"There's a storm a-comin'…"

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Don't say I didn't warn you
Don’t say I didn’t warn you

That’s the message from Tom O’Donnell, quoting various sources, including Saudi oil minister al-Naimi.

The gist: with increased oil production all over the world, with North Dakota becoming the latest oil boom hotspot, with fracking technology making quick progress in extracting oil from rocks, we may be looking at $50-a-barrel prices in the next two years.

But, rest easy, the country will not suffer. We have Jesse Chacón at the helm, making all the right decisions.

1 COMMENT

  1. Add this, if it goes ahead:

    https://en.wikipedia.org/wiki/Keystone_Pipeline

    “TransCanada’s Girling has also argued that if Canadian oil doesn’t reach the Gulf through an environmentally friendly buried pipeline, that the alternative is oil that will be brought in by tanker, a mode of transportation that produces higher greenhouse-gas emissions and that puts the environment at greater risk.[53] Diane Francis has argued that much of the opposition to the oil sands actually comes from foreign countries such as Nigeria, Venezuela, and Saudi Arabia, all of whom supply oil to the United States and who could be affected if the price of oil drops due to the new availability of oil from the pipeline. She cited as an example an effort by Saudi Arabia to stop pro-oil-sands television commercials.[62] TransCanada had said that development of oil sands will expand regardless of whether the crude oil is exported to the United States or alternatively to Asian markets through Enbridge Northern Gateway Pipelines or Kinder Morgan’s Trans-Mountain line.”

  2. Take away the discount for heavy Venezuelan oil and it becomes $40/barrel oil. Venezuelan costs of producing a barrel of oil are quite high given the thousands of excess employees in PDVSA and that its funds go to social projects and special pockets. Add in declining production and serious under-investment in the oil producing sector.

    Could this mean that Venezuela will no longer have oil money to support the nation?

    What a difference it would have made if Chavez’ $2 billion personal salary had been invested into the oil sector.

    • Chavez didn’t have a $2 billion salary. He wasn’t in it for the money, although of course he didnt have to worry about money.

      Besides, $2 billion is a pittance compared the money squandered yearly under his management during the long oil boom.

  3. Look at the other (good?) side – pollution factors borne in mind, mind you – namely, were oil prices to remain high, alternative-option research and practical development would be displacing oil sooner rather than later but at the $50/bbl level, old energy is given a new, albeit somewhat precarious, lease of life, rendering a Venezuela capable of being rescued for a little while longer.

  4. Gracias, Juan.

    Chavismo knows that PDVSA is a mess, and there are some simple measures Maduro could take to begin reversing the fall in production at PDVSA, but, it seems to me, ideas such as the footnote I put at the end of my blog entry (e.g., that even if PDVSA makes mistake after mistake and misses one opportunity after another with both IOC and NOC partners, not to worry, because Venezuela has the oil “that everyone needs” (“el ultimo Coke en el deserto”) and, so, the business will never be lost) keep the industry paralyzed.

    • Tom,

      Don’t take it personally but I would be extremely cautious with price forecasts.
      You are an expert in energy, I am not, but I was looking at some old forecasts from different energy experts since 1998…middle to long-term forecasts in this field seem to me as effective as random generation of numbers.

      Still, what seems clear is that prices can’t rise indefinitely and Chavistas do seem to have the weird belief prices will increase indefinitely. They think that because some put oil reserves at “could last for 70 years” (ceteris paribus, they don’t add but should), Venezuela could just do as it does now for 70 years more.

      Obviously, it can’t, even if PDVSA were not in such a mess, I think: there are only so many ways to maximize profits with such a commodity…and Venezuela is addict to petrodollars, which means ever higher dosis.

      The Chinese are patient but not without limits and stupid they are not.

        • Yoyo, I am no energyexpert. Are you?
          (I can tell you a thing or two about your “Android” story, though, I am into computers).

          As an absolute layman in energy stuff, I have tried to follow the stories from experts on both sides of the Ocean. There are the guys who don’t believe in Peak Oil and others who do. And as a layman, perhaps one living in Europe and following closely the German side, I feel closer to those who think we do have a Peak Oil moment.

          And yet this is what I was trying to say: even if we are indeed at the moment, there is no future for Venezuela with oil. One way or the other, this is as much as we could get from it…because apart from oil you have a lot of other factors and they will make oil irrelevant, believe me.

          You probably think you have decades. Time runs faster than you think.

          • Peak oil was a date that would have passed by now. It didn’t. As someone in the oil industry, I can safely say the price will not drop due to new finds. Oil companies will not produce oil at a loss and it cost a lot more to produce thess days than the populace imagines.

          • Glenn,

            Peak Oil is not simply a specific date. Hubbert made this estimate. He put a date as an estimate, not as a theory sculpted on stone. The issue is not precisely about the exact year but whether in a foreseeable future we are going to get a maximum amount of oil and it will get more difficult.
            You can’t get oil deeper than a certain depth, that is clear.
            You keep talking about price but price is a convention and it is based on whether there are alternatives and there is supply. Oil IS a limited resource, no matter what price. It’s simple physics and chemistry.

            You can try to use all the tar sand on Earth and all the oil in Alaska, you are using that because the rest is getting depleted. There is a loss because things become more difficult.

            But the point is: if that trend continues, there will be a dramatic shift and that would be fatal for Venezuela’s oil dependency.

        • Yoyo troll is right.

          I was checking this yesterday, when I heard a Venezuelan journalist quoting that oil prices were going to fall to US$50 approx. It sounded a bit strenuous for me, since the oppo likes linking declining oil prices as manna from heaven in political terms, without thinking that a Capriles government with no money would last lo que un peo en un chinchorro. So I went to check. At least the IMF seems not to be that worry about fracking and increase oil supply from non-OPEC actors. It seems to be more worried about instability in the middle east.
          I quote:
          “Energy prices are expected to fall by almost 3% on recovering oil supply from the past year’s outages and strong growth in non-OPEC supply, particularly in North America, which will continue to reduce US crude oil imports,”

          But

          “risks related to oil supply shocks are broadly unchanged and those related to geopolitical factors feature new dimensions.”

      • Kepler : your skepticism on experts capacity to forecast long term oil prices is spot on. There are just too many fluctuating variables involved that can easily shift the results in different directions . OECD demand is going down and fraktal supplies picking up vs conventional oil supplies while far east demand is going up faster than existing supplies can handle . Its the latter thats really keeping prices up so if they have an economic downturn that can affect demand and thus prices . The US IEA forecast is that prices wil dip a bit the next two years then rise again , the World Bank forecast is that they will fall steeply in real terms but remaim the same on nominal USD terms . Fraktal is a big game changers no doubt about it , but no one knows if the two places where it is most abundant outside the US ( China and Argentina) have them located where enough water is found to allow for an efficient fraktal exploitation . Gustavo Coronel points out that fraktal exploitations tend to be shorter lived than those of crude oil. Also If prices where to drop as much as US$ 50 per bl then many of the oil being produced right now would became un economic bringing supplies tumbling causing prices to rise again. The real threat to the regime is the shambles which Pdvsa has become and its incapacity to maintain oil production at a level that can allow it to misspend and waste all the renevues it now needs to bribe international support and showering baubles on its supporters .

      • Kepler, I share your caution. As I have dealt with oil prices and production- and predictions of price and production- in my work over the last decade, my guess is probably more educated than yours- but come to the same conclusion. Saber..Que sé yo…

        Re the Chinese: nor are they altruistic, though some Chavistas might believe they are.

  5. Counting the days for when the world breaks the Opec cartel, it seems the time is getting closer and closer. And the time will come too, for when Venezuelans will have to eat oil with a spoon because there is nothing better to do with it. So much we could have done with it.

    • But what, exactly? I see you point, but I’ve often wondered if the culprit really lays in the way in which the deluge of money was spent. I mean, of course you can and should have used those dólares to improve infrastructure and invest in education, health, etc. But the development of industry and agriculture and all the other things that create wealth is not (just) about government spending, it’s about regulations, taxes, institutions, and so on, no? I guess the Chinese have shown that, yes, it’s a matter of throwing money at things, but it’s also about careful coordination and intervention. I’m not being contrarian here, I’m genuinely curious about how you think spending that money differently would have changed things.

      • It’s not necessarily about “careful coordination and intervention”. Oil money is like the ring of power in Lord of the Rings. It seems everyone gets infected with the idea that if only they were the ones to wield the power… What they don’t realize is that no one should wield that power. It should be distributed equally to all citizens so that its spending flows via a free, competitive consumer market through the taxation system into the government budget spending.

      • So what about regulations? Have I said I am against regulations? The Chinese model for Venezuela? Think Norway and think Venezuela, both oil countries, one member of a dinosaur cartel that only works for the saudis, the other not… but hey both countries use regulations, one is a small “unitary parliamentary constitutional monarchy” which by all means behave somehow in a socialist way, the good way I would say. Nevertheless have had conservative and labor prime ministers working for the benefit of the country (the nerve!)… from wiki: “In 1969, the Phillips Petroleum Company discovered petroleum resources at the Ekofisk field west of Norway. In 1973, the Norwegian government founded the State oil company, Statoil. Oil production did not provide net income until the early 1980s because of the large capital investment that was required to establish the country’s petroleum industry.
        Norway was a founding member of the European Free Trade Area (EFTA). Two referendums on joining the European Union failed by narrow margins in 1972 and 1994.[47] In 1981, a Conservative government led by Kåre Willoch replaced the Labour Party with a policy of stimulating the stagflated economy with tax cuts, economic liberalization, deregulation of markets, and measures to curb the record-high inflation (13.6% in 1981).
        Norway’s first female prime minister, Gro Harlem Brundtland of the Labour party, continued many of the reforms of her right-wing predecessor, while backing traditional Labour concerns such as social security, high taxes, the industrialization of nature, and feminism. By the late 1990s, Norway had paid off its foreign debt and had started accumulating a sovereign wealth fund. Since the 1990s, a divisive question in politics has been how much of the income from petroleum production the government should spend, and how much it should save.” DID you hear that??? They actually discuss how they should invest their wealth to maximize their capital! They paid their credit card bills in full whoaaaaa There is little corruption and actually its citizens get benefits from the state. THE THOUGHT OF IT!!!!!!!!. The other is a 3rd world going to 4th gigantic socialist government who behaves like a middle age monarchy where nothing gets to its citizens due to the size of the government and the state of corruption, ruled by a clown with sympathies to a foreign tyrant, now by a retarded clown with the same foreign ties… yes I would think regulation per se is not the problem my friend. :O

        • Venezuela and Norway couldn’t be more farther apart. This comes from well before we became independent.

          As I said, Venezuela is still fundamentally a feudal society that shifted to petrostate but kept very feudal attitudes in place. Norway is, funnily, a monarchy and yet Norwegian monarcs of the XVIII century were more enlighted than most Venezuelan presidents (with very few exceptions among a couple of civilians).

          Norway was THE country in Europe where feudalism actually took less hold of society. It was a very egalitarian society and land property was really more equal 1000 years ago than now in Venezuela.

          Danish kings (in union with Norway) already carried out massive literacy campaigns in the XVIII century.

          Norway admired its inventors and producers, then lawyers. We admired our military (and then lawyers).

          People like our Carlos del Pozo would be completely forgotten – are de facto almost so – hadn’t it been because a foreign scientist got to know him
          http://es.wikipedia.org/wiki/Carlos_del_Pozo_y_Sucre,

          Very curiously, one of Venezuela’s literary works is Dona Bárbara…considered as a “fight against barbarism”…but with the paternalistic view of Caracas: lawnowners’ rich son goes to the Llanos, pawns are just pawns, gets the poor girl. It is a bit different from Nobel Prize winner Bjørnstjerne Bjørnson’s A Happy Boy: poor boy from the countryside studies hard in the capital to become a specialist in agriculture and go back to his home place to marry his sweetheart (OK, that novel is not top at all in Norway, but I found the differences telling)

          Spain didn’t go through a proper period of Enlightment and we much less so. We used slogans, use them all the time. If we minded the content of Enlightment ideas, we could change things.

          As always, the key is education. But what is education? Only when political movements and the general society starts to work on actual enlightment (what is actually our wealth, as Switzerland doesn’t have oil? can there be real wealth without education? how come we have such property rights? what’s our productivity? what is the actual level of education? do we allow and foster actual debates? do we want to become – ever – something else than an underdeveloped nation?) are we going to move towards a better model – not necessarily Norwegian but definitely more like it and more sustainable.

          • Yeah yeah yeah… It’s a far better example to follow than the Chinese, who btw cannot be more farther apart than Venezuela as well. As a matter of fact everybody is very farther apart from Venezuela, so what’s the problem with that. Why the negative to everything. BTW, I think asz wants to move to a Ipad factory and tell us how great example the Chinese are. In nay case, I take Haakon over Nicolas platanote a million times.

          • I am not saying we should not follow the example. Quite the contrary. But the point is: it’s a matter of more than changing “the others”. Venezuelans have had a feudal attitude since always, at most a comprador one, with just some exceptions.

            It is always “quítate tú para ponerme yo” and it has never been about a common project where everyone has decent education, even the kids “of the others” and where oligopolies are avoided.

          • yes kepler we all know that, time to move on instead of keep trying to explain a mediocre behavior, because Venezuelans when they want they can do great thing and be the best

  6. If this turns out to be like that… then not a storm… but winter… Winter Is Coming for our economic model

  7. I’d like to believe A. Uslar Pietri would have a mixture of exasperation and insufferable smugness on his face right now.

  8. This is one of the greatest news ever. Finally the US will no longer buy oil from terrorists and countries that hate us. This is even better news for Venezuela, finally Venezuelan would have to work in order to earn their daily bread…!

  9. the whole debate on whether the Keystone pipeline goes ahead or not is quickly becoming mute. The rail companies are courting the oil companies to move oil by dedicated 100 car plus tanker trains moving 81,000 barrels at a time (this is already happening in the Bakken). The 800,000 odd barrels Venezuela currently ships to the gulf refineries will be mostly displaced by Candian heavy oil on existing railway infrastructure..the only question is how long the rail companies will take to ramp up oil car capacity. Keystone isn’t needed and Venezuela unforturnately needs to look for another cash market.

  10. I have no ability to forecast oil prices, nor does the person who wrote that article. But while I would agree there doesn’t seem to be a fundamental economic reason for them to be as high as they are I am amazed someone writing on the subject completely leaves out one of the largest factors driving high commodity prices today – the massive creation of new money by virtually all advanced countries. The US is creating $1 trillion in new money per year out of thin air, Britian and the EU are doing the same (probably in smaller amounts though), and Japan has recently announced it will go all out on printing new money.
    All indications so far this new money is reflating all sorts of asset prices, including commodities like oil. It is quite possible all this new money being created will keep oil prices high for the foreseeable future no matter what the economic fundamentals are.
    That the blog entry didn’t even mention this factor doesn’t do much to make it look well informed.

  11. below 70 usd per barrel shale oil is unprofitable, says t. boone pickens. So it would happen like in 2009 down and up

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