- Norberto Paredes @norbertparedes
- BBC World News
At the end of 1994, before Hugo Chávez became president of Venezuela, PDVSA, the state oil company, was the second largest in the world.
With a production of about 3 million barrels per day (mbd), it competed with the powerful Saudi company Aramco and was more relevant than giants such as ExxonMobil, BP and Royal Dutch-Shell, according to a Petroleum Intelligence Weekly (PIW) report published that time. anus.
Today, from that PDVSA (acronym for Petróleos de Venezuela) the name remains and a worn out infrastructure.
According to the Minister of Petroleum, Tarek El Aissami, Venezuela averaged about 400,000 barrels a day in 2020, levels from the 1930s.
The minister attributes the collapse of the sector to the deterioration of PDVSA’s assets, caused by “criminals who managed to embed themselves in the Venezuelan oil” industry.
Even the government has recognized cases of corruption and the opposition and experts from the sector speak of mismanagement of a company that was the source of Chávez’s social problems when the barrel exceeded US $ 100.
The latest promise from El Aissami is to raise production to 1.5 mbd by the end of this year, that is, half of what the country produced two decades ago.
“The goals for this year point to a production plan in which (…) we estimate to reach a production of 1,508,000 barrels per day of oil,” he “swore” in February to the president of Venezuela, Nicolas Maduro.
The decline of the Venezuelan oil industry – which began at the beginning of the century and has accelerated in recent years – has wreaked havoc on the economy of in a country where more 95% of currencies come from oil exports.
Consequently, most experts believe that the way out of the crisis is to reactivate the sector.
An example: if the goal of 1.5 mbd were reached at the current reference price of about US $ 64 a barrel, the government could earn about US $ 100 million per month.
But that recovery would not be easy or fast.
According to a report by the Baker Institute of William Marsh Rice University, in Houston (Texas), Venezuela could increase its production to around 1 million barrels per day in the short term and recover a level of 2.5 to 3 million in a decade.
PDVSA, a company in default
To achieve this, investments of more than US $ 10 billion annually, a difficult goal to achieve, if the current political and institutional circumstances are taken into account.
Today many countries are preparing to move towards the energy transition and nobody envisions the return of the “golden age of hydrocarbons”, but according to the Latin American energy policy expert Francisco Monaldi, which is critical of the current government, Venezuela’s greatest opportunity to recover its economy is, “without a doubt,” to reactivate its oil industry.
“Venezuela has a gigantic base of oil resources, but currently the situation is so serious that the government is basically bankrupt and they are the ones who run PDVSA, which in turn is the largest shareholder of all other companies that operate in the country “, explains Monaldi, director of the Latin American Energy Program at the Baker Institute, in an interview with BBC Mundo.
But the Venezuelan public debt is estimated at about US $ 140,000 million and the state PDVSA was declared in default, or default, in 2017.
All this means that the investment can hardly come from PDVSA or the State: Venezuela will then depend on its ability to attract private investment.
Until the date of publication, neither PDVSA nor the Venezuelan Oil Ministry had responded to the interview requests sent by BBC Mundo.
“Part of the infrastructure is still there”
“To add two million barrels a day to current production requires around US $ 110 billion of investment and to achieve this it takes between seven and ten years,” estimates Monaldi, based on the study he led, published by the Baker Institute.
The first phase, bringing current production to 1 mbd, would be relatively easy, according to the analyst.
Venezuela until two years ago produced 1.3 mbd, which means that the nation still has a good part of the infrastructure.
“Although it has deteriorated, it is still there. We would have to start by drilling wells and connecting them to the pipeline network, among other things, to bring the oil to market. All of that would not require a gigantic investment,” he continues.
The difficult thing would then be to bring it to the 3 mbd that were produced when Chávez assumed the presidency in 1998.
The three main obstacles
For Monaldi, Venezuela faces three “gigantic” obstacles to attracting the investment that is needed.
The first is the institutional framework that makes investing in Venezuela unattractive, since it “forces” investors to hand over the money to PDVSA so that it is the one who operates the joint ventures.
“That is the only way to participate and that way they won’t be able to attract money“, dice.
In the middle of the last decade, the government of Hugo Chávez decided to eradicate the old schemes known as “operational agreements” and force transnational companies to associate with PDVSA in joint ventures, in which the state oil company would always have a majority shareholding.
However, this could change.
In its current effort to attract investment, seduce private capital and mitigate the effects of the United States sanctions, the so-called Anti-Blockade Law passed in 2020 allows the government to open up the oil market.
Its partners from China, Russia and Iran, for example, could come in to help the Venezuelan energy sector.
Monaldi believes precisely that the second obstacle to attracting foreign investment is the little credibility that the Venezuelan government has, which it accuses of “destroying” the sector and denying it. many of the contracts that he did with companies.
And finally, there are the sanctions imposed by the United States, which prevent investments by US companies in Venezuela and hinder those of other foreign companies.
“If the sanctions continue, it is impossible”
Some companies of allied governments of Caracas, such as China, Russia or Turkey, may decide to invest in Venezuelan oil wells, but this would not be enough for the economist Luis Oliveros.
“Maybe they will reactivate something. It may be that one million barrels per day next year. But if the sanctions continue and the big North American companies cannot invest in Venezuela, it is impossible to reach two or three million, “he tells BBC Mundo.
This economist, a professor at the Metropolitan University of Caracas, believes that Minister El Aissami’s promise to raise production to 1.5 mbd is ambitious.
In fact, he claims to be “convinced” that the government will not be able to comply with it.
“No longer would they just need a easing of sanctions, but also a very large capital injection to be able to reverse the deterioration of the industry and that will not be achieved in five or six months. That will take more than a year, “he explains.
The sanctions also prevent access to the markets, so PDVSA is ultimately forced to carry out exchanges with allies or sell the barrel below the market price, which makes it difficult to amortize any new investments.
“I believe that PDVSA’s goal adjusted to reality should be around 750 thousand barrels per day for this year, perhaps reaching 1.2 mbd next year, and a scenario of 2 mbd in four or five years” .
For him, reaching the more than 3 mbd that Venezuela has produced in the past is “extremely difficult“and agrees that it would take” at least “ten years.
Oliveros points out that, apart from the deterioration of the industry, it is necessary to take into account the competition that exists in the region: countries like Colombia, Brazil, Guyana and Mexico are also looking for capital.
“Not even a shadow remains”
Of that PDVSA that until the end of the 90’s was one of the most important oil companies in the world “there is practically nothing left“Francisco Monaldi points out.
“Some iron remains, as the oil tankers say: some of the infrastructure that can be repaired by investing, and obviously the oil fields remain. But of that organizational structure that was capable of producing 3.4 million barrels not even a shadow remains” he insists.
In addition, once a well is shut down, it is very complicated and expensive to put it back to work and they are often no longer as productive as before.
He explains that in addition to all the qualified people who were laid off, in recent years many workers have left the company due to the low wages it offers.
“Some have left the oil business to do something else, to kill tigers (generally perform simple jobs to earn money), as we say in Venezuela.”
Oliveros agrees, and emphasizes that PDVSA must begin its recovery on that side.
“The industry collapsed and the salary of the workers it is something very important that must be reviewed, “he explains.
“The change that needs to be made is a very drastic one and it is not only necessary to invest in the infrastructure, but also in the people, so that they stop leaving the company and the country.”
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.