the United States to China, as payments in kind under oil-for-loans contracts.
Venezuela’s broken refinery sector has
left shortages of gasoline and diesel in parts of Latin America, opening the door for valuable markets to American refiners.
Over his 14 years in power,
Mr. Chávez relied heavily on oil revenues to finance his social programs.
Energy experts say
his gasoline subsidies doubled domestic consumption, cutting
into exports, but
his hostility to foreign investment and mismanagement of the state oil company Petroleos de Venezuela were
reasons for the steep decline in production.
A strike and the firing of management talent and 20,000 workers at the oil company in 2002 led to a steep decline in the company, which has been underscored by the refinery accidents.
Venezuela is a
fraction of what it used to be,”
said Sadad Ibrahim al-
Husseini, a former head of Saudi Aramco’s exploration and production division, “and
hat’s really because Venezuela’s technocrats have scattered over the world and are no longer active in Venezuela.”
Mr. Chávez further overhauled oil exploration and production with a nationalization program in 2006 that ordered a renegotiation of contracts
with foreign companies, mandating that Venezuela’s oil company get a minimum 60 percent
share in all production projects.
Sixteen foreign companies, including Royal Dutch Shell and Chevron, went along with the new rules, while
Exxon Mobil, Conoco Philips and other companies resisted, and their holdings were nationalized
Venezuela has huge reserves, including its Orinoco heavy oil belt, which the United States Geological Survey estimates to have 513 billion barrels of recoverable oil
enough potentially to make Venezuela one of the top three world producers. But
foreign oil companies have been wary of investing
Jose Valera, a Houston energy lawyer, said
that if Nicolás Maduro, Mr. Chávez’s vice president until he was sworn in as president on Friday, or
another member of the Mr.
Chávez’s movement was elected president in a special election “it is reasonable to expect continuity of a substantial portion
policies.” But as for Venezuela’s economy, he argued, “
the situation right now is not sustainabl
e and it’s only a matter of time before some significant changes will have to be instituted.”
Now key time to solidify US market for Venezuela oil
failure to do so will permanently damage Venezuelan production
Ladislaw and Verrastro, CSIS Energy, 2013
(Sarah and Frank, “
Post-Chavez Outlook for Venezuelan Oil Production
” March 6 2013
What about Venezuela’s relationship with the United States?
Over the last ten years the sustained trading relationship between the United States and Venezuela has been one of the stabilizing forces in an otherwise contentious and sometimes volatile relationship. U.S. refineries in the Gulf Coast are specifically designed to process
Venezuela’s sour and medium to heavy crude and serves as its natural market. Despite oil production being
down, the United States still imports just under a million barrels
of crude per day from Venezuela (down from a peak of 1.4 mmbd in 1997) and, as stated earlier, the government of
Venezuela is highly dependent on those revenues for their ongoing stability, especially as revenue from other exports and domestic consumption decline.
As we look ahead to another period of transition in Venezuela it is important to be mindful of the potential for disruption and to look for ways to mitigate the impacts of such disruption, but it is equally important to remember
the trade ties that bind the two countries for the time being and to find opportunities to drive change in a positive direction
Time may be limited in this regard because the U.S. domestic production outlook is changing thanks to tight oil development in the United States and the influx of Canadian oil sands, both of which are giving U.S. refiners more options in terms of the crudes they use and more decisions to make about how they want to configure their refineries going forward. A future in which Venezuela is no longer as competitive in its natural market in the United States would change the outlook for Venezuelan crude marketing decisions. The long-
term outlook for Venezuela’s continued oil market production is changing both in commercial
and political terms. The situation has looked unsustainable for a long period of time but has managed to persist longer than most people though it would. Only time will tell if the upcoming leadership changes will bring a new chapter for Venezuela.