Venezuela looks to the Hugo Chavez oil belt to fix econ­omy

The China Post - - BUSINESS - BY JOSHUA GOOD­MAN

You can’t miss it, ris­ing off the main high­way, a moun­tain of toxic soot tow­er­ing over the flat, sun­baked scrub­land of eastern Venezuela.

The buildup of petroleum byprod­uct known as coke isn’t just an en­vi­ron­men­tal haz­ard pol­lut­ing the air of neigh­bor­ing com­mu­ni­ties. It’s a po­tent sym­bol of the waste and un­ful­filled prom­ise of an oil in­dus­try more vi­tal than ever to Venezuela’s eco­nomic health.

For years, state-run oil mo­nop­oly PDVSA ex­ported coke to great profit. But a 2009 fire knocked out a con­veyer belt used to trans­port it to wait­ing ships. Ex­ports have all but stalled ever since, and the residue has been pil­ing up, rep­re­sent­ing mil­lions of U.S dol­lars a day in lost rev­enue at a time of a deep eco­nomic cri­sis marked by wide­spread short­ages and gal­lop­ing 68 per­cent in­fla­tion.

It wasn’t sup­posed this.

The black dunes sit at the gate­way to what was long known as the Orinoco Belt and which last year was re­named the Hugo Chavez Oil Belt, in honor of the late pres­i­dent. The Costa Ri­ca­s­ized area is home to the world’s largest oil re­serves and about half of Venezuela’s cur­rent pro­duc­tion. Chavez trav­eled to this re­gion, which was set­tled by Amer­i­can oil com­pa­nies in the 1930s, when he de­cided to end for­eign own­er­ship of the coun­try’s oil wealth

“There can be no so­cial­ism if our coun­try doesn’t have con­trol of its re­sources,” Chavez de­clared on May Day 2007, an­nounc­ing he would rip up con­tracts with for­eign oil com­pa­nies worth bil­lions of dol­lars.

But eco­nomic mis­man­age­ment, com­pounded by the re­cent plunge in prices, has cre­ated se­ri­ous prob­lems for the oil busi­ness, an­a­lysts say.

to be

‘The in­dus­try’s decline is

ev­i­dent’

like

Fol­low­ing a 2002-2003 strike, Chavez drove out thou­sands of work­ers at PDVSA and bloated its pay­rolls with gov­ern­ment sup­port­ers who lacked train­ing and ex­pe­ri­ence. As he drained a wind­fall from record oil prices to spend on so­cial projects, the com­pany fell be­hind on its bills and in­vest­ment slowed. The re­sult, an­a­lysts say, has been a steady decline in pro­duc­tion from 3.3 mil­lion bar­rels a day in 1998, the year be­fore Chavez took of­fice, to the cur­rent es­ti­mated 2.4 mil­lion bar­rels.

The in­dus­try’s decline is ev­i­dent through­out the oil belt, from the stalled con­struc­tion of six up­graders needed to trans­port the re­gion’s tar-like crude, to the mostly empty lots where Chavez signed deals to drill with anti-Amer­i­can al­lies such as Be­larus, Cuba and Iran.

Work­ers tak­ing a late-af­ter­noon wa­ter break along a dirt road said that six months ago their em­ployer, PDVSA con­trac­tor Tucker En­ergy Ser­vices, was ask­ing them to ready as many as six new wells a week. Now it’s down to half that and they fear it could drop even more.

“We’re the check­book of Venezuela, so if we go un­der so will the coun­try,” said tech­ni­cian Ar­ge­nis San­tos.

Pres­i­dent Ni­co­las Maduro, whose ap­proval rat­ing has plunged to around 25 per­cent, has no choice but to lean on PDVSA to help Venezuela back on its feet and has been qui­etly try­ing to lure back some of the jilted for­eign drillers.

Even in its hob­bled state, oil re­mains the econ­omy’s lifeblood, ac­count­ing for 96 per­cent of ex­ports. And un­like hy­draulic frac­tur­ing in the U.S. or the devel­op­ment of deep-wa­ter oil fields in Brazil, both threat­ened by an al­most-50 per­cent tum­ble in oil prices since Septem­ber, the sheer vol­ume of eas­ily ex­tractable crude in Venezuela should make pro­duc­tion prof­itable at al­most any price, al­beit less so at cur­rent lev­els.

While out­put in the belt has ex­panded grad­u­ally, it has de­clined in older oil fields else­where and econ­o­mists say projects here are mov­ing too slowly to pro­vide re­lief from the cri­sis or come close to meet­ing Chavez’s goal of pro­duc­ing 6 mil­lion bar­rels a day by 2019. Some of the state-owned com­pa­nies Chavez brought in to re­place the pri­vate drillers, such as PetroVi­etnam and Malaysia’s Petronas, have ei­ther halted pro­duc­tion or pulled out be­cause of eco­nomic tur­bu­lence in Venezuela and dis­agree­ments with Maduro’s cash-strapped gov­ern­ment.

Mean­while, U.S. petroleum ex­ports to Venezuela, much of it fuel ad­di­tives to di­lute the coun­try’s heavy crude, have grown twelve­fold in the past decade as do­mes­tic re­finer­ies go un­main­tained.

PDVSA did not make any of­fi­cial avail­able de­spite re­peated re­quests by The As­so­ci­ated Press for an in­ter­view.

Trav­el­ing around the long- ne­glected re­gion it’s easy to see why Chavez’s de­ci­sion to give Big Oil the boot re­mains popular.

‘money has no home­land’

In the town of San Tome, the tree-lined worker camps built by An­drew Mel­lon’s Gulf Oil at­test to the dis­crim­i­na­tory living con­di­tions that pre­vailed for decades. The Amer­i­cans en­joyed a coun­try club set­ting in what’s still known as North Camp; their Venezue­lan co-work­ers lived in the less spa­cious South Camp across the road.

Fran­cisco Ri­vas Lara, who started in Venezuela’s oil in­dus­try in the 1940s as a teenage of­fice as­sis­tant for Tex­aco, be­lieves na­tion­al­iza­tion was the cor­rect path af­ter decades of dom­i­na­tion by for­eign multi­na­tion­als. But he says cor­rup­tion and the pref­er­ence for pol­i­tics over de­vel­op­ing skilled pro­fes­sion­als are to blame for the in­dus­try’s cur­rent malaise.

“Pri­vate com­pa­nies don’t have a coun­try or a heart, and money has no home­land,” said Ri­vas Lara, who now heads the oil en­gi­neer­ing pro­gram at Venezuela’s Na­tional Ex­per­i­men­tal Uni­ver­sity of the Armed Forces. “The prob­lem is peo­ple con­fused so­cial­ism with lazi­ness, vil­lainy and theft.”

Amid the mount­ing eco­nomic pres­sures, Maduro has loos­ened some of the coun­try’s rigid con­trols on for­eign in­vest­ment. In ex­change for loans, com­pa­nies get greater con­trol over projects and ac­cess to Venezuela’s most fa­vor­able ex­change rate. So far, Spain’s Rep­sol and Chevron have taken up the of­fer.

In­vestors were also heart­ened by last year’s re­place­ment of long­time oil czar Rafael Ramirez with the lower-pro­file Eu­lo­gio Del Pino, a Stan­ford Uni­ver­sity- ed­u­cated tech­no­crat who is seen as a less po­lit­i­cal PDVSA pres­i­dent.

But an­a­lysts said most com­pa­nies are in­vest­ing the min­i­mum while wait­ing for the busi­ness en­vi­ron­ment to im­prove. Mean­while, the cash crunch has grown so se­vere that Maduro has floated the idea of sell­ing PDVSA’s Amer­i­can sub­sidiary, Citgo. He’s also vowed to raise the world’s cheap­est gaso­line prices that many Venezue­lans con­sider a birthright.

Such steps, if taken, seem un­likely to ease the eco­nomic cri­sis, how­ever.

“It will be a mir­a­cle if they main­tain pro­duc­tion at cur­rent lev­els,” said Richard Obuchi, an econ­o­mist and en­ergy spe­cial­ist in Cara­cas. “The in­dus­try needs a ma­jor boost of in­vest­ment but that’s im­pos­si­ble given the eco­nomic un­cer­tainty.”

AP

(Top) In this Feb. 18 photo, flames burn at an oil com­plex near El Ti­gre, a town lo­cated within Venezuela’s Hugo Chavez oil belt, for­mally known as the Orinoco Belt. (Above) In this Feb. 18 photo, stor­age tanks stand in a PDVSA state-run oil com­pany crude oil com­plex near El Ti­gre, a town lo­cated within Venezuela’s Hugo Chavez oil belt.

AP

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