More oil has begun to come out of the bowels of the Venezuelan subsoil.
After crude oil production in that country suffered a historic setback in the last two years to levels typical of the middle of the 20th century, in recent months there has been a rebound that took it last November to about 900.000 barrels, almost double the 120.000 extracted in the same month of 2020.
In an interview broadcast on Venezuelan state television on January 1, President Nicolás Maduro boasted that the country had managed to produce one million barrels per day again.
“This year we reached one million, the goal next year is to reach two million”, he claimed.
In 1998, before Hugo Chávez came to power, Venezuela produced about 3.137.000 daily barrels of crude oil, according to figures from OPEC.
After an abrupt fall during the strike of oil workers in 2002-2003, the production returned in 2004 to three million barrels before starting a slow decline that would take it to 2.6 million in 2015.
From there, the slope accelerated until reaching levels of 1.137 . barrels per day in November 2020. Two months later, the United States government imposed sanctions against the Venezuelan oil industry, which ended up helping to sink the already depleted production.
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Although many experts question the figure announced by Maduro, they do recognize that in 2020 Venezuela managed to recover part of its oil production and they point to Iran as a key player in this process.
Why ?
Key Exchange
“What has been happening is that Venezuela is importing diluents from Iran -naphtha, condensates, light crude oil- that are being mixed with Venezuelan extra-heavy crude of the Orinoco Belt in order to increase production,” says José Toro Hardy, an oil economist who was a member of the board of directors of the to the Venezuelan state-owned company PDVSA.
Explains that the oil from from that region of Venezuela is very heavy and loaded with a lot of sulfur, so they need to mix it with these products to create a medium crude that is more commercial.
He points out that Venezuela in the past produced those diluents, but that no longer happens because there are many oil fields closed and the country’s refineries are working well below their capacity.
Toro Hardy indicates that Venezuela in exchange for these diluents, Venezuela gives Iran a part of the production of this medium crude .
“This is an exchange”, he points out.
“Iran, like Venezuela, is sanctioned by the United States and its oil production has fallen sharply. Probably that oil that is coming out, let’s say, regardless of the sanctions that both Venezuela and Iran have, is doing it in unrecognized tankers, which even turn off the devices so as not to be located by satellite. That is oil that Iran can market once they have it in their possession,” he adds.
Tehran has also been helping Venezuela with the shipment of gasoline to supply the internal market of the Latin American country, where the production of this derivative has decreased due to problems in the refineries.
Francisco Monaldi, director of the Latin American Energy Program at the Baker Institute of Rice University (Texas, USA), pointed out that the production of Venezuelan crude oil is returning to the levels it registered at the beginning of 2020, before the Russian oil company Rosneft withdrew from Venezuela as they collapsed prices due to the impact of the coronavirus pandemic.
“PDVSA was able, with the help of Iran, to create a sanctions evasion structure replacing Rosneft. In addition, Iran began to supply the thinners that the Russians previously brought. All of this requires high prices to pay intermediaries and cover transportation costs,” Monaldi said in a Twitter thread.
The expert added that the production slump in 2020 was not a consequence of a reduction of production capacity, but due to difficulties in selling crude oil at such low prices and avoiding sanctions.
A limited recovery
Many oil analysts, including Toro Hardy and Monaldi, agree to question the production figure of one million barrels announced by Maduro and foresee limitations in the growth of the same in the future.
“That seems unlikely because by August the Government itself said that we were in 600.04 barrels”, says Toro Hardy in reference to million barrels.
The expert assures that when Venezuela managed to increase oil production the most in its history it was in 1998, when she was immersed in the ambitious project oil opening -which aimed to increase production with associations with private capital-. That year, it increased by 20. barrels per day.
“The Government’s announcement would imply that in four months production increased by 25. daily barrels. And that seems unlikely”, he reiterates.
It also highlights that there are currently no active drilling rigs in Venezuela, which indicates that the country is not drilling new wells.
It does explain, however, that it is possible that PDVSA will be able to increase production by repairing wells already existing.
“There are a large number of oil wells closed in Venezuela because motors or other equipment have been stolen and that is why they are closed. By repairing them, an increase in production could be achieved in more or less economic terms, but even so, it would be difficult to reach the 400.000 announced barrels per day”, says Toro Hardy.
Monaldi, for his part, has warned that the increases that can be achieved in the pumping of crude oil with the current production capacity are limited.
“It is likely that production is reaching its potential of about 824.000 daily barrels and that additional production requires significant investments in new wells and infrastructure”, he warned in his Twitter thread.
Toro Hardy agrees that under current conditions, Venezuelan oil production has a margin of limited growth.
“Venezuela has imme There are large oil reserves in the subsoil, but to exploit them, large investments are needed. It has been estimated that, between investments and expenses, in order to recover the production levels of 20 years would be required about 25.000 million dollars per year for the next 8 or 10 years”, he affirms.
“It is very difficult for these amounts to come today from investments made by Iran, Russia or China because in Venezuela there is an enormous lack of legal certainty
- that also It affects them,” he adds.
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Thus, at least according to these calculations, Maduro’s plans to increase production to 2 million barrels per day in 2021 look uphill.
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