FOCUS: Venezuela's problems keep on growing
| DOI | http://doi.org/10.1111/oet.12475 |
| Date | 01 May 2017 |
| Published date | 01 May 2017 |
FOCUS
Venezuela’s problems keep on growing
As OPEC’s economically weakest member, Venezuela
was one of the organization’s strongest advocates for
cuts in production in order to raise global oil prices. At
the end of the rst quarter, however, it had the largest
production above its allocation of any OPEC memb er.
During the rst three months of 2017, its output of
crude oil averaged 2.05 mnbpd: some 80,000 bpd above
its ceiling of 1.97 mn bpd, compared with t he reduction
of 95,000 bpd that was promised in the OPEC agreement
of November 30, 2016 [1].
Venezuela’s economic weakness centres on the coun-
try’s huge debts, which were mostly run-up between
1999 and 2013 under the presidency of Hugo Chavez,
whoborrowedextensivelytoboostthecountry’seco-
nomic growth and to nance a series of social measures,
including price subsidies for oil products and otherb asic
commodities. e borrowing was supported by the rise
in global oil prices that occurred between 1999 and 2008
and the secondary rise that lasted from 2010 until 2014.
Venezuela is highly dependent on oil. About 98% of
the country’sexport income comes from oil, which is the
responsibility of the national oil company, Petroleos de
Venezuela (PDVSA). Under Chavez, the state company
was obliged to fund much of the cost of the country’s
social measures, depriving it of much of t he cash it
required to fund its own capital investment. Latterly,
it has even seen some of the money it needs for its
current operational requirements diverted to the central
government.eresultofallthisisadeteriorationof
the state oil sector, leading to a seriesof problems, which
PDVSA does not have the nancial resources to tackle.
Falling output
e most severe of these problems is a decline in the
country’s oil production. At the beginning of Chavez’s
presidency in February 1999, Venezuela’s production
of crude oil and natural gas liquids (NGL) totalled
3.5 mn bpd. In his nal year, 2013, it was 2.7 mn bpd. By
2016, it was down to 2.5 mn bpd (see Ta b le A ) a n d th i s
year it could even be below that gure.
e absolute decline in output since 1999 conceals
the fact that over the period since then Venezuela’s
oil production has become more heavy and therefore
less valuable. e reason for this is that the country’s
oldest oilelds are in long-term natural decl ine: and
theseoileldsarethesourceofmostofVenezuela’slight
andmediumcrude.enewestelds,bycontrast,are
mainly of heavy and extra-heavy crude, such as those in
the Orinoco Belt.
eresultofallthisisthatVenezuela’sreservesof
oil are now overwhelmingly of heavy and extra-heavy
crudes but the starving by successive governments of
Table A
Venezuela: Oil Prole, 2016
Proven Reserves 300.9 bn bbl∗
Reserves Remaining 328.9 years†
(mn bpd)
Production
Crude oil 2.3
NGL 0.2
Total 2.5
Consumption
Total 0.6
Net Exports
Total 1.9
∗As of 1.1.17
†Based on 2016 production
Totals rounded
Source: (Reserves) Oil & Gas Journal
(Other) OET/Author’s estimate
PDVSA of funds to develop these reserves has meant
that the statecompany is unableto develop them without
substantial assistance, both nancial andtechnical, from
outside (see Box Vene z u el a ’s O il R e s er ves ).
Venezuela’s Oil Reserves
Venezuela has large reserves of oil. e ocial
estimate of its proven reserves is 301 bn bbl: su-
cient for 329 years at existing levels of production
(see TableA);butmostoftheseareofheavyor
extra-heavy crude and their exploitation requires
resources both of capital and technology that
PDVSA doesnot possess.
A recent study by the Norweg ian oil and gas consul-
tancy RystadEnergy provides a much lower estimate
of Venezuela’s oil reserves [2] and divides them as
follows:
•Proved reserves (conservative estimatein existing
elds)– 12 bn bbl
•Proved +Probable (most likely estimate in exist-
ing elds) –22 bn bbl
•Most likely estimate for existing elds and
discoveries– 41 bn bbl
•Most likely estimate for existing elds, discover-
ies and yet undiscovered elds –95 bn bbl
e ocial estimate of 301 bn bbl continues to
be widely used by independent commentators,
butitalmostcertainlyincludesalargeamountof
unproven and even undiscovered reser ves. Rystad’s
estimates may be a little too conservative; but they
appear to provide a more realistic assessment of
Venezuela’s potential than the ocial total.
© 2017 John Wiley& Sons Ltd
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