I was cited a number of times yesterday in a Bloomberg News article by Nathan Crooks in Caracas and Paul Burkhardt in NYC. I reprint it below because the authors’ research further illustrates an issue I’ve often stressed here.
That is: in spite of President Chavez’ rhetoric promising to stand by Presidents Ahmadinejad of Iran (and Assad of Syria, and previously Qaddafi of Libya), he is actually in no position to withstand the U.S. sanctions that could be imposed on Venezuela for aiding Iran.
Why not? Because under Chavez’ administration, Venezuela has actually become more dependent on oil exports to the U.S., on bond sales to Wall Street and on U.S. and other foreign oil majors’ expertise, technology and investments than previously. Without rebuilding PDVSA’s lost managerial and technical ability, any talk of “petroleum sovereignty” much less defiance of U.S. policy on Iran rings hollow.
Just one more comment before we get to Crooks and Burkhardt’s interesting piece: Why has Chavismo not rebuilt a competent national oil company? Note that a competent PDVSA is not necessarily a pliant PDVSA. Successful technocratic managers begin getting their own ideas about national economic development and how to best spend money in the national interest. This clash between the state (i.e., the oil ministry, presidency, assembly, etc.) v. the national oil company’s management has never been a simple issue in any OPEC state, nor in Mexico, Brazil, etc. Either side might leave the public and their democratic right-to-be-informed and to-decide behind. (This is what I was getting at with my quote at the end of the article, below.) More of this issue another time. Here is yesterday’s article in Bloomberg News:
Chavez Buys Enemy U.S.’s Fuel While Lauding Iran: Energy Markets — 2012-07-09 19:06:23.766 GMT
By Nathan Crooks and Paul Burkhardt
July 9 (Bloomberg) — Venezuelan President Hugo Chavez, who oversees the world’s largest oil reserves, is growing more dependent than ever on fuel imports from his political nemesis,the U.S.
South America’s largest crude producer, which has more reserves than Saudi Arabia, bought about 40,000 barrels a day of products including gasoline, fuel additives and liquefied petroleum gas from the U.S. in the first four months of the year, up from a record 32,000 barrels a day in 2011, according to data from the U.S. Energy Information Administration.
While Chavez vilified former President George W. Bush as the “devil,” seized Exxon Mobil Corp. assets and courted Iran’s leaders, he’s become increasingly reliant on refined products from the U.S., which in April bought 36 percent of the nation’s exported crude. At the same time, the U.S. has developed technology to recover shale oil and exported more gasoline, diesel and other fuels than it imported in 2011 for the first time since 1949, the Energy Department said in
“The irony is that you have the world’s largest reserves, and you’re not taking advantage of it,” Thomas O’Donnell, a petroleum analyst affiliated with New School University in New York, said by telephone from Berlin July 4. “For the next 20 or 30 years, it’s going to be a significant hit for Venezuela.”
Venezuela has the largest proven oil reserves in the world with 296.5 billion barrels, according to BP Plc’s annual Statistical Review of World Energy. Saudi Arabia held 265.4 billion barrels.
At the same time, output has stagnated since Chavez came to power in 1999 and Petroleos de Venezuela SA, the state oil company, boosted imports because its refineries can’t meet local demand, O’Donnell said.
The nation pumped about 2.72 million barrels of oil a day in 2011, according to the BP report, down 22 percent from 3.48 million barrels a day in 1998 when Chavez was first elected. In May, Venezuela was the sixth largest producer in the Organization of Petroleum Exporting Countries, according to
estimates by Bloomberg.
Chavez’s reliance on PDVSA, as the Caracas-based state enterprise is known, to finance government budgets and social spending has delayed investments. The company reported sales of $123.9 billion last year and accounts for 95 percent of Venezuela’s export revenue.
PDVSA dismissed thousands of workers after an oil strike in 2003 and Chavez expropriated oil assets from U.S. companies in 2007 after they refused to form joint ventures with the government. Exxon Mobil originally sought to freeze $12 billion of PDVSA assets for the nationalized Cerro Negro heavy-crude project. ConocoPhillips is seeking as much as $30 billion for its assets, Oil Minister Rafael Ramirez said on June 28.
“Chavez’s policies have really prevented the country from becoming a major global player,” Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago, said in a July 5 telephone interview. “The refining infrastructure has been neglected for many years, which is why they’re importing products from the U.S.”
The state company said in a 2011 presentation that its refineries in Venezuela processed 991,000 barrels a day of crude during the year. PDVSA said it has installed refining capacity of 1.3 million barrels a day in Venezuela, 401,000 barrels a day in the Caribbean and about 1 million barrels a day in the U.S.
“They used to be product exporters when they were running refineries at full rates,” John Auers, senior vice president at the Dallas-based energy consultant Turner Mason & Co., said in a telephone interview. “They’re no longer capable of exporting a lot of product.”
The ouster of skilled workers from PDVSA and foreign companies has slowed oil production and refinery output, Auers said July 5. “They lost both downstream and upstream people and there’s no investment there.”
Minister Ramirez wasn’t available to comment for this story, a PDVSA press official, who refused to be identified citing company policy, said on July 5. E-mails sent to the Information Ministry seeking comment weren’t returned.
Chavez, who commonly refers to the U.S. as “The Empire,” has pledged to reduce dependence on the American market and double crude oil exports to Asia if re-elected in October to extend his 13-year rule through 2019.
The Venezuelan leader’s lengthy absences from public view this year, as he received radiation treatment in Cuba for an undisclosed type of cancer, fueled speculation his health will prevent him from being able to contest the election. With less than 100 days until the Oct. 7 vote, Chavez had 45.9 percent support against 45.8 percent for opposition candidate Henrique Capriles, in a Consultores 21 poll of 1,000 people taken between June 15 and June 26. The survey had a margin of error of 3.2 percentage points.
While Venezuelan crude exports to the U.S. have declined to 835,000 barrels a day in April from a high of 1.61 million in October 1997, according to the Washington-based EIA, the country may remain Venezuela’s biggest buyer for years because of refineries built by the Gulf of Mexico coast to process heavier crude from the Orinoco oil belt, said Auers.
“Chavez talks a big game about wanting to get away from the U.S., but it’s the most logical place” to refine its oil, he said. “A lot of it still comes here.”
LyondellBasell Industries NV buys about half the crude it needs for its Houston refinery from the South American country, according to David Harpole, a company spokesman.
Phillips Petroleum Co. and Venezuela’s state oil company agreed in 1998 to build a coker, used to process heavy refining streams into more valuable products such as naphtha and heating oil and supply the plant.
TransCanada Corp.’s proposed Keystone XL pipeline project would ship Canadian oil to the Gulf of Mexico, though imports from Venezuela will still be needed, according to Bill Day, a spokesman for Valero Energy Corp. in San Antonio. “The market system doesn’t often follow the political rhetoric,” Roger Tissot, managing director of Tissot Associates and a Latin America energy analyst, said by telephone July 4. “Refineries in North America are becoming much more competitive and are expanding their export potential to Latin America.”
Venezuela has the cheapest and most subsidized gasoline prices in the world, with a gallon costing the equivalent of 9 U.S. cents. It pays about $200 a barrel for gasoline it imports at current market prices and sells it domestically for about $5, said a former PDVSA official who asked not to be identified because he isn’t authorized to speak publicly about the issue.
Gasoline futures for August rose 4.34 cents to settle at $2.7594 a gallon today on the New York Mercantile Exchange. Venezuela’s export basket price for crude oil rose to $92.87 a barrel for the week ended July 6 from $86.17 a week earlier, the oil ministry said on its website.
While Ramirez said June 28 that domestic demand in Venezuela was 600,000 barrels a day, demand may be as high as 850,000 barrels a day including fuel smuggled into Colombia, said the former PDVSA official.
The country would need to follow through with plans to build a pipeline through Colombia to gain access to the Pacific if it wants to be able to better tap Asian markets and significantly increase exports to China, said O’Donnell.
“All of the new oil in Latin America is on the east coast, and the U.S. seems to have plateaued in import demand, and meanwhile it’s sitting on its own shale oil,” said O’Donnell.
Chavez, who in 2006 called Bush the “devil” during a speech to the United Nations General Assembly, has cultivated relationships with countries including Iran, Russia and Belarus.
Iranian President Mahmoud Ahmadinejad visited Venezuela in June during his sixth trip to the region. Chavez, who has been to the Islamic Republic nine times, has said he’ll stand by Ahmadinejad “under any circumstances” and that pursuing ties with Iran is a “holy matter” for Venezuela.
The two countries have signed more than 100 bilateral agreements that encompass everything from low-income housing projects to bicycle factories, which Chavez jokingly referred to as “atomic” two-wheelers. Venezuela is making unmanned aerial vehicles, or drones, with the help of Iran, Chavez said June 13 on national television.
The U.S. imposed economic sanctions on PDVSA last year for working with Iran’s energy industry. According to the U.S. State Department, it sent two cargoes of gasoline additive worth $50 million to Iran from December 2010 to March 2011.
Chavez said in June that Venezuela would produce 25,000 AK-103 assault rifles a year in addition to ammunition, grenades and bulletproof vests with help from Russia, which will loan the South American country $4 billion to purchase Russian military equipment.
Diesel to Syria
Venezuela has sent three shipments of diesel to Syria since late last year as Europe extended sanctions on the nation for using military force to quell civilian dissent against President Bashar al-Assad’s government, Ramirez told reporters in June.
Chavez started a program in 2005 led by Citgo Petroleum, the U.S. refining unit of PDVSA, to provide low-income households in the U.S. with heating oil after meeting with civil rights leader Jesse Jackson. Citgo has invested over $400
million in the program and in 2010 donated $60 million of heating oil, the company said in a Dec. 13 statement.
About 27 percent of Venezuelans live below the country’s poverty line, according to Venezuela’s National Statistics Institute.
Chavez has pushed the state oil company to channel $53 billion into social development programs that include importing food, building houses and financing health care clinics from 2006 to 2010, compared with $1 billion for exploration activities, according to financial statements from PDVSA.
“In all OPEC countries, there’s a real tension between the national oil company and the government,” said O’Donnell. “They always come in contradiction to the government, which wants to extract money.”
–Editors: James Attwood, Philip Revzin.
The reporters on this story:
Nathan Crooks in Caracas
Paul Burkhardt in New York
The editors responsible for this story: