FOCUS: Latin America's Big Four battle production declines: with Brazil the only winner
| Published date | 01 February 2017 |
| Date | 01 February 2017 |
| DOI | http://doi.org/10.1111/oet.12454 |
FOCUS
Latin America’s Big Four battle production declines: with Brazil the only
winner
ree of Latin America’slargest oil producers,Venezuela,
Mexico, and Colombia, experienced problems in 2016
that caused their output to decline. Not the least of these
was the low price of oil for most of the year. e other
member of the continent’s Big Four, Brazil, did manage
an increase, although only a small one.
Allofthemhaveexpressedthehopethatthisyear’s
expected rise in crude oil prices will enable them to pro-
ceed with a series of planned new oileld developments;
butitwilltakemorethanhighcrudepricestoprevent
afurtherdeclineinoutputinthreeofthem.Brazil,on
the other hand,should manage a modest increaseduring
2017. Diculties nevertheless remain for all four coun-
tries as they try to revive their oil production in 2017 and
beyond.
Venezuelan troubles
Venezuela is probably in the worst position of the four
main Latin Amer ican producers. Last year, its produc-
tion of crude oil and natural gas liquids (NGL) fell by
about 0.2-2.4 mn bpd (see Tab l e A ) an d l o ok s s e t to
decline by at least the same amount in 2017. January
2017’sestimated production of 2.0 mn bpd is 0.4 mn bpd
below January 2016’s level, and 0.8 mn bpd lower than
that of January 2015.
Venezuela’s oil production peaked as long ago as
1970, at 3.7 mn bpd. It went on falling until 1985 when
it reached 1.7 mn bpd. A revival followed, taking it to
3.5 mnbpd in 1998, since when it has declined steadily.
Part of the reason for the decline since 1998 is the
natural decline of its oldest oilelds, most of which are
of light and medium crude. e eect of this is the
increasing proportion of the country’s output that is
derived from heavy oilelds where not only is the oil
produced less valuable than in the other elds, it is also
more expensive to extract.
e natural decline of Venezuela’s oilelds has been
exacerbated by decades of mismanagement and neglect
of the state-run oi l sector, which is the resp onsibil-
ity of the government-owned Petroleos de Venezuela
(PDVSA). e national oi l company, however, has been
systematicallydeprivedofthemoneyitneedstomain-
tain its production, let alone increase it, by succes-
sive governments since 1998, which have used PDVSA’s
earnings to fund spending elsewhere in the economy.
One consequence of t his is that PDVSA has not had suf-
cient money to pay many of its up stream contractors,
causing some foreign contractors to thre aten to pull out
of the country. PDVSA was estimated to owe $19 bn to
contractors at the beginning of 2016 [1]. e company
Table A
Venezuela: Oil Prole, 2016
Proven Reserves 300.9 bn bbl∗
Reserves Remaining 342.6 years†
(mn bpd)
Production
Crude Oil 2.2
NGL 0.2
Total 2.4
Consumption
Total 0.6
Net Exports
Total 1.8
∗As of 1.1.17
†Based on 2016 production
Totals rounded
Source: (Reserves) Oil & Gas Journal;
(Production) Ministry of Petroleum & Mining;
(Other) OET estimate
may soon need to consider selling some of its assets to
cover debts owed to its creditors.
Rise in 2017?
In spite of all its woes, PDVSA is talking optimist i-
cally about increasing productionslightly in 2017 thanks
largely to a rise in the production of heavy crude from
the Orinoco B elt, where output is expected to go up
from 1.3 mn bp d to nearly 1.4 mn bpd. Most of the rise
in Orinoco production, however, will be oset by a fall
in the production of lighter crudes, probablyleading to a
net gain in output this year of under 10,000bpd. e fal l
in light crude production is a double blow to the state
company since the light crude is also required for dilut-
ing Orinoco production to produce saleable and trans-
portable crude. In order to replace its own light crude,
PDVSA will need to import other light crudes as dilu-
ent. is has been necessary since 2014 and this year will
see these importsincrease. e crudes are likelyto come
mainly from the US and Africa.
e recent rise in global crude prices should raise
therevenuesofPDVSA,makingiteasiertonancethe
proposed increase in output from the Orinoco heavy
crudeelds;butsomeoftheincreaseinthesellingprice
of the heavy crudes is bound to be oset by the increase
in imports of diluent. e better policy might be to
channel more resources into trying to revive outputfrom
the country’s light and medium crude elds.
Reserves poser
At rst sight, Venezuela’s huge reserves of oil appear to
oer abundant opportunities to raise product ion: not
© 2017 John Wiley& Sons Ltd
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