Venezuela, with world's largest reserves, imports oil

Venezuela, with world's largest reserves, imports oil

 

By Peter Wilson in USA Today

 

For the first time in its 100-year history of oil production, Venezuela is importing crude — a new embarrassment for the country with the world's largest oil reserves.

The nation's late president Hugo Chávez often boasted the South American country regained control of its oil industry after he seized joint ventures controlled by such companies as ExxonMobil and Conoco. But 19 months after Chávez's death, the country can't pump enough commercially viable oil out of the ground to meet domestic needs — a result of the former leader's policies.

The dilemma — which comes as prices at U.S. pumps fall below $3 per gallon — is the latest facing the government, which has been forced to explain away shortages of basic goods such as toilet paper, food and medicine in the past year.

"The government has destroyed the rest of the economy, so why not the oil industry as well?" says Orlando Rivero, 50, a salesman in Caracas. "How much longer do we have to hear that the government's economic policies are a success when all we see is one industry after another being affected?"

While Venezuela has more than 256 billion barrels of extra-heavy crude, the downside is that grade contains a lot of minerals and sulfur, along with the viscosity of molasses. To make it transportable and ready for traditional refining, the extra-heavy crude needs to have the minerals taken out in so-called upgraders, or have it diluted with lighter blends of oil.

The latter tactic is what state oil company Petroleos de Venezuela SA (PDVSA) is using since it doesn't have the money to build upgraders, which perform a preliminary refining process, and its partners have been unwilling to pony up cash because of the risk of doing business in the country.

The country does have billions of barrels of medium and light crude sitting in the ground, but production of that has fallen because of a lack of investment and planning.

"PDVSA used to be an oil company before Chávez took office," says Jose Toro Hardy, a former director of PDVSA and a member of the country's opposition. "With Chávez it became an arm of the revolution, and used to keep Chávez and his supporters in power. Having to import oil is a tremendous failure for PDVSA, for Venezuela."

Used as the government's cash cow, PDVSA was forced to fund many of the country's graft-ridden social programs as well as cover the political campaign expenses for Chávez's successor, Nicolas Maduro. That meant the company had to cut back investments in its key oil and natural gas businesses.

Last year, with its total revenue of $116 billion, the company paid more than $33 billion to support the government's social programs as well as an investment fund — that's $10 billion more than it invested in its operations. Many suspect PDVSA's real contributions are much higher because of off-the-books dealings, Toro Hardy says.

Government officials have tried to downplay the significance of Venezuela's decision to import crude from Algeria and Russia. The company in a statement warned Venezuelans not to believe criticism by the opposition, repeating a constant government theme that setbacks are the result of an "economic war" being waged against the country, a campaign it says is aimed at toppling the regime.

Oil oversupply is not significant: Economist
Philippe Dauba-Pantanacce, senior economist for Turkey, Middle East and North Africa at Standard Chartered Bank is bullish on oil prices and claims data shows there is no real oversupply.

Meanwhile, PDVSA heavily subsidizes oil, costing the company billions each year for gas that costs consumers just cents per gallon. At the same time, the drop in the price of oil worldwide is also beginning to affect the nation, as each $1 drop in oil price costs the country more than $700 million in lost revenue.

Maduro, whose popularity has plummeted to a less than 40% approval rating in the face of soaring inflation and widespread shortages, hasn't commented publicly on the imports. Calls to PDVSA seeking comment weren't returned.

Toro Hardy and others have repeatedly charged that 15 years of Chavismo gutted PDVSA, Venezuela's golden goose. Oil accounts for 95% of the country's exports, and oil taxes make up more than 40% of government revenue.

Current oil production at an estimated 2.7 million barrels per day is 13% lower than when Chávez took office in 1999. The country's refineries have suffered repeated accidents and shutdowns, including a fire and explosion at the Amuay plant that killed 42 people two years ago. Sporadic shortages of gasoline, motor oil and lubricants are common.

Venezuela has cratered oil exports to the U.S. as well, dropping from 1.5 million barrels a day to less than 800,000 barrels a day as a result of a deal where Venezuela borrowed money from China that was repayable only in oil.

Still, in a country where the appearance of milk, hand soap or shampoo creates long lines of shoppers, many Venezuelans have other things on their mind than PDVSA.

"When there's no gasoline, I'll be worried," Rivero says. "Right now, I have find to sugar."