indeed, very far off the mark.

Absent such good will, no amount of jumping through hoops would convince skeptics à outrance (or analysts subject to political pressures like those alleged in The Guardian stories), who would always have plenty of conspiratorial arguments at hand to justify not changing their position (ie a cargo-by-cargo export inspection program or full production audit could be dismissed by saying that the inspectors or auditors were bribed or bullied, or were somehow not qualified, or the disclaimers rendered the whole exercise meaningless, and so on). If that proved to be the case, then the most sensible course of action would be to stop trying to convince these diehards (on the grounds that, as Milan Kundera quips, when one meets a madman on the street who is convinced that all other persons are fish, the rational response is not to strip naked so that he can corroborate that one does not have gills).

There was a tradeoff involved between the level of detail and substance of the information that would be required to convince well-disposed observers, on the one hand, and the effort, cost and, most importantly, time that would be required to put together such information, on the other hand.

These assumptions crystallized into an initiative whereby, since May 2009 (but going back to November 2008), the Venezuelan government has been making available to all secondary sources (including the IEA and DOE, of course) and the market at large, independently verified tallies of the monthly gross and net volumes of oil being exported from Venezuela (with exports being understood in the strictly territorial sense of oil leaving Venezuelan jurisdiction, whether for storage abroad or through an actual sale). The tallying has been carried out on the basis of the bill of lading or discharge certificate issued for each and every cargo, provided to one of the world’s leading inspection and testing companies (the British firm Inspectorate) by the Venezuelan Servicio Autónomo de Metrología de Hidrocarburos (SAMH – Autonomous Service for the Measurement of Hydrocarbons). In the process, Venezuela has become, to quote PIW on the matter, “the first OPEC country to publish independently certified export data.” ⁴

Venezuela’s disclosure initiative has not gone entirely smoothly (and Energy Intelligence Group, for one, has made sure to keep the market abreast of any hiccups, however minor, attendant to the ministry’s “bold step of releasing detailed, independently certified monthly oil export data”). ⁵ However, the assumptions underlying the policy of information disclosure have been largely borne out by the course that events have followed since the certified export data first appeared in MEES. For starters, the release of auditable data verified by reputable third parties has been almost universally welcomed, not least because it goes down to a level of detail just short of what one would expect from proprietary, commercially sensitive, data. In terms of the willingness of secondary sources to be convinced by new data, it has to be said that upon publication of the certified figures, PIW promptly revised its own estimates upwards by 500,000 b/d and Cambridge Energy Research Associates (CERA) followed suit shortly afterwards, to the tune of 350,000 b/d (paradoxically, these revisions have had the effect of worsening Venezuela’s apparent compliance with quota, as the OPEC Secretariat did not adjust the September 2007 baseline retrospectively, in order to reflect the revisions undertaken by two out of the six secondary sources used to monitor output for compliance purposes). Other trade journals, consultancies, and OPEC secondary sources have not yet modified their own Venezuelan output estimates, but they have been keeping close tabs on the data, with a view toward doing so eventually. Indeed, it has been suggested that even the DOE and the IEA are studying the matter and considering their options.

If anything, the disappointing aspect to the market’s response to Venezuela’s disclosure policy has been a striking lack of discussion in terms of the merits and possible shortcomings of the certified data, especially in comparison to the uncertified and unverifiable ‘guesstimates’ published by secondary sources, trade journals and consultants (not to mention the non-existent comparable data published by other oil producers). For instance, every time that it publishes Venezuela’s certified exports, MEES is careful to include a disclaimer that the figures are “disputed by the majority of analysts.” If only that were true! The data might not be accepted, much less taken at face value or even seriously by some analysts, secondary sources or agencies, but disputation is a verb that implies discussion in a public forum, with plenty of thrusting argument and parrying counter-argument. Alas, this sort of dialectical swashbuckling has been conspicuous for its absence in the case at hand. Nevertheless, despite the fact that the certified export data seem to have sunk like lead into the mighty waters (to use a biblical turn of phrase), there were and are good reasons to believe that the controversy was advancing steadily towards its resolution, not least because a significant number of oil companies, financial institutions, specialized consultants and producing countries are ready to acknowledge, so long as they can do so on a non-attributable basis, that the estimates of the secondary sources are in fact untenable. Indeed, most actors seem to be waiting on the wings for the IEA to make some sort of pronouncement on the matter, which makes a lot of sense since it was the agency that set the whole train of events in motion in July 2002, when it unilaterally switched “from a classification that reported Venezuelan heavy oil production as crude oil, to one whereby Venezuelan synthetic crude production was counted in the OPEC NGL and non‐conventional oil category.” ⁶

As the IEA tells it, its decision to introduce these very significant accounting changes was a reflection of the “uncertainty as to whether Venezuela´s extra-heavy oil will be counted as ‘crude’, subject to OPEC´s quotas, or treated as ‘bitumen’, outside of OPEC´s current regime.” ⁷ However, the various issues that gave rise to the uncertainty that so troubled the IEA (again, see MEES, 4 May) have now been put to bed by the Venezuelan government, not least through its unambiguous statements that it will not treat the country’s output of extra-heavy crude oil as bitumen. In light of the above, and the fact that the market at large appears to be on tenterhooks in expectation of the direction in which the IEA might jump, it seems reasonable to expect the agency to come up any day now with some sort of statement clarifying its position (especially since, as PIW of 18 May puts it, the revision of Venezuelan output estimates by OPEC secondary sources “has sweeping implications for estimates of global oil balances, producer country transparency and OPEC compliance rates”). After all, not coming up with a clarification is tantamount to stoking the uncertainty which the agency, just like the Venezuelan government, so dislikes. Regrettably, this is where the ministry’s concern regarding the potential effects of The Guardian’s disquieting revelations comes in. After all, from a purely PR standpoint if nothing else, one suspects that the fact that the IEA finds itself at the moment trying to defuse highly damaging allegations over one set of numbers may translate into a marked reluctance on its part to acknowledge that problems exist with a second set of figures (and even a third one, as is explained in some more detail below). Thus, the IEA’s avowed commitment to the cause of chasing off the bugbear of uncertainty (from a market that, by all accounts, suffers badly from it), may end up falling prey, at least temporarily, to the agency’s reserves accounting contretemps.

For the Venezuelan Ministry of Energy and Petroleum, a swift resolution of the controversy would be a preferable outcome, of course. In order to bring this about, from this month onwards, the detailed data that the ministry puts in the public domain will be greatly expanded. The ministry’s position has always been that if, for whatever reason, someone is skeptical about Venezuela’s official crude oil output figures, all that someone needs in order to get a very close approximation of Venezuelan crude production is to add Venezuelan seaborne exports of crude and products, on the one hand, and domestic oil products consumption, on the other. In order to allow all parties to carry out effectively these arithmetical operations, and compare the results obtained therefrom with the official Venezuelan crude oil output figures, the ministry will be putting in the public domain, on a monthly basis, the following three data sets (as has been the case until now, the ministry will be sending the data to interested parties, including all six OPEC secondary sources, the OPEC secretariat, other OPEC oil ministries and so on but, in addition, the data will also be made available in a dedicated website maintained and updated by SAMH):

1. Monthly net crude and oil products (including upgraded crude oil) export data certified by Inspectorate, on a port-by-port basis.

All of Venezuela’s liquid hydrocarbon exports leave the country by sea (except for the small volumes of products smuggled overland to Colombia), so these certified figures essentially account for that part of Venezuelan output that is not either consumed domestically or else sent to storage facilities located within Venezuela (oil sent to storage facilities outside of Venezuela constitutes an export, obviously, and sales from stocks held abroad are not included in this report).

2. Monthly seaborne movements of oil products destined for domestic consumption, on a port by port basis.

The overwhelming proportion of Venezuela’s domestic consumption of petroleum products has to be moved by seaborne coastal trade from refineries to distribution depots. Thus, the monthly coastal traffic movements of products to these distribution depots are an excellent proxy for Venezuelan domestic consumption (particularly as there is no spare capacity at the depots themselves that can be used for longer term storage of stocks). In addition, and should it prove necessary, these coastal trade movements can easily be certified by a third party, in much the same way as the export volumes are. The volumes moved in such coastal trade cover jet fuel sold to airliners on international routes, but not the minimal volumes of products distributed by tank car directly from refineries, or bunker sales to vessels. They also do not include refinery own consumption or losses.

Until now, the ministry has only been providing an aggregated figure for domestic consumption but it was felt that more detail and substance were desirable, in view of the very significant differences between Venezuela’s domestic consumption figures, on the one hand, and the comparable Venezuelan domestic demand estimates published by the IEA. Although the absolute volumes involved are obviously smaller than in the case of the output figures, nevertheless the differences are absurdly large in proportional terms (as Figure 1 shows, the IEA figures overestimate Venezuelan domestic demand by 45%!), and there does not appear to be any way of accounting for them (although, as Figure 2 shows, the origin of the discrepancies is the IEA’s belief that Venezuelan domestic demand has been expanding at a breakneck rate since 2003). Taken together, the IEA’s crude oil output and domestic consumption figures for Venezuela imply a dramatic shrinkage in volumes available for export (Figure 3), which does seem rather at odds with the generalized market perception on the matter.

Figure 1: Annual Venezuelan Consumption Of Petroleum Products, 1995-2009*

See the figure in the original article: Venezuelan Production Data: Does Anybody Care?

Figure 2: Quarterly Venezuelan Domestic Petroleum Consumption,
According To The IEA, 1995-2009

See the figure in the original article: Venezuelan Production Data: Does Anybody Care?

Figure 3: Venezuelan Petroleum Available For Export*, According To The IEA, 1995-2009*

See the figure in the original article: Venezuelan Production Data: Does Anybody Care?

3. Monthly wellhead production of condensates and crude oil, by type,
reported by the Royalty Department of the Ministry of Energy and Petroleum.

Short of a full production audit, this particular data set (which is being published for the period 2007-09) offers the best and most complete picture that can be obtained for Venezuelan crude and condensate production, since royalties are levied on every barrel of oil produced, and under-reporting production to avoid royalty is a felony, while over-reporting production and artificially inflating royalty obligations is insanity. The crude oil production breakdown will follow Venezuelan conventions: light (30.0°+ API), medium (22.0-29.9° API), heavy (10.0-21.9°API) and extra-heavy (9.9° API or less). These production figures will not include NGLs, which pay royalty when they are produced as part of the gas stream, before being sent to cryogenic plants for separation. Aside from NGLs, the other main adjustment that has to be made in order to render these figures comparable with net export and domestic consumption figures is to account for the significant proportion of the extra-heavy crude that ends up as petroleum coke as a result of the upgrading process. It should also be noted that only about two-thirds of extra-heavy crude oil production is charged to upgraders; the remainder is blended with light crude oils and exported, primarily in the form of Merey or Leona blends.

In addition to the above, the ministry will also publish a further data set catering more to the requirements of sophisticated organizations like the IEA and other secondary sources. It has come to the attention of the ministry that, as part of their efforts to validate the certified export figures released by the ministry, some parties have engaged in tanker tracking exercises of varying scope and duration. In order to facilitate these efforts, and in recognition of the commendable diligence that they imply, the ministry will release every month, a list giving the name of every single vessel involved in the export of Venezuelan petroleum, together with the type and volume of hydrocarbon that it loaded, its bill of lading date (and number of bill of lading, in the cases when more than one has been issued for a particular vessel),
and its loading port. This type of information on vessel movements and port calls is publicly available, albeit often from subscription services only and in a less detailed form.

In sum, the Venezuelan Ministry of Energy and Petroleum firmly believes that transparency and data reliability have a significant contribution to make in terms of the stability of the oil market. The interests of producers, consumers, companies and governments alike are ill-served when key variables, such as Venezuelan crude production and domestic demand, are presented incorrectly, for whatever reason. Venezuela is prepared to go to great lengths to correct these distorted views, setting an example that other countries might find worthy of imitation, not least in order to prevent their own energy statistics from falling prey to similar distortions.

Notes:

1. T Macalister, ‘Key Oil Figures Were Distorted By US Pressure, Says Whistleblower’, The Guardian, 9 November 2009.

2. T Macalister, ‘Oil: Future World Shortages Are Being Drastically Underplayed, Say Experts’, The Guardian, 12 November 2009.

3. N Pratley, ‘The IEA’s Credibility Is On The Line’, The Guardian, 9 November 2009.

4. ‘Export Data Alters The View Of Venezuela’, Petroleum Intelligence Weekly, 18 May 2009.

5. ‘New Questions Over Venezuela Export Data’, Petroleum Intelligence Weekly, 12 October 2009; ‘Venezuelan Drive To Come Clean On Output Hits A Snag’, Energy Intelligence Briefing, 8 October 2009.

6. IEA, Oil Market Report, 14 March 2006, page 18.

7. IEA, Oil Market Report, 11 May 2001, page 16.

Data Tables

Table 1: Certified Venezuelan Net Exports Of Crude Oil

And Petroleum Products

See the figure in the original article: Venezuelan Production Data: Does Anybody Care?

Table 2: Venezuela, November Movements of Petroleum

Products for Domestic Consumption, by Terminal

Terminal	Total Volume (Bbls)	Average (B/D)
Cardón	710,460	23,682
Amuay	487,081	16,236
Bajo Grande	4,166,836	138,895
Carenero	1,509,242	50,308
Catia La Mar	481,213	16,040
El Guamache	600,725	20,024
El Palito	4,896,093	163,203
La Salina	60,445	2,015
Guaraguao	2,351,688	78,390
Total	15,263,782	508,793

Table 3A: Venezuela, Monthly Oil Production (Barrels)

See the figure in the original article: Venezuelan Production Data: Does Anybody Care?

Table 3B: Venezuela, Monthly Oil Production (B/D)

See the figure in the original article: Venezuelan Production Data: Does Anybody Care?

MEES Editor’s Note: Re ‘Signals Of A New Floor And Ceiling For Crude Oil Prices’

In the Op-Ed article by Behrooz Baik Alizadeh in last week’s issue, the phrase ‘the Persian Gulf’ in the author’s original text was inadvertently changed to ‘the Gulf’ (MEES, 7 December, page 26).

PW Editor's Note: Related article: OPEC : How Much Oil Has Venezuela Really Been Producing? by Juan Carlos Boue.

Juan Carlos Boué is Senior Advisor to Venezuela's Ministry of Energy and Petroleum. Petroleumworld not necessarily share these views.

Editor's note: This article was originally published by MEES (Middle East Economic Survey), VOL. LII, No 50, 14-Dec -2009 . Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 12/27/09

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