It’s hard to persuade someone who doesn’t have enough to eat that anything else is a big problem. When you can’t buy food, or medicine to treat a serious illness, all other difficulties pale in comparison. Which is why it’s easy to overlook things that, while maybe not as crucial to life and health, are still deeply woven into everyday life.

Like, say, cooking fuel. Or, what amounts to the same thing for most Venezuelans, la bombona.

This is a problem that flies under the radar, but, you, try going for a week without being able to cook food. Yet that’s not an uncommon situation Venezuelans find themselves in these days: delays to refill gas cylinders can range anywhere from a week to months. Reuters reports people are now turning to cooking with wood for lack of options. The problem is so bad that it has set off its own protests in the capital and elsewhere.

But why is it so bad? We know the whole gas sector is subsidized, and the reality is that we don’t know how exactly that subsidy works.

We don’t have a detailed understanding of how much of the benefit of the subsidy is captured by final consumers, how much by bachaqueros, and how much by the consejos comunales increasingly in charge of distribution.

If you have gas directo if you live in one of the one-out-of-every-seven households that get gas piped to your kitchen this is a non-issue. But everyone else must go through hell and high water just to cook. It’s already a war zone, without having to picture the effects an official price increase would have.

It’s ironic because, of course, Venezuela has enormous gas reserves the stuff should be cheap, and plentiful. It’s anything but that.

Try going for a week without being able to cook food. Yet that’s not an uncommon situation Venezuelans find themselves in these days.

If you ask an official about this, they’ll blame the protests, how they prevent trucks from reaching the distribution centers. The fact is that these problems have been ongoing for years. What follows is our best approximation of why this is happening, given the lack of public information on gas scarcity and its supply chain’s operational status. Get ready for the big box of crazy that bombonas is.

What’s up with the supply?

Most Venezuelan homes (82% according to the 2011 Census) use Liquefied Petroleum Gas (LPG) basically propane stored in cylinders known as bombonas. Around 14% use methane sent through pipes (the so-called “gas directo”), while the rest have electric stoves or burn wood. When you hear about distribution problems with gas, they’re essentially talking about bombonas and the trouble people face refilling them.

Currently, the main source of gas is the oil extraction operation located in the eastern part of the country. This hydrocarbon mix generates Natural Gas Liquids (NGL), and some of the NGL is later transformed into propane (and from there, put into bombonas).

The vast bulk of gas released from oil extraction is used by the oil industry itself or sent to boost other industries or power plants. The NGL that gets processed and, in part, goes into bombonas is only 2% of the gas PDVSA produces. The NGL goes from the extraction plants into  fractionation plants, where different components are obtained, including propane. The Jose Cryogenic Complex in Anzoátegui handles almost all natural gas from the east and processes it for different uses. From here, propane is shipped to other regions or loaded onto trucks and sent to distribution plants. Finally, the gas is transported to your home by a PDVSA subsidiary called PDVSA Gas Comunal.

You start to see the problem. Since 2006 the supply of natural gas has been declining, which can be attributed to declining oil production. Let’s also keep in mind that, as the northern Monagas fields are depleted, the share of the extracted gas that could be used for NGL purposes is lower (the gas becomes “less rich”), so this poses an additional problem. Between 2006 and 2014, the cumulative decline in NGL supply has been 35.3%. The country stopped exporting propane in 2012, and, in recent years, LPG imports have been increasing to 24% of domestic use.

Consider the multiple uses for NGL and their components. Propane could be used by the petrochemical industry to obtain polypropylene, which is used to make, for instance, plastic bags or pipes. The rivalry between final uses has important economic implications: the natural gas in a bombona could be worth 30 times more than what you pay for it in a bombona if it was used by the petrochemical industry instead.

Thirty times!

LPG is also a subproduct of the refining sector. And as activity in refineries declines, less and less LPG is available. With PDVSA’s financial distress, it’s harder to compensate domestic gas supply with imports.

In boroughs like Catia, prices in the Bs.5,000-6,000 range are common for a bombona that might last 10 days.

Gas production is not the only problem. There aren’t enough actual bombonas available for everyone. Most cylinders are 10kg, and, if you assume that each family uses one unit while it has another on stand-by, then some 14.2 million cylinders are required. There’s no public information about the number of bombonas currently in circulation, but if we consider that in 2008 it was estimated that there were 7.5 million, it’d mean that you should have produced over 750,000 bombonas each year between 2008 and 2017 to meet the shortfall. Current estimates by local analysts point to a deficit of 2 million cylinders.

The latest info provided by the Ministry of Petroleum and Mining says that in 2015 PDVSA manufactured 98,302 bombonas, and lately there have been announcements of the creation of mixed enterprises to increase production to a million per year.

Then we have PDVSA Gas Comunal. This PDVSA subsidiary was created in 2007 from the expropriation of Tropigas and Vengas, which together accounted for about 60% of domestic gas distribution. (Private companies had been in charge of this final distribution stage since 1938.) The idea was to transfer the distribution of gas to Empresas de Propiedad Social Directa Comunal (EPSDC). PDV Comunal is also in charge of constructing LPG storage plants, among other things. There’s no public information on the status of any of these projects.

For example: one of PDVSA Gas Comunal’s projects was the creation of Estanterías Comunales community facilities where people could fill their bombonas at a “fair price”, once signed up on a list kept by the local consejo comunal.

Thing is, the gas never made it to the Estanterías because the cylinders just got stolen: either final users kept them, or they fell foul of shady deals between the distribution plant and bachaqueros.

So forget about the “fair price”. The bottom line is that people have to wake up pretty early to be in line, risking street crime, and wait up to 8 hours to see if they can fill their bombona at a price-controlled rate.

It’s like the old infierno venezolano joke: if you have a bombona, there’s no gas. If the truck comes with gas, there are no bombonas. If you find the bombonas and the gas, the bachaquero doesn’t show up.

The natural gas in a bombona could be worth 30 times more than what you pay for it in a bombona if it was used by the petrochemical industry instead.

The end result is that the country with the world’s 8th largest reserves of conventional natural gas, and the largest natural gas reserves in Latin America, is full of people who can’t get enough gas to cook.

The good news is that PDVSA has several infrastructure projects to help everyone get more bang for their buck… theoretically. In practice, the large investments, operational efficiency and massive human capital requirements are a challenge, not necessarily on the scale of say, developing the Orinoco Oil Belt or recovering production in Lake Maracaibo, but nevertheless with the same results as pretty much any other energy issue mentioned in the Plan de la Patria.

One of the projects now underway is the creation of an additional extraction unit in the San Joaquin extraction plant, to increase gas processing capacity and a 98% C3+ (used to obtain propane) recovery factor.

That was supposed to have been completed by 2015.

In 2011, it was 36.8% finished. By 2015, that was 40%, the investment required was US$ 1,385 MM and the project is now supposed to be completed by 2018. Similar mysteries shroud projects to increase the daily barrel capacity for the Jose Complex and the substitution of domestic propane for methane.

While there are also fractionation plants (that could be used to increase available propane) in western areas of the country, these are small compared to Jose, but more importantly, the decline in oil production in Lake Maracaibo constrains the amount of gas used for these purposes.

It could all be solved with private sector investment, right? Well, the legal framework allows for a higher participation by private companies in comparison to that in oil sector exploration and production activities, but it all comes down to when the issue messing everything-up-for-everyone rears its ugly face: the price of gas and its subsidies.

Subsidies, again

Gasoline is not the only fuel in Venezuela whose price is fixed. Domestic gas prices nominal prices haven’t budged since 2004. By now, the price Venezuelans pay is a laughably tiny fraction of international prices. Even representatives of PDVSA Gas Comunal have acknowledged that the price of a bombona in Colombia is about 1,300 times higher than in Venezuela.

Let that number sink in.

It has also been estimated that, as of last year, the cost to PDVSA of producing LPG could be eight to 14 times the price it can charge customers. If you’re a private company, there doesn’t seem to be that much of a financial incentive to get involved in such a business.

The country with the world’s 8th largest reserves of conventional natural gas… is full of people who can’t get enough gas to cook.

Fine and dandy, but local prices are in bolivars and international prices in US$. Which rate should PDVSA use to convert the income from gas exports? Lately, a conservative VEF 60/US$ is being used (the rate used by PDVSA in its 2015 Financial Statements) and that’s how the Center for Energy and Environment at IESA estimates an LPG subsidy of some $600 MM in 2015.

Now, if you’re a guy in Táchira selling your cylinder in Colombia, the rate will be much higher, and we’re not even talking about bachaqueros and their candid role. In the end, nobody knows how much this subsidy really helps consumers (to the extent they get access to a subsidized bombona at all.)

Another issue is that the problems are highly localized. In some areas, access to subsidized gas continues to more or less work. In the Petare 2016 IESA study, among D and E income level homes, less than 1% of the households reported gas shortages.  54% reported getting gas directly -the rest waited in line for less than an hour.

The estimated average consumption of LPG was 21.42 Kg/month, with fees paid at between Bs.10.47/Kg and Bs.24.02/Kg.

Based on these numbers, Petare residents spend less than 1% of their estimated monthly income on cooking gas. Notice that the study was performed about a year ago, so there might be reason to believe that some of these results have changed.

Even representatives of PDVSA Gas Comunal have acknowledged that the price of a bombona in Colombia is about 1,300 times higher than in Venezuela.

The situation is radically different in other areas. In boroughs like Catia, prices in the Bs.5,000-6,000 range are common for a bombona that might last 10 days. In Guayana bachaqueros charge up to Bs.8,000 for a 10 kg bombona.

How much the subsidy helps depends on how easy it is for you to actually get a cut-rate bombona in the first place.

How much Venezuelans benefit from the scheme is a nebulous zone with no government info and the currency distortion game singing the tune we all know and hate. What do we know? Many questions arise involving the supply chain and the operation and economics of the oil & gas industry in this country. Reforming this mess will be excruciating in a nation with subsidies for gasoline, diesel and electricity. Gas issues affect people’s lives in an immediate, palpable way…

And will continue to do so for as long as there are arepas to be baked or fried.

28 COMMENTS

  1. I tried for years to get them to bill me for the natural gas we used for our stove and water heater in Campo Alegre. I gave up trying to get invoiced and of course our vencinos were outraged that I had the temerity to even try and get billed. Last time I tried was back in January 2014. Lived in Venezuela for almost 10 years and never got a bill.

    • I am curious as what “you wanted to pay” Was it like $2 per month?

      At 30x’s what the market price is, or $60 is a reasonable amount to pay for cooking/heating.

      At $2 per month – no wonder they would not bill you.

      I think the population, took that $58 and another $100+ savings in paying 5¢ a gallon for Auto Gas, and called it there constitutional right.

  2. “If you have gas directo – if you live in one of the one-out-of-every-seven households that get gas piped to your kitchen – this is a non-issue.”

    Wrong. If the camión doesn’t come to fill the building’s tank, no gas on your pipe. The building where I used to live have had to bribe gas truck drivers for them to come by.

    “Ah, pero el gas es estratégico, cómo vas a decir que hay que privatizarlo?”

    • So, Metano travels on pipes. Its cheap and its what it’s called “natural gas”.
      LPG comes stored in tanks abd cylinders. Cylinders are “la bombona”; it sounds to me you have a tank (think of it like a 1000lts bombona). Its still LPG.
      LPG it’s expensive in international markets. Natural gas its much cheaper

    • Thank you Ricardo and Wolf for your comments. I think Wolf is right in his response, given that the distribution of metano goes through pipes from the fractionation plants all the way to the final destination, and is not stored in trucks or tanks. Just to provide further information, I think the only city for which most of the houses are supplied all the way using pipes is the city of Maracaibo (90% of houses have gas directo), while in the case of Caracas, that number is around 50%.

    • Thank your for your comments, Ricardo and Wolf. I think Wolf is right in this point, when we referred to “gas directo” we are talking about the case of methane gas, that goes all the way from the fractionation plants to the residential units through pipes (no trucks involved), given that methane is not stored. I think the only city where most of people have access to gas directo is Maracaibo (around 90% have access to gas directo), while in Caracas about 50% have access to gas directo, so in the case of Ricardo, I think it would be the case of a 1000lts bombona, given that the gas is stored.

    • Thank you Ricardo and Wolf on your comments. I think Wolf is right on his response. In the text, “gas directo” is referred to the case of methane, that because of his characteristics, goes all the way from the fractionation plants to its final destination through pipes, not involving trucks for the distribution. I think the only big city for which most of users have access to gas directo is Maracaibo (around 90%), while Caracas, that number is around 50%.

  3. The very employees on charge of the distribution became the bachaqueros, they’ll usually try to extort from 20.000 to 50-70.000 bolivars per recharge.

    And God forbid your tank ever gets stolen from your house (some thieves will simply tear them off the tubes, leaving the gas to spread and leak so your house might explode and burn), because the bachaquero-formal-pudrevesa-workers will squeeze about 500 to 800 grand or even a full million for it.

    • Typical example of Galactic Corruption in Kleptozuela. People tend to think that the Venezuelan disaster is all due to “Chavismo” and a few hundred imfamous crooks. Well, as despicable as they are, the top military narco-thugs, the maduros/cabellos/rodriguez/tibisay/tareks.., the governors, PDVSA, Corpoelec chiefs…. it’s EL PUEBLO that often steals left and right, and become “enchufados”, leeches of the Kleptocracy first chance they get. Millions or crooked, average Venezuelans, that is, at all levels. Face it.

      They too are highly responsible for the mess the country is in. Our beautiful “pueblo” are very often the incompetent, corrupt, uneducated thugs, too. Sure, Chavismo is the worst freaking nightmare, but it was created and has flourished because of “el pueblo” , who are no saints, most of them aren’t.

      That, of course, no one likes to admit: It’s all the fault of a few politicians, “socialism”, “chavismo”, Masburro or Diablodado, or Delcy la Fea and Tibibeaaatch.. huh? Nope, Kleptozuela’s social and economical problems run much deeper than this Chavistoide crap: the very social fabric of its people is lamentable, by enlarge, to say the least.

      Otherwise Chavismo would not be this strong after 18 years, especially the last 5-7 years of heavy-duty economic crisis. Chavismo was created and is now sustained by a large portion of our so called beautiful “pueblo” people, like it or not. Millions of enchufados, leeches, thieves, are complicit. And when this nasty dictatorship finally falls, hopefully one day, the incompetent and also somewhat corrupt MUD pendejos will have to deal with the same uneducated, highly corrupt “pueblo” populachero, so good luck for the next 2 generations, sorry to say but most of us know that “esa vaina se jodio, y pa’ rato largo..” And not just because of Chavismo: there’s a reason Chavismo emerged and is still there: most of “el pueblo”.

      • “it’s EL PUEBLO that often steals left and right, and become “enchufados”, leeches of the Kleptocracy first chance they get. Millions or crooked, average Venezuelans, that is, at all levels. Face it.”

        Yeah, yeah, yeah, the venezuelans are rotten, the country’s doomed, yadda, yadda, yadda.

        Look, there have been lambucios, that’s true, there are kleptomaniac corrupt lambucios EVERYWHERE, the difference is that everywhere else they are NOT allowed to do as they please, THAT, is the difference with Venezuela, where chavismo (yes, they are to blame) allowed the criminals to do as they please with the explicit purpose to control the population, FACE IT.

        chavismo is guilty for EVERYTHING BAD, because they are the ones that empower the crime, ONLY THEY AND THUS THEY ARE GUILTY AND MUST BE ERADICATED as a political current.

        • Ulamog I like your responses and always read them but there is something I need to point out. When I first moved to Venezuela in 1999, I ask the cousin of my wife about income tax. He worked in the oil industry. He laughed and said “why pay taxes when someone is only going to steal it?” That was right as Chavez was coming to power. Since then I’ve observed that my Venezuelan family, love them as I do, , oppo all, has no problem accepting something for nothing.

          • Again, as I said to a chavista moron (no offense intended to you) some days ago when arguing about how his infallible regime was guilty about everything wrong with the country today for the simple reason that they let the criminals run loose on the country.

            He, in the verge of hysteria, asked me “Then what the hell are they supossed to do, do you expect the government to keep tabs on everybody to stop them from committing a crime??!?!?! That’s insane! That’s NOT THE GOVERNMENT’S JOB! People should be doing the stuff BY THEMSELVES!”

            I answered him that when you have a society with such a majority with a rotten moral compass, the government then MUST watch over their shoulders and breath on their scruffs ALL THE TIME, because the only thing that stops criminals from “crime-ing” is the threat of a retaliation that will get them with 100% of probability. And also because that IS THE REASON GOVERNMENTS EXIST IN THE FIRST PLACE.

            Yes, the country might have had stupid people since much before chavismo got the power, but because chavismo got the absolute power, then now they have absolute responsibility for the problem, it became their problem when they seized the power, simple as that, it doesn’t matter anymore that the problem “came from before”.

            Look, I’ve met people too that’s awfully irresponsible, such as people who has spent years without paying their water service bill simply because Hidro***** hasn’t come to cut their service, and they are brazingly proud of that because “they have cheated the system”, part of the same warped brain that afflicts many idiots in Venezuela, where they think that “getting away with a crime is cool”, that’s why you have so many “oppos” that speak and act exactly like chavistas.

            So yeah, the whole “something for nothing” is nothing more than stealing, and it’s been used by not only chavismo, but their predecessors, adecos and copeyanos, did so too with the same goal: To keep political clients by handing them impunity.

            Because impunity is cheaper than most stuff when it comes to keep political capital.

        • Ulamog: You really understand the problem. It is the breakdown in the moral code, and it is the reason why Venezuela is so screwed, because even if you can get a new government, it will take many years to get people to respect the rule of law again.

          • And that’s the reason there will be the need of a “hard hand” in the next governments, and before someone comes claiming that “what you want is a dictatorship but we have had enough dictatorship with shiabbe, you fascist lunatic!”, those people MUST remember that chavismo wuled with a fist, indeed, but punched with said fist the HONEST AND WORKING PEOPLE, the GOOD people, he did exactly the opposite of what had to be done.

            It will take decades if every government after this dictatorship is a bunch of whiners who won’t do anything because they’ll drop in the polls, or it can take less than 5 years if all the enforcement and crackdown goes to where it must be done.

    • Thank you for the link. An ideal scenario would be for Venezuela to lay down the infrastructure so that most of the residential, commercia and industrial gas could be supplied through pipes, and using methane, which is cheaper. That also would has an additional advantage, which is that, since propane can be stored and have so many valuable uses, it could be exported as LPG or more valuable products if it’s used in the petrochemical sector. And I think the project of “regasificación nacional” of PDVSA, was heading in that direction, but of course, “del dicho al hecho…”

    • Thank you for the link. I think the purpose of laying down this infrastructure in Venezuela is that you get access to domestic, commercial and industrial sectors with a cheaper gas in a reliable way, but more importantly I think, the propane that is used for domestic consumption could be stored and exported as LPG, or as petrochemical products that could be even more valuable. Right now, what is happening is that the propane (which could be considered as “lomito”) is being used to make meatballs, instead of having a more “delicious ($)” dish. This is not to say that methane could not have valuable uses as well, but in relative terms, and given the abundance of supply in methane, this could be a significant improvement. This has been considered in the “Plan de Regasificación Nacional” from PDVSA, but of course “del dicho al hecho…”

  4. Here I found an important link from Jose Guerra:
    http://www.talcualdigital.com/Nota/146593/conozca-las-5-medidas-que-propone-jose-guerra-para-levantar-la-economia-del-pais
    This is going to be the challenge for the new leadership. Certainly it will be much easier than what’s currently happening, but it will require – I am guessing – real “U” from the MUD, and it will require some political fancy dancing to prevent multiple Caracazos. I hope I’m not just talking talk, talk, talk.

    From the article:
    ____________

    1.Unificar el tipo de cambio. “Tenemos tres tipos de cambio en el país. Uno de 10 bolívares, otro de Bs 3.000 y el del mercado negro que, aunque el gobierno no quiera reconocerlo, afecta al aumento de precios en el país”.

    2.Flexibilizar el control de precios. “El control de precios no sirve de nada si no se consigue el producto regulado a 400 bolívares, incluso de deben flexibilizar los costos de los servicios, porque todas las fallas que tiene Cantv y el Metro de Caracas se deben a que son servicios muy baratos”.

    3.Frenar la impresión de dinero venezolano. “Debemos frenar en seco la emisión excesiva de billetes que solo trae más inflación”.

    4.Refinanciar la deuda externa. “Creo que el país como está puede pagar la deuda externa. Podemos solicitar que se nos alarguen los plazos para el pago así la economía se oxigena un poco. Al pagar la deuda ya podríamos tener reservas internacionales”.

    5.Aplicar una nueva política petrolera. “La situación de Pdvsa es dramática, porque KPMG, la empresa auditora más importante internacionalmente, indicó que dentro de la petrolera hay un problema de corrupción. Además es una empresa que bajó su producción, debe importar mucha más crudo que el que produce y su nómina es pagada por el BCV no por la empresa”.

    _____________

  5. The gas truck came by last week and delivered 2 x 18 kg bombonas.
    When my wife asked “How much?” the driver said Bs.500.
    “Each?” she asked.
    “No, total” he said.
    She gave him Bs.1.000

    That’s US$0.02 each 18 kg tank at current “real” exchange rates.
    Which includes delivery, wages, the gas itself and maintenance on the tanks & truck, employees in the office and filling station.

    And you ask why there is a problem?

    • Your wife was lucky, where I live, the cylinders are usually delivered with more than 3 months of delay, and even then, the workers will ask for at least 5000 Bs (six months ago) or more recenrly even 10 or 20.000 Bs.

      And if anyone dares to say a peep about it, the workers simply stop going to that place, it’s the usual chavista extortion using the monopoly of vital resources.

  6. In Cumana, Estado Sucre there were rumors that the cylinders were being stolen to use them to smuggle drug to Trinidad (after cutting, filling up and welding ….)

  7. Igor, in spite of your Russky name, you have a great command of basic economic analysis, and thank you for this excellent article. One observation: many of the 96% of gas-using Venezuelans under the current Regime had better start looking for a substitute, probably firewood, the way things are going. Question: why are only 4% cooking with electricity, when electricity is so cheap/abundant?

    • Thank you for your kind comments. I think because of the decline in oil production, the situation for domestic gas would get more difficult, Here the question of electricity vs gas for cooking is one of relative prices , I think. If you compare regulated prices, the cost of using electricity for cooking would be about 3-4 times the cost of using gas, on a monthly basis. Of course, this is using regulated prices for gas, which as we have seen, is not necessarily the case for many households currently. So then it becomes a question on what price are you paying to the bachaqueros for the gas, versus what you would pay in electricity (assuming you bought an electric kitchen some time ago). Then the math is not so clear, and it could be the case that electricity becomes cheaper than using gas. You have to add to the analysis that some households may have illegal connections to electricity, but also that reliable supply of electricity is already a problem (and will continue to be a problem). The numbers about use of domestic gas were from the Census of 2011, so it is reasonable to believe that the share of gas is now lower. Beyond relative prices, there are always preferences regarding the time of cooking and the fact that you can adjust the flames when using gas, as opposed to steady heating in the case of electric kitchens (that take some time to heat), but I think the price element may be more important now.

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