Venezuelan President Hugo Chavez, who oversees the largest oil reserves globally, is growing more dependent than ever on fuel imports from his political nemesis, the US
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South America’s largest crude producer, which has more reserves than Saudi Arabia, bought about 40 000 barrels a day of products including petrol, fuel additives and liquefied petroleum gas from the US in the first four months of the year, up from a record 32 000 barrels a day in 2011, according to data from the US Energy Information Administration (EIA).
While Chavez vilified former president George W Bush as the “devil”, seized Exxon Mobil assets and courted Iran’s leaders, he has become increasingly reliant on refined products from the US, which in April bought 36 percent of Venezuela’s exported crude. At the same time, the US has developed technology to recover shale oil and last year it exported more petrol, diesel and other fuels than it imported for the first time since 1949, the Energy Department said in February.
“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. “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’s latest annual Statistical Review of World Energy. Saudi Arabia holds 265.4 billion barrels.
At the same time, output had stagnated since Chavez came to power in 1999 and Petroleos de Venezuela (PDVSA), the state oil company, had boosted imports because its refineries could not meet local demand, O’Donnell said.
The nation pumped about 2.72 million barrels of oil a day last year, 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 Opec producer, according to estimates by Bloomberg.
Chavez’s reliance on PDVSA to finance government budgets and social spending has delayed investments. The company reported sales of $123.9 billion (R1 trillion) last year and accounted 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 US companies in 2007 after they refused to form joint ventures with the government. Exxon Mobil originally sought to freeze $12bn of PDVSA assets for the nationalised Cerro Negro heavy crude project. ConocoPhillips was seeking as much as $30bn for its assets, Oil Minister Rafael Ramirez said last month.
“Chavez’s policies have really prevented the country from becoming a major global player,” said Gianna Bern, the president of Brookshire Advisory & Research in Chicago. “The refining infrastructure has been neglected for many years, which is why they’re importing products from the US.”
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 had 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 US.
“They used to be product exporters when they were running refineries at full rates,” John Auers, a senior vice-president at energy consultancy Turner Mason, said. “They’re no longer capable of exporting a lot of product.”
The ousting of skilled workers from PDVSA and foreign companies has slowed oil production and refinery output. “They lost both downstream and upstream people and there’s no investment there.”
Minister Ramirez was not available to comment, a PDVSA press official, who refused to be identified citing company policy, said. E-mails sent to the Information Ministry were not returned.
Chavez, who commonly refers to the US as “The Empire”, has pledged to reduce dependence on the US market and double crude oil exports to Asia if re-elected in October to extend his 13-year rule to 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, have fuelled speculation his health will prevent him from being able to contest the election.
With less than 100 days until the October 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 US had declined to 835 000 barrels a day in April from a high of 1.61 million in October 1997, according to the EIA, the country might remain Venezuela’s biggest buyer for years because of refineries built along the Gulf of Mexico coast to process heavier crude from the Orinoco oil belt, Auers said.
“Chavez talks a big game about wanting to get away from the US, but it’s the most logical place” to refine its oil, he said. “A lot of it still comes here.”
LyondellBasell Industries bought about half the crude it needed for its Houston refinery from the South American country, said spokesman to David Harpole.
Phillips Petroleum 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’s proposed Keystone XL pipeline project would ship Canadian oil to the Gulf of Mexico, although imports from Venezuela would still be needed, according to Bill Day, a spokesman for Valero Energy in San Antonio.
“The market system doesn’t often follow the political rhetoric,” said Roger Tissot, the managing director of Tissot Associates and a Latin America energy analyst. “Refineries in North America are becoming much more competitive and are expanding their export potential to Latin America.”
Venezuela has the cheapest and most subsidised petrol prices globally, with a gallon costing the equivalent of 9 US cents, or about 20c a litre. It paid about $200 a barrel for petrol it imported at current market prices and sold it domestically for about $5, said a former PDVSA official who asked not to be identified because he was not authorised to speak publicly about the issue.
Petrol futures for August rose 0.76c to $2.7236 a gallon on Monday on the New York Mercantile Exchange. Venezuela’s export basket price for crude oil rose to $92.87 a barrel for the week to July 6 from $86.17 a week earlier, the oil ministry said.
While Ramirez said last month that domestic demand in Venezuela was 600 000 barrels a day, demand might be as high as 850 000 barrels a day including fuel smuggled to 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 wanted 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 US seems to have plateaued in import demand, and meanwhile it’s sitting on its own shale oil,” O’Donnell said. – Bloomberg