THE EVENT ON VENEZUELA AT THE ATLANTIC COUNCIL, WASHINGTON DC . Watch it complete at:
Last Tuesday the 13th
an event on the Venezuelan oil industry took place at the headquarters of the Atlantic
Council, in Washington DC. The panel
consisted of Francisco Monaldi, author of the central document that served as
the basis for the discussion, David Goldwyn, from the Atlantic Council, Rebecca
Bill Chavez, former U.S. under-secretary of Defense; Kerry Contini, from
Baker-MacKenzie and David Smolansky, former Mayor of El Hatillo, a suburb of Caracas,
Venezuela. I could not attend this event, as I had wished, but watched it later
in the link above. The discussion was ably facilitated by Jason Marczak, a
Director of the Atlantic Council
The discussion allowed each
panelist to comment on questions posed by Marczak. I summarize below the discussion,
as I heard it, with some comments of my own. I apologize for any misunderstanding
I might have had in listening, since I already have hearing problems.
1.
Why did
the Venezuelan oil industry collapse?
Monaldi:
The debacle has been long in the making. Firing by Chavez of 22,ooo PDVSA employees
in 2002-2003 had much to do with it. The company was politicized. Today the
company is subsidized by the Venezuelan Central Bank. 50% of its production
comes from the activity of the foreign partners, not generated by PDVSA. Not
one single important project has been done by PDVSA during the last 20 years. The
former president of PDVSA, Rafael Ramirez, claims the debacle started after he
left in 2014 but this not true. In particular, the collapse of the light oil production
is immense. A background slide indicated the possible reasons of the debacle, including:
Chavez, corruption, collapse of activities, mismanagement, Ramirez, del Pino.
Goldwyn:
PDVSA is not paying their contractors. The workers are being mistreated.
My
comments: The PDVSA debacle is the result of all the factors mentioned above.
One strong reason, not mentioned by the panelists, is the conversion of the
company from a commercial enterprise to a “social” company, engaged in numerous
activities not related to its core business. That diverted much of the money
that should have been used to maintain the company in good form to social activities
including subsidies, housing, food distribution, agricultural projects, etc.
2.
Misuse of
money generated by PDVSA
Smolansky:
Today PDVSA is producing only some 1.7 million barrels per day. The political
regime is divided, with Ramirez and Maduro blaming each other for the oil
industry debacle. Much of the problem has to do with the diversion of oil
income to a Fund called FONDEN, that had no transparency and was controlled
politically by Chavez and Ramirez. Today the oil company is run by the military,
specifically by a man who was responsible for the repression and many deaths of
protesters in 2014.
3.
Social
situation
Rebecca
Bill Chavez: The homicide rate in Caracas is the highest in the region, at 140
per 100,000 inhabitants (?). Mass emigration into Colombia and Brazil is
affecting these countries. Poverty is very high.
4.
Sanctions
against Venezuela
Kerry
Contini: U.S. sanctions are decided at the level of the State Department [and
Treasury Department?]. There are two types: individual and financial sanctions.
The objective of the sanctions, according to the U.S. government, is not regime
change but, in practice, the Maduro regime has been hard hit.
Monaldi:
Individual sanctions include former PDVSA presidents Ramirez and del Pino,
while economic sanctions are limiting Venezuelan ability to export oil to the
U.S. due to the limitations imposed on
finance matters and for payment by U.S. companies. The partners of PDVSA are
also affected, since they can be perceived as subsidizing the Venezuelan government.
Smolansky:
Sanctions against the Venezuelan regime should be expanded. The Lima Group
should play a more aggressive role in this respect.
Goldwyin:
The partners of PDVSA are afraid of an oil embargo. They already have big
problems with PDVSA. The Venezuelan regime is now relying on China and Russia/
The U.S. should not act unilaterally in Venezuela but try to enlist
multilateral support for any sanctions.
Rebecca
Bill Chavez: Multilateral actions and sanctions are very important.
Monaldi:
The Venezuelan government is having a difficult time importing crude oil and
products for PDVSA. In case of an embargo Venezuela could sell the volumes
going to the U.S, some 400,000 barrels per day, to Asia but it would be more
costly to do so. A total embargo imposed by the U.S. could probably be
counter-productive. The embargo would also create new problems for the
partners. There are less dramatic alternatives, less costly politically.
Smolansky:
There other options that can be exercised before going into a total embargo,
such as limiting the U.S. exports of gasoline and diesel to PDVSA.
Goldwyn:
an embargo would affect gasoline prices in the U.S. and employment in the Gulf
Coast refining sector. There should be other, better options. Losing Venezuelan
heavy oil would eventually require costly reconfigurations of the Gulf Coast
refineries
Monaldi:
Venezuelan heavy crudes could be replaced by Canadian heavy crudes but the problem
would be the transport.
My
comment: I agree that a total oil embargo should be the action of last resort
but it should be viewed as a shock treatment and not as a chronic measure. It
should force the government out in a matter of three to six months.
5.
Situation
in the Caribbean/Petro Caribe
Rebecca
Bill Chavez: The Caribbean countries could be supplied by Mexico, now that
Venezuela can no longer do so. However, Mexican production is also decreasing and
the coming presidential elections could introduce a political factor in this
alternative.
Goldwyn:
IMF could also help the Caribbean countries in financing alternative sources of
energy. The U.S, Caribbean Initiative can also help.
Monaldi:
Venezuelan deliveries to the Caribbean are now much less than before. Countries
like Cuba, Haiti are particularly affected.
6.
Foreign
Investment in the Venezuelan oil industry.
Monaldi:
Investment is less than before and comes principally from Chevron and Russia.
China is now less willing to invest more money into Venezuela. Russia is the
most aggressive investor at this moment.
Smolansky:
Russia is the most active due to geopolitical considerations.
Kerry
Contini: U.S. investments in Venezuela at this point in time are being discouraged
by the sanctions.
7.
The
Future of the Oil Industry
Goldwyn:
Russia has helped to extend the life of the Venezuelan regime. The substantial
level of oil reserves in Venezuela indicates that the country will still be an
important player in the future.
My
comment: The problem is the time frame. There is a pronounced trend to replace
oil for other sources of energy. Will the oil reserves of Venezuela enjoy the
time required to be developed and marketed before oil ceases to be the main
source of energy?
MONALDI’S ESCENARIO FOR THE FUTURE
In closing
the event Monaldi described some possible future developments for the
Venezuelan oil industry. He said:
· Oil
production will keep declining
· Heavy
oil is mostly what is left
· However,
the potential is there, due to its huge reserves
· There
is no geological risk in Venezuela, the
oil is there
· The country
would need foreign investment and the best foreign companies to come to the country,
in order to develop the oil industry
At the
end, Smolansky spoke about Venezuela having the largest oil reserves in the world
and on the need to recover PDVSA.
My
comment: Monaldi’s outlook is essentially correct within a severe time
limitation, say the next 40 years. This limitation will particularly apply to the
heavy, contaminant types existing in the Orinoco area. The logistics of
extraction and upgrading this Orinoco oil make it costly to develop and its reserves
are grossly overstated, although I agree that there is a lot of oil there. However,
the reservoirs are far from continuous and productivity per well is not that
great. Water cuts come in rather early.
As time
ran out nothing could be said about the model of management the future oil
industry should have. I do not believe, as Smolansky said, that PDVSA can be
recovered. Another management model will be required.
Valuable
contributions on what this model could be have already been made by Diego
Gonzalez, Leopoldo Lopez and Gustavo Baquero, Nelson Hernandez, COENER, the
Think Tank and Francisco Monaldi in different articles. I have also made some
suggestions in this regard, see: http://lasarmasdecoronel.blogspot.com/2012/08/articulo-sobre-petroleo-en-el-journal.html
It was
a good event.
In
watching I came away with the conclusion that nothing can be done about the
Venezuelan oil industry, or what is left of it, until this regime exits power.
The first action in favor of the Venezuelan oil industry should be to force the
current regime out of power. Until this takes place the oil industry, like all other
aspects of Venezuelan life will continue on the death spiral mentioned by
Monaldi.
1 comentario:
In watching I came away with the conclusion that nothing can be done about the Venezuelan oil industry, or what is left of it, until this regime exits power.
As the regime in power wrecked PDVSA, you are correct.
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