The collapsing Venezuelan oil industry
is the subject of Venezuela’s Oil Output May Be Below Estimates Amid Labor Unrest. The numbers estimating the drop in oil production vary wildly, from 200,000 barrels per day to 800,000 bpd, but drop they have:
Venezuela’s oil output, suspect since the strike that shut down the world’s fifth-largest exporter more than two years ago, may be more than 200,000 barrels per day lower than analysts’ estimates.
This Agence France Press story I linked to yesterday quoted El Nacional‘s number of 800,000 bpd decrease in daily production. El Nacional on Sunday quoted a study for the legislature’s energy committee, which concluded that production was off by 800,000 bpd (via The devil’s excrement) (my translation):
Una larga encuesta con ingenieros petroleros, geólogos, geofísicos y técnicos indica que no se han hecho correcciones y el descenso de la producción venezolana se acerca a un millón de barriles diarios, que unido al déficit de gas asociado crea una situación alarmante con la consecuencia natural de menos extracción de crudo.
Los expertos dijeron que cada año los pozos venezolanos tienen una declinación natural de 20% a 22%, que equivale a una reducción de la producción anual de 700 mil barriles diarios, cuando el plan de producción se acerca a los 3 millones de barriles diarios.
A long national survey with petroleum engineers, geologists, geophysicists, and technicians, indicates that there have been no corrections [to prior low estimates] and that the decrease in Venezuelan production nears one million barrels per day, which, together with the deficit in related gas production, creates an alarming situation with decreased extraction of crude oil as a result.
The experts said that each year Venezuelan wells decline by 20% a 22%, the equivalent to a decrease 700 million bpd in annual production, while the production plans are near 3 million bpd.
Back to the Bloomberg report:
Oil workers in the country’s oldest producing region say they know why.
Poor maintenance, labor unrest and corrupt management are crippling state-run Petroleos de Venezuela SA
. . .
About half of the country’s oil is produced by Petroleos de Venezuela. The rest is pumped by foreign companies, such as San Ramon, California-based Chevron Corp. and Paris-based Total SA, or by joint ventures the international oil companies control. These haven’t been affected by the recent turmoil.
Petroleos de Venezuela fired more than half of its workforce to break the strike, which was aimed at ousting Chavez, after the country’s oil output was cut to less than 100,000 barrels a day in December 2002 and January 2003. Afterwards, the company hired workers loyal to Chavez.
For sure there’ll be a great deal of blame to spread around: The country’s Comptroller General, Clodosbaldo Russián, has filed 90 cases of corruption, stating that in recent months there’s been an increase in reports of corruption at PDVSA. “PDVSA’s a state enterprise and as such it’s subject to the to the Republic’s Comptroller General”, since “previously it was assumed that, as a private enterprise it wasn’t”, and he cited as an example the rescission of of PDVSA’s contract with Informática, Negocios y Tecnología S.A. (Intesa), which he blamed, of course, on PDVSA’s prior president. Next comes shaking down oil companies (via A.M. Mora y Leon).
Last Thursday The Economist reported on the Venezuelan oil industry;
Thanks to high prices, oil revenue is rising even as output declines. Officially, Venezuela is producing its OPEC quota of 3.1m barrels per day. But industry sources say output is in fact just 2.7m bpd. Of that, multinationals account for 1.2m bpd (up from 300,000 in 1998). PDVSA’s production has halved over that period, to 1.5m bpd. It may fall further. After the strike, Mr Chávez sacked 18,000 of PDVSA’s 32,000 workers, replacing some of them with loyalists. Officials argue, not without reason, that the firm had become an all-powerful state within a state. But opponents counter that an efficient firm, run on technical not political lines, has been destroyed.
The government has an ambitious plan to expand oil output to 5m bpd by 2009, mainly by bringing in foreign state-owned oil firms. Meanwhile, it is trying to extract as much revenue as possible. In April, it gave its multinational partners, which include ChevronTexaco of the United States, Brazil’s Petrobras, Britain’s BP and Royal Dutch/Shell, six months to switch to new contracts. These would turn their operations into joint-ventures in which the government would have a 51% stake, as well as increasing the income tax they pay. High oil prices mean that the multinationals may acquiesce.
The government’s spending binge means that the economy is “extraordinarily vulnerable” to any fall in oil prices or in production, according to Orlando Ochoa, an economist at the Catholic University. Even so, Mr Chávez has cards up his sleeve. He appears set on selling Citgo, a big refiner and marketer of gasoline in the United States and a subsidiary of PDVSA. Second, officials have proposed that the government should be able to spend the central bank’s “excess” reserves.
Sooner or later, the spending binge risks a monumental hangover. Venezuela is spending part of its capital. If and when oil revenues fall, the economy would descend into an inferno of recession and inflation. But that is highly unlikely to happen before a presidential election in December 2006, at which Mr Chávez looks sure to win another six-year term.
Back in the 1970s Venezuela squandered $250million of oil revenues. Nowadays, the poor continue to get poorer: “in 1999, 54% of households were poor, rising to 60% last year, according to official figures.” It’s like reading off a page from the Guide. By the 1980s, public spending in Venezuela reached 57% of GDP, and the government employed almost 1.5 million people. Venezuela was bankrupt.
History repeats itself.
Also posted at Blogger News Network