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miércoles, 8 de abril de 2015


There are two sides to the coin when trying to analyze the short and medium  term outlook of Venezuelan oil: one is the official version, the other is the one I believe in.
A.  The Official Version 
According to this version the outlook for Venezuelan oil is bright. The country –it reads - possesses the largest proven oil reserves in the planet, higher than those of Saudi Arabia. These enormous reserves are located in the Orinoco river region of southeastern Venezuela. The proven reserves in this region are listed at 298 billion of recoverable oil. Moreover, says the official version, the U.S. Geological Survey has said that recoverable oil from this region could be twice that amount, at nearly 600 billion barrels. The gigantic magnitude of these deposits have led the Venezuelan government to re-baptize the area with the name of Hugo Rafael Chavez Frias, the leader of the Venezuelan revolution that was in power from 1999 until his death in early 2013. According to this official version the production from this area will reach 3 or more million barrels per day within the next four years. As this has been the prediction since 2010, the country should already be producing that much from the area but the real production today is closer to 700,000 barrels per day.
The official version also speaks of a vigorous natural gas development program that will eliminate the deficit of gas in Venezuela within the next three to four years. But, again, this prediction has been made since 2008 or so, and still the country suffers from a severe deficit of natural gas that is only partly remedied with imports from Colombia, through a gas pipeline that was originally built to send Venezuelan gas to Colombia.  
The official version speaks of an active participation of international companies in the Venezuelan oil and gas sector. Companies from Russia, China, Italy and Spain, as well as one large U.S. petroleum company (ChevronTexaco), are present in Venezuela.
In general, says the official version, although oil production in the country has decreased during the last 15 years, the outlook for the oil sector is seen as very bright. In particular, it claims, full control and sovereignty over the oil industry has been attained. According to the government PDVSA, the state oil company is one of the largest oil companies in the world and maintains a very strong financial and operational position 
B.  The other version
According to this version the amount of proven oil reserves of Venezuela is about half of what the government claims.   This is due to the fact that Venezuela has not followed the international rules that apply to the definition of proven oil reserves. By arbitrarily assigning a recovery factor of 20% to the oil estimated to be in place in the Orinoco region, the Venezuelan government abruptly doubled, as if by magic, the size of the country’s proven reserves. In turn the U.S. Geological Survey never spoke of proven reserves in the Orinoco region but of resources, which is a totally different concept.
Still, the amounts of proven reserves in the Orinoco area are very significant. However, there are four main obstacles to their development, not of size but technical, financial , logistical and administrative.
The oil in the Orinoco region is extremely heavy and has sulfur and metals such as vanadium and nickel in relatively large amounts. It needs special treatment and upgrading in installations that the government has neglected to build in the last 15 years. Now, when they need to increase production in the region they will have to blend it with light oil, in order to make it commercial. But Venezuela does not have enough light oil to do this, so it has to import it. The economics of doing this and the political impact of Venezuela importing oil are very negative.
The other three problems are equally serious. The financial requirements for the development of these deposits do not exist in Venezuela. The country has been on the brink of default for months now and the foreign companies partnering with the Venezuelan state owned oil company, PDVSA, are reluctant to supply the capital required because they do not trust the government any longer. Venezuela has lost most of its credibility in international financial markets and has had to rely increasingly on China’s loans to make ends meet. Total Public debt already amounts to some $150 billion and mounting.  
The logistics involved in a large scale development of these resources: skilled labor, water, electricity, roads, housing, pipe and other materials, simply are not available in the country to support operations to produce much more than one million barrels per day.
Still another problem, more difficult to quantify, but critical has to do with the quality of PDVSA’s management. The company insists in running the show but lacks good quality management and, worse, has been greatly weakened by a dispersion of tasks that have nothing to do with the core business. They import and distribute food, build houses and engage in agricultural projects. In addition, the company shows high levels of corruption, some of it very well documented, although no corrective action has ever been taken.
All of these serious weaknesses will make the medium term development of the Venezuelan oil resources a highly doubtful enterprise. In addition, the longer term development of the Venezuelan oil resources appear equally compromised by global factors which lie beyond Venezuela’s reach.

In a more global sense the oil industry could be pictured as a ship, the S.S. OIL, slowly disappearing over the horizon.
More than 40 years ago, Sheik Yamani, Oil Minister of Saudi Arabia said: “The stone age did not end because we ran out of stones”.
Today the petroleum age is showing strong signs of transition, not because we are running out of oil but because a powerful combination of environmental limitations, technical breakthroughs and geopolitical events are chipping away at the dictatorship exercised during the last one hundred years by fossil fuels, particularly oil and coal, in the energy sector. 

A.  Environmental limitations
There is as much oil as ever to be produced in the planet but environmental scientists say that, in order to comply with a limit of 2 degrees centigrade increase in global warming, substantial volumes of fossil fuel resources will have to be left in the ground, as stranded assets. Imagine: most of the Canadian oil sands, most of the Orinoco region heavy oils, large percentages of Russian and Iranian oil, would have to remain indefinitely in the ground. Such an environmental limitation, if applied, would have dramatic geopolitical and financial repercussions. Even if this game changing move did not fully take place, there is no doubt that the environmental card is being played ever more strongly, as humanity realizes the critical importance of minimizing carbon emissions.
B.  Technical breakthroughs
·       Horizontal drilling and fracking have given the U.S. a surprising degree of energy self-sufficiency, to the point that the country might become a net exporter of oil and gas within the next few years. Within the last five or six years this country has practically doubled its oil and gas production. Other countries such as Germany, China, Mexico and Argentina are now starting to develop similar resources.
·       Renewable energy is on the ascent. Due to its unhealthy dependency on Russian gas Europe has made a strong move towards renewable energy, to the point that about 25% of all its energy consumption comes from these sources. In the last ten years renewable energy has grown by over 80%, mostly biomass, but also hydropower, wind and solar. In the U.S. renewable energy represents only 10% of total consumption, but almost 15% of all electricity supply.
·       Toyota is now producing cars driven by hydrogen batteries and electric car manufacturing is on the rise. This year over 260,000 electric cars will be produced in the United States.
·       At the leading edge there are transparent solar cells that would generate electricity just by capturing solar energy in thin transparent films, much more efficiently than solar panels. They are already being commercialized.
C.  Geopolitical developments
·       There is a clear shift of the axis of energy power, away from traditional fossil fuel producers in the Middle East to the Western Hemisphere, where the resources of shale oil and gas extend from the U.S. to Mexico and down south to Argentina. The combined fossil fuel resources of this region are now the largest in the world.  The boom of natural gas represents, in itself, a major transition from oil to cleaner forms of energy. This power shift has all kinds of geopolitical implications on U.S. foreign policy in the Middle East and in Latin America. Such a development should have been of benefit to Venezuela, except that the short and medium term factors listed above did not allow the country to take advantage of this situation.  
·       Due to lower oil prices that could extend beyond the usual cycle pattern Russia and China will have to revise their relations, as Russia will need a commercial partner badly and will probably have to make important concessions to China in energy matters. Russia has the oil and needs the money. China has the money and needs the oil.
·       OPEC will see its influence greatly diminished, as Saudi Arabia and the Gulf States decide to go their own way
     Venezuela will experience a drastic decline in its regional political power, as Cuba and the Caribbean Anglo-states gravitate towards the U.S. looking for long term, alternative energy supplies
·       Europe will diminish their dependence in Russian gas with the help of   U.S. future exports and the progress of their “green” policies.



The outlook for Venezuelan oil is not bright. It is full of formidable obstacles in the short term and uncertainties in the longer term. There is a high risk that much of the Orinoco region oil resources will be left in the ground as stranded assets, due to the combination of the short and long term factors listed above. 

12 comentarios:

Anónimo dijo...

Your article is very informative and enlightening as well. Venezuela's troubles are to be blamed only partly on oil. Attitude is a much bigger problem. The attitude in Venezuela is laziness. They have become used to Oil paying all the bills. Chavez threw out the USA wanting to keep all the revenue with no eye to the future development of the assets. The rest of the nation revelled at the income and did not bother to work. Much easier to buy everything, not manufacture, not work to farm and mine the aluminum and copper, to grow ANYTHING in the paradise of the earth with 4 seasons to do so. The nation became dependent on the wealth and the Leaders dependent on the graft and corruption. BILLIONS of dollars are in Swiss banks for the cushion needed when they flee a sinking Bankrupt Venezuela while the populace have to experience all the losses.
Who is gonna save them? Broke Cuba, Greedy China, a USA that has been ridiculed and blamed for all the woes in the country?
The problem starts at the top. Nepotism, Graft, Corruption, Protection, Pay Offs, all these keep so many dollars from getting to the streets to buy food or toilet paper.
The Soviet Union had the same problem as a Socialist country, many days when old Pravdas were to be used instead of Charmin.
Solutions: Develop food sources so strong you can export. Develop Aluminum sales. Market heavy oil as Diesel and Lubricants. Work a partnership with Exxon to mix the fuels. Get more people to work. But first Get Rid of the Corrupt leaders.

Gary K.

Anónimo dijo...

No se si sera cierto que ya han recogido 30 millones de firmas contra el presidente Obama o es puro "bluff, aunque por supuesto mas me inclino a pensar que es totalmente "bluff" que otra cosa, ademas que es facilisimo firmar sin que se verifique a los autenticos "firmantes".

No obstante, esta actitud chavista me preocupa en extremo y a veces me pregunto si es que en Venezuela predomina la combinación ideología-tecnocracia.
Nada mas peligroso como la "tecnocracia" para hacer que desaparezcan los sentidos de la perspectiva, de la realidad y, por sobre todo, de la humanidad.

Andrés Valencia dijo...

Dear Gustavo Coronel,
When I read:
A. Environmental limitations
There is as much oil as ever to be produced in the planet but environmental scientists say that, in order to comply with a limit of 2 degrees centigrade increase in global warming, substantial volumes of fossil fuel resources will have to be left in the ground, as stranded assets. Imagine: most of the Canadian oil sands, most of the Orinoco region heavy oils, large percentages of Russian and Iranian oil, would have to remain indefinitely in the ground. Such an environmental limitation, if applied, would have dramatic geopolitical and financial repercussions. Even if this game changing move did not fully take place, there is no doubt that the environmental card is being played ever more strongly, as humanity realizes the critical importance of minimizing carbon emissions.

I can not help but think what an injustice is being done to humanity in the name of a failed hypothesis about the capacity of carbon dioxide to warm the Earth in a measurable amount.

Recent estimates from IPCC (2007) say the Climate Sensitivity is likely to be between 2 and 4.5°C. But Sherwood Idso in 1998 calculated the Climate Sensitivity to be 0.4°C, and more recently Richard Lindzen at 0.5°C. Roy Spencer calculated 1.3°C in 2011.

Even 1.3°C is well within the natural climate variations which are internally originated by the chaotic climate system itself.

Please read "On Natural Climate Variability and Climate Models" (Roy W. Spencer, Ph. D., Principal Research Scientist at the University of Alabama in Huntsville - UAH. February 27th, 2015), at http://www.drroyspencer.com/2015/02/on-natural-climate-variability-and-climate-models/

El Niño Southern Oscillation (ENSO) is one of a variety of natural forcing mechanisms that are in play.
The Sun, with its cyclical changes, is another and it has been since 1990 reducing its activity, indicating a possible start of global cooling times.
We need to keep getting petroleum, not shutting down wells.

There seems to be no "critical importance of minimizing carbon emissions".

r osores dijo...

This is the second time in as many weeks that Gustavo aligns himself with the most exaggerated climate change predictions. What's going on here?

Anónimo dijo...

Andres Valencia, you said: "We need to keep getting petroleum, not shutting down wells." You still aren´t aware of the paradigm shift here. This isn´t just about reducing carbon emissions to control climate change....the idea is born out of the need to stop damaging the environment as drilling for oil, whatever technology being used, is DETRIMENTAL to the planet. Period. If we are to survive as a human race, we should start relating to our only home in more respectful manner and, of course, develop other sources of RENEWABLE energy. Great analysis Gustavo, as usual. Nice comment Gary, I second you.

Andrés Valencia dijo...

There is a detriment in mining for rare earths needed for the wind mills and also in producing the electronic solar panels and the batteries they require.
But at least the electronic solar panels don't kill birds and bats.
Renewables are expensive and force the poorest into even more poverty. The UN is no longer funding fossil-fueled power plants in Africa and other poor regions.

Anónimo dijo...

La Organización de Naciones Unidas para la Alimentación y la Agricultura (FAO) sitúa a Venezuela, donde funciona el racionamiento, como el país con la inflación anual de alimentos más alta de Latinoamérica. Venezuela se aleja cada vez más de cualquier versión de la democracia. La comunidad internacional debería tomar medidas al respecto frente a la vulneración de ciertos derechos humanos, la miseria y opresión que sufre la población.

Gabriel M Orellana dijo...

Yip, maybe.... but a total collapse in Oil Industry will destroy American Way of life also.....What will do all Middle East Countries, Russia, Netherlands???...Only to mention a handfull of players.....What will happened with all Industries associated with Oil Industry? If this happened....and off course it could occurs....Humanity need no an Envirommental crash to back to the stone ages.....many people in America ( Preppers Groups) are doing their Jobs tothe famous WTSHF day ( When the Shit Hit the Fan) ..... by the way.....unfortunately this day arrived to Venezuela 15 Years ago. Saludos a todos.....

Anónimo dijo...



Noticias de la mision a Vesta y Ceres!

Gustavo dijo...

Andres and R osores:
I am not really taking sides here, only mentioning a factor that exists, independently of our own perspectives. Environmental considerations are weighing very heavily today and will continue doing so. I am simply mentioning it, although I also believe that carbon emissions do contribute to global warming. I don't know enough of the problem to claim it does or does not, I simply believe it does.

RLEE dijo...

One of the most glaring hypocrisies of the Chavista mindset is the way they criticize other oil producers and consuming nations for their production methods, consumption, and ecological impacts, especially any "capitalist" nation (they are apparently stupid enough to think China and Russia are not among this group), while they continue to pump millions of barrels of dirty oil to sell or give away so that others can stink up the environment with it. While Chavez babbled about loving the trees, the rivers, etc., Venezuelans were wasting 1 cent a gallon gas in old polluting cars, and PDVSA was cleaning up oil spills. The very same arguments made against ecologically rapacious capitalism are never applied to the perfection of 21st Century socialism which is feeding oil daily to the very enemy it criticizes and is helping maintain. Desperate Venezuelans unfortunately gave in to the paranoid fear of the gringo and the hatred of the upper classes only to put their necks in the Chavista noose. If the hated capitalists ever stop buying Venezuelan oil, Venezuelans will all STARVE.

Andrés Valencia dijo...

Dear Gustavo,

Yes, the "green" environmental factor exists, and carbon dioxide does contribute to elevating the temperature of our planet.

The real question is how much any new additions contribute (the climate sensitivity).
That's why I posted the Spencer link.
(Much more in my climate page)

Another aspect of the debate is the energy poverty inflicted by the "green" agenda. This is unconscionable.

Thanks for your attention.