Through Erik Schatzker, Alex Vasquez and Patricia Laya at 06/21/2021
Venezuelan Oil Minister Tareck El Aissami
(Bloomberg) – In Venezuela, queuing at a gas station – sometimes for days – has become so routine it’s hard to imagine life without.
But go see Tareck El Aissami, the Minister of Oil, and you will find that something magical is about to happen. In weeks, he said in a rare interview, the gas lines will be gone. By the end of the year, crude oil production will quadruple from an all-time low. And for the foreseeable future, foreign investment will flow in and Venezuela, the proud founder of OPEC, will once again rank among the world’s four biggest producers.
Over breakfast and over three hours of conversation in his office in downtown Caracas, El Aissami sketched out a vision so optimistic it strains credulity.
Venezuela is, after all, subject to some of the toughest economic sanctions ever imposed. It does not have access to capital or commodity markets and is effectively excluded from global supply chains. The United States does not recognize the leader of Venezuela, Nicolas Maduro, as president.
In this context, El Aissami, one of Maduro’s chief lieutenants, is preparing a miraculous return. And in his story, it is well advanced, supported by a new law on hydrocarbons in preparation and beyond the reach of American interference.
“They blocked us, they sanctioned us, they stole all of our foreign assets,” said El Aissami, wearing a summery blue suit and pink shirt, a box of Cohiba Siglo I Cuban cigars near his office. “Without any funding, with our own money, we were able to invest enough to stop the slide and start a gradual recovery.”
El Aissami, personally sanctioned by the US Treasury for drug trafficking allegations, is convinced that everything will be forgotten because there is so much money to be made to rebuild Venezuela’s oil industry. He expects American producers to rush. There are customers ready for the country’s heavy Orinoco Belt crude at refineries in Texas and Louisiana, he said.
If ever the US sanctions were lifted and Venezuela was allowed to sell oil again, that would be a godsend. Barely 1 million barrels per day are worth some $ 20 billion per year at current prices.
In the 1990s, Venezuela was a true oil powerhouse, pumping at its peak nearly 3.5 million barrels per day, just behind Saudi Arabia in the Organization of the Petroleum Exporting Countries, or OPEC.
Although production had already plummeted by the time Maduro took over from Hugo Chavez as president in 2013, it began to plummet when the United States imposed sanctions on state-owned company Petroleos de Venezuela SA, or PDVSA, in 2017. Production hit a low of around 310,000 barrels in August 2020, wiping out almost all of the country’s export earnings.
Now, El Aissami said, it is back to over 700,000 barrels, including stored oil, and will rise to 1.5 million by the end of the year. Maduro repeated the Target in a separate interview with Bloomberg Television.
Asked about this goal, Francisco Monaldi, an expert on the Venezuelan oil industry at Rice University, called it “impossible.”
“Production can go up to 600,000 barrels a day if all goes well and the penalties are not increased,” he said. âEven doing so would be unlikely in the medium term; production capacity has been declining since 2014 and no oil rig has been operated in Venezuela for a year.
It’s a similar story with the country’s four refineries. Just 18 months ago, they lay dormant after years of underinvestment and neglect. Venezuela has had to import all of its gasoline, diesel, jet fuel and propane, mostly from Russia and Iran.
Some of these decisions date back to the Chavez era, when Rafael Ramirez ran PDVSA. El Assaimi was exceptionally outspoken in his assessment.
âHuge mistake, bad management, bad practice, lack of vision,â he said. “They were bad decisions and we paid a heavy price for them.”
Today, says El Aissami, refineries are on track to produce 100% of the national fuel demand by the end of June, processing around 500,000 barrels of crude a day and soon after, the lines of the stations- service “will disappear”.
In the longer term, Venezuela has even more ambitious plans. A so-called anti-blocking law passed last year created new protections for investors, offering oil companies partnerships with the state.
According to El Aissami, 46, the government will spend $ 1.2 billion this year to revive the national oil industry. But it is far from sufficient. Venezuela needs capital for just about everything – drilling, recovery of marginal wells, surface treatment and maintenance – and Maduro has said he has no plans to privatize any assets. The level of production that could reach and how much it would cost is a matter of debate. El Aissami said 6 million barrels a day – almost double Venezuela’s peak production in the mid-2000s – is possible.
During the interview last week, Maduro said production could return to $ 5 million per day with around $ 30 billion in investment. Monaldi, director of Rice’s Latin American energy program in Houston, estimates that multiples of that amount would be needed.
Restoring confidence with the world’s oil majors will be a challenge. Chavez imposed price controls, increased royalties from foreign producers, and ultimately expropriated assets.
ConocoPhillips won $ 10 billion in arbitration claims, but Venezuela never paid and the company tried to take control of PDVSA’s assets outside the country. Exxon Mobil Corp. is also fighting for compensation.
Chevron Corp. is among the few who remained in Venezuela and had to repeatedly seek waivers from US Treasury sanctions just to maintain ownership and pay vendors.
In the meantime, it’s a struggle. Foreign experts who ran much of Venezuela’s oil industry are long gone, and sanctions have forced PDVSA to become more self-reliant.
El Aissami described how the company, once a privileged client of countless multinationals, built a network of more than 500 national suppliers with 100,000 employees. It now manufactures its own spare parts from local metal alloys.
âWe have learned to do something from scratch,â he said. âIt used to be that every time PDVSA equipment got damaged, you could pick up the phone and call Siemens, General Electric, any company, and they would deliver a new one within 24 hours. Now it’s just us, with our technology and our engineers. â