miércoles, 13 de marzo de 2013

Chavez dead: our prognosis for the Venezuelan oil industry


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When Elvis Presley died his former manager made a brief, unkind, remark. He said “Good career move”.  Although politically incorrect the same comment could apply to Hugo Chavez’s death. Venezuela is entering a significant economic crisis that is bound to become a social and political crisis as well. Chavez based much of his popularity on a policy of handouts to the country’s poor and to ideological friends abroad, but this weapon is becoming weaker with the decline in income. With not enough money Chavez’s popularity was inevitably on the decline.   
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Venezuela’s income is based on oil and the production of oil has declined by about 600,000 barrels per day since he arrived in power. It is now about 2.6 million barrels per day today. If the state-owned oil company had been able to execute the Plan that the Chavez government inherited from the pre-Chavez management the company should have been producing some 5 million barrels of oil per day since 2005 or so. You can imagine, therefore, how large has been the loss for the nation due to this inability of the company to develop according to plan.    
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About 30 percent of the Venezuelan oil exported today is not sold at commercial prices but is subsidized to ideological allies such as Cuba or delivered to China in exchange for loans already partly utilized for political purposes, not for investment. The Chavez government has given Cuba about $25 billion in oil and cash and counting. I think Cuba re-exports some of the oil Venezuela sends them, making a fat profit at our expense.  
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As a result of this largesse the fiscal deficit of Venezuela is now of the order of 15 percent of the GDP and the national debt incurred by Chavez represents about 50 percent of the GDP.  This means that both Venezuela’s geopolitical punch, based on money and his power within OPEC, based on production and effective hydrocarbon reserves, are significantly diminished.
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The death of Chavez makes the situation much worse because Chavez had a charisma that his anointed successor does not have.
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This is not going to get better in the medium term. The state-owned oil company, Petroleos de Venezuela, is badly managed, very corrupt and has deviated from its core business to become a so-called socialist company that builds houses, import food, raises livestock and grows cassava, among many other activities that have nothing to do with oil and gas . Natural gas deficits have grown very large and although the country has huge gas reserves is not developing them and, as a result, is forced to import gas from Colombia, through a pipeline that was originally built to transport Venezuelan gas to Colombia. The Orinoco heavy oil deposits have been given for development to companies from friendly countries such as Iran, Russia, China, Vietnam, even Cuba that don’t have the technology or the financial muscle required to invest.
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Today the state oil company   has 115,000 employees as compared to 33,000 when Chavez came to the presidency. My opinion is that this company   should be replaced, as soon as a democratic government comes in, by a new oil industry model, essentially made up of an oil regulating agency controlling private oil companies doing work in the country.
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Due to the reasons I have given Venezuela cannot influence oil prices in the current world market and is no longer an indispensable source of oil for the U.S. It is now exporting to the U.S. less than 900,000 barrels of crude oil per day, less than 10 percent of U.S imported oil. This represents a drop of almost 500,000 barrels of oil per day since Chavez came into power.  In fact, the U.S. is, at this very moment, exporting gasoline to Venezuela, due to the poor performance of Venezuelan refineries.   
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Chavez was politically dying before he physically died. No oil investments in the horizon. PDVSA in the hands of gangsters.
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Outlook: Unless Capriles wins, very poor