Can Obama halt oil imports from Venezuela, ME?

The White House web page has President Barack Obama’s proposed energy policy for the coming decade, nicely broken down into bullet points.

One of the bullet points says: “Eliminate Our Current Imports from the Middle East and Venezuela within 10 Years.”

Total US oil imports in November 2008 were 12,853,000 b/d, of which 5,799,000 b/d were imported from all Opec countries, 2,283,000 b/d from Persian Gulf producers (which include Opec countries and Iraq), and 1,236,000 b/d from Venezuela. Go here for complete US oil import data from all countries.

Let’s assume President Obama means the Persian Gulf producers when he says “Middle East” – and Venezuela. This is 2,283 + 1,236 = 3,519,000 b/d or 27.38% of total US oil imports as of November 2008.

On an annualized basis, the Obama administration plans to reduce oil imports from the Middle East and Venezuela by 351,900 b/d each year between 2009 and 2018. But this is only a policy target listed on paper (or website). But in practice, US oil imports from ME/Venezuela probably will decline more slowly or perhaps even increase between 2009 and 2018.

However, some Venezuelan energy analysts excited by the White House’s energy policy bullet point on ME/Venezuelan oil already are raising the rhetorical question of whether the Chavez government is prepared for the day the US halts all oil imports from Venezuela.

But this question misses the point.

Venezuela’s oil exports to the US already have declined substantially during the decade President Hugo Chavez has been in power.

US crude oil imports from Venezuela in November 2008 were only 1,236,000 b/d, down 560,000 b/d (31.1%) from their peak of 1,796,000 b/d in January 2001.

However, the decline in Venezuelan crude exports to the US has not been offset by increasing exports to new “strategic” markets like China.

In 2008 China imported about 168,000 b/d of oil from Venezuela, when it was supposed to have received 400,000 b/d, according to the Energy Ministry’s official target for last year.

And the PetroCaribe countries aren’t getting the Venezuelan oil supplies which have stopped going to the US over the past decade. Since Chavez launched PetroCaribe, Pdvsa has only supplied the recipient countries with about half of its agreed supply commitments in any year.

An obvious conclusion is that Pdvsa’s real production is much lower than the official numbers published by the Energy Ministry, a problem for which President chavez justifiedly deserves all the credit.

If the US stops importing oil from Venezuela and buying it from other producers, it will happen as a result of Pdvsa’s declining production capacity.

The decision by US oil companies to buy less Venezuelan oil and buy more oil from other countries will be commercial – though the Obama administration may try to claim the political credit.

The question is what, if anything, can be done to reverse the worsening collapse of Pdvsa’s crude production capacity?

The first priority would have to be a regime change in Venezuela.

While Chavez remains in power, Pdvsa and everything else touched by the Bolivarian revolution will shrivel and die.

The second requirement would be a change in policies covering private investment, taxation, project equity structures, etc. Of course, this would require reforms to the Bolivarian constitution and the Hydrocarbons Law.

A complete management restructuring at Pdvsa also would be required, and urgently. However, this would be difficult to achieve for two reasons:

*Internal political resistance to change among most of the more than 95,000 people now employed by Pdvsa, plus

*The difficulties associated with trying to persuade thousands experienced oilmen who left the country and made new lives since 2002 to return to Venezuela, and to an uncertain future with Pdvsa.

However, none of these necessary changes will occur while Chavez continues in power.

As a result, Pdvsa’s production decline likely will continue – because its grandiose plans to develop the Orinoco oil belt and offshore gas resources are mostly hot air.

Pdvsa by itself hasn’t commissioned any new crude oil production capacity whatsoever in nearly a decade.

President Chavez and his sidekick, Energy Minister Rafael Ramirez, are always announcing big investment plans, ambitious projects, new strategic alliances, etc.

But nothing has happened since Pdvsa officially unveiled its Siembra Petrolera plan in 2005 – absolutely nothing.

Meanwhile, since the year began Chavez, Ramirez and Pdvsa are engaged in double speak.

Publicly, they insist Pdvsa plans to move forward with plans to invite bids on some $50 billion of planned Orinoco production and upgrading projects which seek to:

*Raise extra-heavy crude capacity from 600,000 b/d today to over 1.8 million b/d by 2014, and

*Raise extra-heavy crude upgrading capacity from under 600,000 b/d today to between 1.2 million b/d and 1.4 million b/d by 2014.

Pdvsa would take a 70% stake in the joint ventures it expects to create with some of the 19 foreign companies which have shown enough interest in the bidding process to buy information packages last December.

However, while Pdvsa may go through the motions of conducting a bidding and partner selection process, it doesn’t have the cash to undertake any Orinoco expansion investments, and its chances of borrowing the capital it needs currently are very poor.

About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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