Caracas Chronicles

An old cliché is gaining traction amid the relentless barrage of content about the Trump administration’s military pressure on the Chavista regime: that the United States wants to seize Venezuelan oil. Like all good myths, it has a grain of truth. It is rooted in Latin America’s history with the US, and it fits into the big story told by leftist classics recently discovered by young North American readers, such as Eduardo Galeano’s Open Veins of Latin America, which reduces everything to an eternal spoil in which innocent, peaceful republics are ravaged by white tyrants thirsty for minerals. 

As expected, Chavismo, which was already claiming that Venezuela was a US colony in the 1990s, before coming to power, denounced to OPEC that Trump is after the oil reserves and that the offensive will destabilize the energy market. Naturally, he omitted the fact that the only oil company truly active in Venezuela is American, Chevron, and that, according to The New York Times, he offered Trump immensely advantageous conditions to exploit Venezuelan oil in exchange for being allowed to remain in power.

“it’s the dirtiest, worst oil probably anywhere in the world…”

Donald J. Trump on buying oil from Venezuela

Yes, Trump seems to incarnate in many ways an anti-imperialist caricature, and yes, Venezuela has the largest crude oil reserves, as many commentaries on the country are careful to remind foreign audiences these days. But that has its nuances, and what matters is how much Venezuela can offer, and how much out of that can really be of interest for the US. 

What do those Orinoco Oil Belt reserves mean today for Venezuela and for the US? To what extent would the US want to get its hands on them, and why would it need to remove Chavismo to do so? In order to answer these questions, we turned to one of the world’s leading experts on Venezuelan oil, Francisco Monaldi, director of the Latin America Energy Program of Baker Institute at Rice University. 

Why has the oil industry focused its extraction efforts on the heavy crude oil extracted from the Orinoco Belt?

Venezuela has abundant extra-heavy resources in the Orinoco Belt and relatively limited reserves of medium and light crude oil in the Lake Maracaibo Basin and northern Monagas. The decline in the Monagas fields has been significant, and to compensate for the loss of production, the Orinoco Belt, or Faja Petrolifera del Orinoco, was developed in Southern Venezuela. It has been active since the state oil industry opened to foreign investment in the 1990s, when technology was developed to make extraction costs reasonable given the much lower oil prices of that era, which became far more attractive after the Belt’s rise. Today, almost 60% of Venezuela’s oil production comes from the Orinoco Belt. The challenge with this crude is that it requires additional processing because it is heavy. Only about 8% of it flows to the surface, compared to the 50% flow rate of conventional crude. Once it’s on the surface, you have to do something to move that heavy crude through a pipeline to the Jose Cryogenic Complex or the ports. When you have upgraders that produce diluents, you can create a closed circuit, making it easier to transport such heavy crude; otherwise, you have to bring in diluents from abroad every time you want to export it. These complications can be solved, and the Orinoco Belt could produce much more crude, more than the smaller, declining fields in the rest of Venezuela, which require much more investment. That’s why the Orinoco Belt is the future of a large part of Venezuela’s oil production.

How true do you think it is that, due to geography and the composition of the available crude, the US should be considered a natural partner and the main destination for Venezuelan crude?

Certainly, the refineries in Texas and Louisiana invested heavily in the capacity to process heavy crudes like Maya from Mexico, Hamaca and Merey 16 from Venezuela, and some from Brazil, Colombia, and Ecuador. But then Mexican, Ecuadorian, Colombian, and Brazilian output fell, and the supply of heavy crude from Latin America became much more complicated. Canadian extra-heavy crude could fill that gap, but since the Keystone XL pipeline, which could carry 800,000 barrels per day, was never built, it can’t reach Texas and Louisiana from the Alberta sands. So refineries are using more light crude, which is more expensive on the market, and part of their installed capacity remains idle. This also means that if heavy crude production in the Orinoco Belt were to increase, those refineries, which previously imported half a million barrels per day of Venezuelan crude, would have an appetite for importing it. Today, the only Venezuelan oil they have is what Chevron exports, which is currently 120,000 barrels per day. One could even imagine that the Orinoco Belt crude could capture even more market share. Besides, Venezuela won’t be able to export all that heavy crude just to the US. In any scenario, it would need to export a significant amount to India and China, but it’s true that exporting to the US is very attractive for Venezuela, given its proximity and demand, and the US’s interest in Venezuela doing so.

So, the idea that the US needs Venezuelan crude is true, in that respect, although only to a certain extent. Currently, the US is a net exporter of crude oil. It’s no longer the country of the 20th century which imported enormous amounts of oil and at one point consumed around two million barrels of Venezuelan oil per day. Since it started to exploit its fields in Texas in 2006, it no longer needs to import as much. In fact, it views the region’s producers partly as competitors, not as sources it must secure as it was in the past.

But even so, when the US needs to import oil, it needs heavy crude. And it is indeed interested in extracting oil in Venezuela, because of the profits this represents for US companies, and because Venezuela, like Canada, can be a more stable and closer source of supply than the Gulf countries, which concentrate so much production and have so much control over the market, are more remote, and experience regional instability. That’s why the US wants more oil produced in Venezuela, not because they need to import it as before.

If US companies can rebuild the Venezuelan oil industry, as María Corina suggests, how feasible is this reconstruction? How long might this take, and what would be reasonable goals over a five-year period?

It can be recovered if everything aligns: changing the institutional framework, removing sanctions, a price above $50, and political stability. Then, significant investment could be made in the Orinoco Oil Belt, and production could increase substantially. There are many bottlenecks: the people who knew about oil have left, the infrastructure is in very poor condition, many construction and service companies have closed, but it would be technically feasible to increase production to 3 million barrels per day in about 10 years. In at least five years, it could reach 2 million barrels per day. It would be crucial to have companies like Chevron, Conoco, and Exxon, which have experience with extra-heavy crude and aren’t, like European companies such as Shell or BP, rushing out to comply with environmental standards, because extracting, processing, and refining heavy crude does indeed involve more CO₂ emissions. There is a significant investment opportunity, and US companies are the best in the world for this, along with some European companies like Total and ENI, or companies from China and India. All of this requires credibility, a new institutional framework, and a good relationship with the US and Europe.