The oil market vs. Maduro


international-energy-agency_0Oil production outside of Venezuela continues to rise, and this poses a threat to the Revolution. This interview with International Energy Agency chief Maria van der Hoeven (from lays it out. The money quote:

“…In our January 2014 Oil Market Report, we noted that with US crude oil production exceeding even the boldest of expectations in 2013 by a wide margin, the crude wall (the idea that production in the US has reached its peak) now seems to be looming larger than ever. Having said that, challenges to US production growth are not imminent. Potential US growth in 2014 seems a given, even against the backdrop of resurgent non-OPEC supply growth outside North America.”


  1. Growing hydrocarbons production in the U.S. certainly poses a threat to the Venezuelan petroleum industry. But it is not the main threat. The Venezuelan petroleum industry has collapsed already due to poor management, corruption and supply of oil to friendly regimes essentially at no cost. I believe Venezuelans are not yet conscious of the fact that PDVSA is broke, that the regime is disintegrating. When Juan says the U.S. production “poses a threat to the [Venezuelan] revolution” he is talking like if PDVSA and the revolution had a future. They do not.

  2. Falling US demand for crude imports is offset by rising Chinese/Far East demand so that overall the demand supply balance is likely not affected . Problem is that Pdvsa -being broke both financially and in its operating capacity- is has become wholly dependent on being able to attract international oil investors/operators which are capable /willing to fund and run new projects to maintain or increase production against the offer of a mortgage on future oil deliveries.
    This is in fact a return to the old apertura model with some cosmetic changes to make it look as if Pdvsa is still the boss. The success or failure of these new investors operators is the key to the govts hopes of improving its dire financial situation .
    There is also a time constraint because these efforts take time to render results and if they take too long the govt is going to face really difficult times both financially and politically..
    Dr Coronels comment is right on the money!!

    • On the other hand, I’d say the US competes with Venezuela for foreign investment, in the sense that many oil companies will prefer to pass on Venezuela an invest in US instead (for obvious reasons).

  3. On the short term PDVSA is in very bad situation and you have the right diagnostic of disease and some details of the virus by the right experts above.

    On the mid term you can reverse some trends quick by having the right management and the right strategy, planing and execution teams in place, for this you need resources (people, expertise, know how, technology, equipment, infrastructure and industrial capacity) money (lots of money), one factor in our favor is that thanks to god and Mother Nature we have plenty of resources of all type (mostly heavy and extra heavy but very diverse) and in what is consider to be easy to exploit and at very low cost when compared with the rest of the world and the basins with potential incremental production in the future for example, it is also very important to highlight who is in charge of the government, the energy policy, the attraction of investment and the macroeconomic situation you as an expert on Economy teach here everyone.

    Now on the long therm the future continue to be the same;
    If everyone keep current production and according to BP energy statistics, by 2035 the world will need 18M Bod of additional oil to fulfill energy demand, from the 18m about 11M Bod is expected to come from nonOpec (5.7M from Shale included) and 7M from OPEC (excluding gas liquids and some Faja I think)
    By 2035 the thigh oil or shale will account for about 7% global supply according to BP report now only if everything goes as plans and it is economically possible (Deep water offshore cost 50-80$ per barrel to produce, shale is 40-50,….., Venezuela is about 16$ Tbc)

    The market is and will always be there amigo now you need the right strategy and plan, you need the money and the expertise and the people to compete in the market and sale your product like all other products now where is the people?
    If you can bring Mr Coronel back you have one strategist and the right knowledge and expertise to help you make a plan but you need the engineers, geologists, reservoir experts,….. Wait wait wasn’t El Comandante Eterno” who fires 25,000 experts in “El paro” and forced other 25,000 to leave the country because they cannot work in Venezuela as they signed agains the government? Are these 50,000 experts or more going to go back how quick? Now you need to compete with “The Market” ooooohhh the monster in Socialismo del siglo XXI… Depending on how quick you can get the above (and many other big issues in the industry It can be 3, 5, 10 or 15 years for Venezuela to be back into the big leagues of oil again and recover the market share lost that will continue to growth for the next 20 years for sure. Also remember you need money (oil) for day to day issues so you better start soon if you don’t want to let consumption eat on your toes like everywhere else (Saudi is expected to consume more than it produces by 2040)

  4. Most of our reserves are extra heavy crude which is more difficult and costrly to extract than conventional oils and which can only be transported if mixed with diluents or light crudes (which in eastern venezuela are not that plentiful) . Selling it in turn requires for it to be either mixed with diluents or light crudes ( which not that easy) or upgraded in special refineries which building requires a lot of investment money, effort and time . .
    Because of all the reasons mentioned above the profit margins for producing upgrading and selling heavy crude oil are bound to be slimmer than those hight margins that one can obtain from the production of lighter oils .
    In time high crude prices are going to make it possible for production from other sourcess and countries to be developed ( increasing competition ) and for technically savy companies/universities to develop machinery , cars , etc which consume much less oil than is the case now ( to save on the cost of using them) .
    In the long term an important part of the challenges Pdvsa ( or others) must face to maximize the profits benefits from the countrys oil reserves is to build and develop an organization which is technically and managerially top knotch. That organization could be as valuable to the country as the huge oil reserves it holds,
    Such organizations however are very difficult to build (or if destroyed to rebuild) , such building or rebuilding take a long time and a lot of managerial talent plus total isolation from political pressures . !! This latter requisite is crucial and one which populist democracies find hard to meet. !! Populist democracies find it an irresistible tempation to use the many means and resources used by these technocratic organization to promote their clienterlar interests which is fatal to their proper functioning ..
    Unless any future regime takes this last point to heart , we will not get anywhere far thru use of the countries considerable oil resources.

  5. Communists ruin everything they lay their hands on and Venezuela is just another example of a soon-to-be failed state like Cuba or North Korea. Anyone who can see the mess the Cuban economy is in and then is stupid enough to ask Fidel Castro for economic advice is indeed an idiot. Venezuela will eventually owe all its daily production to parasitic political allies or to the Chinese as PDVSA begs for more loans to buy refined products it can’t supply from the US and digs its financial hole deeper and deeper through cronyism style mismanagement.

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