Venezuelan oil policy will survive Chavez
THERE is no doubt that the untimely passing away of Hugo Chavez will have its repercussions on Venezuela and its people and it remains to be seen in which direction changes are likely to go after the upcoming election in one month's time.
It is rather sad that the reaction in some of the American press is almost joyful and without any consideration for the feelings of the Venezuelan people, including those in opposition to the passing President. Their consideration is strictly about oil and whether any windfall to Western oil companies will be forthcoming. Shamelessly, Forbes Magazine, as reported in Christian Science Monitor of 7 March, said "the oil industry has been waiting patiently for Chavez to die with the hope that whoever came next would be more interested in building value rather than destroying it." Of course, building value here means turning the industry to US oil companies at their own terms.
Most of the criticism of Chavez centred on the decline of Venezuela oil production during his reign. But this is not true. Until the end of 2011, production was stable at almost the same level of 2.9 million barrels a day (mbd) when Chavez was elected for the first time in 1999. It even survived the economic crises of 2008 and only in the last few months that production has declined due to the delay in some projects. However, there are 14 active upstream projects in Venezuela that are likely to add 2.2 mbd of oil production capacity to stabilise production from declining fields and increase the country's production further. PdVSA, the national oil company is to invest with its partners $140 billion to 2015 to raise production, especially in the difficult fields of the Orinoco Belt.
In the last 100 years, Venezuela produced over 65 billion barrels in the service of the world economy and the easy oil to produce is getting less and less and PdVSA must be given time to initiate and enhance production from the difficult areas. At the same time Venezuela should be judged by its other achievements in the energy sector. Venezuela uses all its gas production which increased from 24.7 to 28.1 million tons of oil equivalent (mtoe) between 1999 and 2011 making 28 per cent of total energy consumption. In the same time hydroelectricity use increased from 10 to 18.9mtoe thereby reducing oil use, which neverthe- less increased from 0.6 to 0.8mbd in the same period. It is recognised that Venezuela oil consumption is high because domestic prices of petroleum products are so low that even Chavez threatened to review the high subsidies, which are blamed for energy waste and this is a point that should be looked at by his successor.
In the 1990s, PdVSA went out of its way controversially to award contracts to oil companies in what is called "the opening", which actually raised oil production but reduced the role of PdVSA. But Chavez wanted to restore the role of the national company especially after the huge increase in oil prices and the unprecedented profits the foreign companies were making. This was accomplished in 2007 where Venezuela retained a share of 60 per cent in each agreement. Infuriated, ExxonMobil and Conoco left Venezuela and accepted compensation later on but many foreign oil companies are still there such as BP, Repsol, Statoil, ENI, a Russian consortium, CNPC and even Chevron of the US. Any future administration is likely to keep this arrangement overall. But nothing is written in stone and some revision to suit changing circumstances is possible to keep the momentum going.
However, Fortune magazine is saying "whoever takes over the reins of the nation will need to dismantle the policies, structures, and rhetoric that have made investing in Venezuela a fool's errand" and this is unlikely to happen.