Venezue­lan oil pol­icy will sur­vive Chavez

The Pak Banker - - OPINION - Saadal­lah Al Fathi

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.

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