A deep global energy crisiswhich is clearly impacting Western Europe, forces countries around the world to find additional sources of oil and natural gas. Severe fossil fuel supply constraints have emerged due to a lack of drilling caused by nearly a decade of low prices, which have been exacerbated by the COVID-19 pandemic and the invasion of Ukraine by Russia. A Decision of October 2022 by the OPEC Plus cartel to cut production by 2 million barrels a day has amplified the global oil shortage. Soaring energy prices are threatening post-pandemic global economic recovery, heightening the sense of urgency associated with securing additional fossil fuel supplies. It is the pariah state of Venezuela that has the largest oil reserves of 303 billion barrels and was once a major oil exporter seen as a possible solution. Because of this, there is widespread speculation that US President Joe Biden will ease sanctions allowing Caracas to officially export oil and Western energy companies to operate in the OPEC member. Venezuela was once one of the largest oil producers and exporters in the world. Before former President Hugo Chavez took office in 1999, the country pumped 3.5 million barrels a day and exported 3.1 million barrels, or 98% of its production, in 1998. Since then, then that Western energy companies were fleeing Chavez’s brutal nationalization of oil assets and ever-tighter US sanctions that got a little deeper, Venezuela’s oil industry has collapsed. The national oil company PDVSA and its operations are a shadow of what they used to be. According to the latest OPEC report, the pariah state produced an average of just 666,000 barrels of oil per day in September 2022 and 636,000 for 2021. The state of Venezuela’s oil industry is so precarious that refineries operate intermittently, environmentally damaging oil spills from faulty pipes and storage facilities are commonplace and production is less than a quarter of what it once was.
Gaining access to Venezuela’s vast 303 billion barrels of oil reserves, which are the largest in the world, makes perfect sense. Many US Gulf Coast and Midwest refineries are configured to process heavy grades of crude oil. This raw material can be obtained at a considerable discount compared to the current market price for the lighter and softer grades, they account for the majority of US oil production, providing a significant economic incentive to refine the heavier grades. Venezuela, before Chavez came to power, was a key supplier of heavy crude oil feedstock to US refineries shipping 627 million barrels to the United States in 1998 alone. Those volumes fell steadily then. that Washington was gradually imposing tougher sanctions on Venezuela, dropping to 218 million barrels for 2018, the last year before Trump’s tough sanctions blocked all legitimate Venezuelan oil exports.
Source: US EIA.
In 2019, when Venezuela’s annual oil imports totaled a meager 33.7 million barrels, U.S. refineries configured to process heavy grades of oil were forced to turn to Canada and Mexico.
Unlocking Venezuela’s vast oil reserves and rebuilding oil infrastructure to dramatically increase production will require substantial investment, and it is estimated that it will take $250 billion to bring production back to pre-Chavez volumes. The only energy companies capable of providing the substantial investment, technology and skilled labor to rebuild Venezuela’s shattered oil industry are western energy majors. Almost all Western energy companies operating in Venezuela when Chavez was inaugurated in 1999 have gradually left the strife-torn country. Many, like ExxonMobil and ConocoPhillips, left when Chavez seized energy assets as he nationalized industries in the 2000s, while others chose to leave because they found it increasingly difficult to operate from cost-effective way as Washington increased sanctions against the hostile socialist regime. French and Norwegian super-majors TotalEnergies and Equinor were among the last to go, transferring their stakes in Petrocedeno to PDVSA in July 2021. While Equinor did not disclose its loss, TotalEnergies has announced a Capital loss of $1.38 billion. According to Reuters, in October 2022, Caracas gave the other foreign energy companies operating in Venezuela power to give up their joint ventures with PDVSA on the condition that they cancel all debts and unpaid dividends. These are the conditions that TotalEnergies, Equinor and Inpex accepted when leaving Venezuela.
US oil superbig Chevron, which has long operated in Latin America, is the latest major international oil company to have a presence in Venezuela.
The US energy super major has interests in five projects with PDVSA. These are the Petroboscan, Petroindependiente, Petropiar, Petroindeopendiencia and Loran operations.
Before Trump escalated sanctions in January 2019, Chevron’s share of production from these assets for 2018 was 44,000 barrels per day. The additional harsh sanctions imposed by the White House have prevented Chevron from conducting operations in Venezuela, except for the maintenance of its operations. As a result, the super major, in 2020, took $2.6 billion depreciation on value of these assets.
Apparently in early 2022 Chevron proposed to grant authorization by the White House to receive oil shipments from Venezuela to recover the unpaid debt. That didn’t happen, but the US Treasury expanded the scope of Chevron’s license, allowing the company to negotiate with PDVSA but not make deals. Apparently, Chevron has since asked the US Treasury to relax the conditions of its Venezuelan license to allow the super-major to take control of the four joint ventures it shares with PDVSA. Chevron’s operations in Venezuela have intertwined with Washington’s quest to oust Maduro whose 2018 re-election was not recognized by the White House. For various reasons, recalibrating the sanctions against Venezuela is the only logical outcome.
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The maximum pressure policy implementation by the Trump White House, including recognizing Juan Guaido as Venezuela’s legitimate interim president, has failed. Maduro’s position looks stronger than ever. Venezuela’s economic collapse appears to have bottomed out, with 2021 GDP growing at least 0.5% according to the IMF and expected to grow 6% in 2022. This is the first year that Venezuela has seen economic growth since 2013, when GDP grew by 1.3%. Maduro and his allies effectively sidelined Guaido, who lost his parliamentary seat in 2020, dragging down the European Union no longer recognize the leader of the opposition as the legitimate interim president of Venezuela. The OPEC member’s fractured opposition has said it will no longer support his US-backed caretaker government. These developments make it incredibly difficult for the White House to get the concessions from Maduro it needs to ease the sanctions.
Recent White House diplomatic missions to Caracas, the most notable of which was in March 2022, aroused great indignation reviews in the United States as well as in Latin America. american senators, according to Reuters, last month expressed skepticism about the easing of sanctions. This happened despite Biden claiming the March 2022 mission was a attempted release of illegal detainees American citizens, two of whom were released. Lawmakers in the United States and Latin America viewed the first delegation as a cynical attempt to gain access to Venezuela’s vast oil reserves. Indeed, it came at a time when soaring energy prices in Western Europe and the United States, following Moscow’s invasion of Ukraine, threatened to derail the post-war global economic recovery. pandemic. In reality, Gasoline prices in the United States jumped from an average of $3.41 a gallon in early 2022 to an all-time high of over $5.03 in June 2022, putting considerable pressure on an increasingly embattled president over a crucial election year in Congress.
Apart from these visits which sparked significant opposition to Washington’s easing of sanctions, there were also considerable fallouts for Guaido. The initial diplomatic delegation took place without his knowledge or consent, thus damaging any remaining credibility held by the US-backed interim president, seeing important elements within the Venezuelan opposition walk away more of Guaido and his Washington-backed shadow government. These events all present significant hurdles to the White House if it wants to ease sanctions on Venezuela. It’s before Maduro’s considerable resistance making concessions to the United States is warranted, as the autocratic Venezuelan leader already refuses to allow oil exports to Europe, which could only be used to pay off PDVSA’s outstanding debt.
By Matthew Smith for Oilprice.com
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