Venezuela Oil Sector Faces More “Degradation”

by: Posted date: March 13, 2013 In: Headlines

From Reuters

 

Venezuela’s oil industry could deteriorate further if Nicolas Maduro, the chosen successor of late president Hugo Chavez, wins national elections next month, the West’s energy agency said on Wednesday.

While Maduro is widely tipped to become leader of the world’s top proven holder of reserves, it is uncertain how he will deal with the pressures to the oil industry left behind by Chavez, the International Energy Agency (IEA) said in its monthly report.

“The future of the Venezuelan oil industry, and of Venezuela itself, may well hinge on finding the right balance between the divergent needs of caring for the population and nursing a longneglected oil sector back to health,” the IEA said.

Instead of investing to improve the infrastructure of the oil sector, Venezuela has used state oil company PDVSA as a cash cow for Chavez’ expensive social programmes.

Venezuelan oil output has dropped from around 3.5 million barrels per day (bpd) when Chavez was elected 14 years ago to just 2.34 million bpd last month, according to analysts.

The death of Chavez last week did not alarm markets, but prompted debate about how the oil assets of the world’s 11th largest crude exporter will be managed in the medium term.

“Venezuela’s next leader faces a Catch 22 situation: current oil policies – namely, the diversion of oil revenues to fund costly social programmes – cannot continue without putting the oil industry – and the country’s entire economy – at considerable risk,” the report said.

“But neither can they be reversed without the risk of social unrest and political chaos.”

ORINOCO

A lack of investment has also left the development of the Orinoco heavy oil belt, where Venezuela has a string of projects with foreign companies behind schedule.

The Orinoco belt, stretching across eastern Venezuela, is vital to lifting current production in the OPEC member to as much 4 million bpd.

The IEA expects the Orinoco developments, considered the world’s single biggest source of oil reserves, to add 1.24 million bpd of gross capacity at peak production by 2017.

But Venezuela’s net oil production capacity growth will rise by just over 200,000 bpd, to 2.8 million bpd, during the next three to four years, with the bulk of production not fully online until later, the agency said.

The IEA tipped Venezuela’s oil diplomacy programme, which provides costly subsidised oil sales to Central American and Caribbean nations, to be the first Chavez programme to break down.

These subsidies have been controversial within Venezuela and may be dropped in favour of increased exports at market prices.

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