The Energy Relationship Nobody Talks About

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Did you know that last year Venezuela shipped more oil to India than to China?

India vs. China

I sure didn’t!

And did you know if Venezuela sold the oil it sends to China and India to the U.S. instead, it would make an additional $9 billion each year?!

That’s a lot of money: almost half a year’s worth of the gasoline subsidy! And hey, in return for the gas subsidy we at least get basically-free-gas, which counts as some sort of benefit. For this, all we get is the gratitude of the oil shipping and shipbuilding companies, who get to ferry all that extra oil extra far for no good reason.

Plenty more eye-popping stuff where that came from: Subaeshi’s* latest oil policy report.

*how crazy is it that in Venezuela oil-sector analysts have to publish anonymously for fear of retaliation? These guys are friends of the blog, though – they’re solid.

1 COMMENT

  1. Well, that’s due mainly to the fact that the United States is decreasing it’s oil imports due to the domestic oil boom in said country, therefore Venezuela has to look for other buyers in the international market such as developing countries like China and India who have a huge demand for oil.

    The problem is not that we aren’t selling as much oil as we should to the United States (which is cheaper to Venezuela), the problem is that we gambled our whole economy on a non-renewable resource such as oil, specially when it has been clear that the intention of the United States, our biggest buyer and the biggest importer in the world, is to cut on oil imports and produce more of it domestically. Now we are stuck with a monoexporting economy, with a good that will decrease in international value in the following years.

  2. I saw the same but from documents from Colombian and Dutch governmental sites discussing
    Venezuela. It is crazy nowadays it’s easier to read reports on Venezuela’s economy written by our neighbours or even the Dutch than the reports from the Banco Central de Venezuela.

    Chávez’s dreams on “diversification”: http://www.austria.gob.ve/noticias.php?lan=al&leer=1&noticiaid=134

    Ignacio is right: the most tragic thing is that we didn’t use the time to work on diversifying the economy. Oil was going to deliver less and less for us on the long term, even without Chavismo. Now we are in the worst scenario: ever more dependent on exporting the one product at a higher price for us.

  3. This treasure trove of data on Venezuelan oil exports highlights the blunders of the regimes handling of the Venezuelan oil industry . Venezuela has a network of investments in refineries and marketing systems in the US to maintain its participation in the US oil market even in the face of its lowering imports , We have chosen to abandon the US market for purely political reasons or actually to gratify the megalomaniacal pseudo ideological delusions of one man . and in the process have lost billions in revenues. The stupid use we ve made of our oil revenue by using oil deliveries to China to pay for loans to purchase overprized Chinese goods and services (not always of desired quality) further compounds the losses which this export policy causes us. . The data does not include the cost to Venezuela of its oil trade with Cuba , Alba Allies , the Caribbean and other ‘politically friendly countries under below market conditions which further compound the very adverse impact of this oil policy . Meantime it shows crude oil and refined product production falling and stagnating while the local market demand grows exponentially , fueled by heavily subsidized prices that are well below cost . The cummulative effect of these policies is what has Venezuelan economy down on its knees , its what gives rise to all the shortages and privations we know suffer .
    Of course we could have used the gratuitously forfeited revenue of 10 years to attempt to diversity our economy and make it less dependent on oil , but we are also delusional if we think that we are going to be able to totally replace oil as the mainstay of our economy , thats an old wives tale that deserves more careful scrutiny , what is called a tough reality test to see what comes out!! If we had used part of the forfeited revenue to improve and optimize our oil production refining and marketing operations the revenue to Venezuela would have been even larger . Trust average Venezuelans dearth of political acumen and wealth of sordid political passions to spoil and waste the many riches nature has endowed the country with .!! Thanks Francisco for putting this information on line . .

  4. Forgot to mention that Venezuelan policy of exporting to india and china has been of great help to the US and the EU in making it easier for them to apply their sanctions against Iran . Much of the Venezuelan oil being exported to india and china used to be supplied by Iran , which geographically and logistically is ideally positioned to supply these countries . Wonder what will happen if Iran ever makes its peace with the West and has its sanctions lifted . Will it work hard to recoup its lost markets and displace venezuelan exports or will it cut back its own production to allow venezuelan exports to thrive . Hey ! I may have the answer to this one.

  5. Basically, we have flushed billions of dollars down the toilette because of the obsessions and resentments of Hugo Chávez. This is outrageous because is not even money that’s been spent on mansions, yachts or private planes, but literally wasted out of sheer spite. Anywhere in the our it would be a scandal, but in here not.

  6. The US is weening itself off of Venezuelan oil. There are a lot of articles about it. The US would rather be reliant on Canada’s tar sands than Venezuelan oil (it’s one reason Keystone will be built despite the protests). In 5 years the US will be North America Oil self-sufficient. The US will be producing more oil than Saudi Arabia. It will be interesting to see how Venezuela fares. Venezuela had so much time to become energy self-sufficient. It’s going to end soon and the money flow is going to end soon. I think it’s good that Maduro won. He’s going to have to deal with it.

    • Wonderful, wonderful graphs/info. Thank you Subaeshi/FT. For Venezuela, this is a great summation of the oil policy disaster of the Chavez/Chavista years. Venezuela’s best/highest -paying/ customer, the U. S., has been cut back to some 650M bbls./da.recently, from more than double this 10 or more years ago. Worse yet, due to the Amuay disaster, 15-20% of revenue from U. S. exports goes to import U. S. oil finished products. Finally, to top it all off, total Venezuelan oil revenue for 2012 was $40 bbl., while total imports of all goods were $60 bbl., and this year Venezuela faces probable lower oil production/prices, as well as much higher international debt $ payments.

  7. There are some good points here, but the basic thesis is BS. Subaeshi claims sales to China bring in much less money than sales to the US. That’s true in current cash, sure — because the Chinese sales are prepaid! The cash is already in hand. Now, the Chinese loans have many other problems, especially dependency and corruption. But this is fallacious accounting. You need to compare the total sales price, including the prepaid amount.

    • Yes, but as to current Venezuelan cash flow, the figures are correct, as well as the exports to China are very expensive in transport costs, rumored to be discounted from market prices, and paid for in part in Chinese currency good only for spending in China (not to mention the cost of corruption in such non-transparent dealings).

      • Sapito is right !! you cant simply subtract whole the amount of the oil revenue which is used to pay chinese fund loans , that payment is made although on terms which mean that part of it is actually lost. The way of figuring the actual opportunity cost loss for Venezuela would be to compare the average market price payable for oil sold to the chinese far east markets vs the average market price payable for oil sold to the USGC / USEC , plus the extra cost of the logistics and freight involved in transporting delivering the oil to china vs that of delivering it to USGC/USEC , plus the overprice paid chinese goods and services purchased with the loaned amounts vs the price which would have been payable if those goods and services would have been purchased on a competitive prive market basis including contractors and suppliers from any part of the world. Of course the latter calculation is much more complicated and difficult to make !! Used to be that oil prices in far east indian ocean markets were not as high as those obtainable from selling to US Gulf Coast or US Atlantic markets or to North european markets ( which in the past where thought as uneconomical for Venezuela to sell to because of the freight cost ).

        • regarding freight costs…. I don’t know if this presentation relates to oil tankers, but for sure freight costs are on a downward slope, especially given (a) the super ships; and (b) those ships that return to the Far East, practically empty, having delivered Chinese goods to Europe and the Americas.
          http://www.bbc.co.uk/news/business-24439603 .

          One friend who works at America Cargo Lines, had this to say about the article:

          …they prattle on about economies of scale, but by building such massive ships, they have further destabilized other trade routes when the large ships being replaced are pushed into them…

          adding un-needed capacity, which then puts pressure on the lines to fill them, at any cost… continuing the “race to the bottom” in terms of freight rates, as shipping lines struggle to fill the added capacity.

          We are already seeing the effects here on the N. Atlantic trade… where we used to have vessels of 2500 – 4000 TEU capacity, we now have ships of 6000 – 8000 TEU muscling in….and the freight to fill them has not increased at all…

          • Freight costs fall the bigger the tanker , so on long voyaves the bigger the ship used the lower the freight cost per bl. , tanker freights however can be very volatile , they go up and down . maybe low now , very high next year. The trip from Venezuela to china means crossing half the worlds oceans , a round trip of about 3 months , which can mean a lot of money ( in contrast venezuelan usgc voyages are three days to go , one to discharge and three to get back) . big difference . Also large carriers dont just enter any port , often they need special facilities which arent located just any where , this means investing in special facilities !! of course at the oil suppliers expense ( through the price) . In Venezuelas case a fleet of tankers is being built in China using the Venezuela chineses funds ( paid for with deliveries of oil) . ,so a good business deal all the way for the chinese purchasers. Additionally China doesnt have the refining facilties which refine its extra heavy crude so the chinese venezuelan fund paid for with Venezuelan oil is almost certainly being used to allow chinese refineries to refine venezuelas most tipical oil ( the usgc is crammed full of refineries which can take venezuelan crude oil and sell it to the worlds most attractive market) . Heavy crudes often need tp be kept at very high temperatures to maintain their fluidity , this adds to the tanker cost which must consume energy to keep the oil at very high temperatures . The long voyages will mean a huge expense in heating oil for tankers transporting heavy crude to China.

          • Interesting, bb. I hadn’t thought of the issue of selective ports for oil tankers, and energy needs, not only of the engine but to keep the oil hot. Thank you for that.

    • Thank you for the comment, Setty. As you say, the cash is already in hand and therefore we do not consider it to have been generated by crude oil exports themselves.

      • OK, I hope that when you look at mining company revenue you also refuse to accept as “sales” any pre-sales agreement. And since cash in advance isn’t good enough, certainly cash later also shouldn’t be counted — please refuse to accept any sales that aren’t in cash on the barrelhead. Credit? No sirree bob, that wasn’t generated by the oil sales.

        I’m done with that kind of oppo rhetoric. You get one of the worst situations in the world and you can’t just describe it, you have to make believe that it’s even worse than it is, making yourself look dishonest and/or innumerate in the process. PDVSA is fucked, ok? You don’t need to exaggerate the situation through false accounting.

        • sapito, you haven’t noticed that kind of oppo behaviour extends beyond pdvsa accounting and into all realms of political analysis?

          • Yoyo, I criticize fallacious reasoning wherever I see it. Yes, some people exaggerate. But if you want intellectual honesty, please start at home. I’ve never seen you criticize the boundless falsehoods and exaggerations by the pro-government side.

      • Sorry, that last comment was a bit intemperate. Here’s what I’m trying to say. There is no financial or economic difference between someone giving you cash and them paying off your debt. If China is accepting oil for, say, $90 a barrel off a debt, that’s the same as them paying $90 a barrel in cash. Unless you are doing a cash flow analysis, but that’s not what I get here.

        The problem with the Chinese fund is exactly that it’s so opaque. We don’t know what % of the fund is lost to corruption, commissions, currency exchange fees, whatever. If, say, 1/4 of the money is lost to these things (a believable figure, but just a wild guess) then for every $100 a barrel that Venezuela would have gotten in a normal PDVSA sale to a US refinery, you can instead say that the income is $75. But arbitrarily cutting it down to $10 makes no financial sense, unless you have evidence that 90% of the money is being lost somewhere on the way. I would believe 90% for the Cuba “exchange” (after all we’ve seen about the rates that Cuba charges for its doctors, and the fact that Barrio Adentro gives out pills like they were Mardi Gras beads) but I have a hard time believing it for China.

        • Once again, yes and no. Sabaeshi is talking about current cash flow, which, by being deficient, is helping to determine the current economic crisis/free market exchange rate/etc. Obviously, he doesn’t mean the Chinese deals are really worth onlly $1bb. for 350m/da. exports. The Govt. is F—–, and Venezuela with it near-term, because the money credited for the Chineses deals has already been spent/stolen. Finally, and this is just a guess, the real net income to Venezuela per bbl. of Chinese oil may be more like $50, factoring in a heavily discounted-to-market price, incredible commissions/corruption, higher transport costs, and the need to spend a good part of the income on unnecessary Chinese goods/white line/etc., at who knows what marked-up price vs. what would be a normal Chinese commercial transaction.

        • I’ll try to be salomonic and say Subaeshi could’ve spared himself no end of trouble by writing “Foregone *Cash*Flow* from Crude Exports” rather than “Foregone Crude Export Revenue”.

          • Damn you, Setty! I just ran into this and finished a post when I came across your comments. Bah!

            Francisco, the Solomonic interpretation you suggest is also wrong, unfortunately. A cash-flow analysis would book the loan revenue when the loan was made rather than when the oil was delivered. The only cash-flow foregone by exporting on credit were the interest payments on the loan. The Subaeshi analysis, however, did not book a positive cash flow when loans were received, so you can’t call it an analysis of foregone cash flow.

            See http://noelmaurer.typepad.com/aab/2013/12/pdvsa-is-probably-not-losing-money-on-its-sales-to-china.html.

            I am a little confused as to why the Subaeshi fellows made the claims that they did.

            Great blog, by the way!

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