“I want to tell investors in the United States, and around the world, that Venezuela’s doors are open for the oil industry.” With this phrase, the president of the country, Nicolás Maduro, gave his arm to bend for the liberalization of the oil market , a historic step to avoid the sanctions of the United States and to return to being a power in the black gold market.
Half a year later, the critical situation in the Venezuelan oil sector continues to add bad news. Not only have foreign companies not come, but many have left the country. Several economists recently point out that remittances from the population that has left the Latin American nation already exceed exports in income . In addition, a recent environmental crisis shows how the problems do not stop multiplying.
Lake Maracaibo turns black
In recent days, the challenge of rebuilding your infrastructure has materialized more visually than ever. The largest lake in Venezuela , Lake Maracaibo, is becoming polluted and filled with oil slicks, because the deficit of the public oil company (PDVSA) and the exodus of technicians has caused a lack of permanent maintenance and leaks. in this area (one of the richest in oil) they are a constant.
NASA images show how, from space, it is observed that a lake of more than 13,000 square kilometers has been dyed black and green by the bloom of algae. An environmental disaster that affects what is the second oldest lake on the planet and a source of tourism for its beaches and for its unique natural phenomena in the world.
Several experts point to thousands of broken wells with no solution. In this region, there are more than 10,000 submarine tube installations and networks that, according to the Simón Bolívar University, are already 50 years old (and have not been changed since then). The traditional fishing industry in the Zulia area (the province located on this lake) is suffering a historical setback and thousands of fishermen are losing their main livelihood.
Less income from oil than from remittances
Although there are no official data, different local economists agree that 2020 closed as a historic year for being the first in which the money from the shipments of Venezuelan migrants exceeds the oil revenues that came through exports.
From Bloomberg they point out that remittances accounted for about 10% of GDP in 2020, between 4,000 and 5,000 million dollars, which come from the more than 5 million citizens who left the country due to the social and economic situation . Spain is the third country that contributes the most to these shipments, only surpassed by the United States and Chile.
The remittances figure would have far exceeded the nearly 2,300 million that the country is believed to have entered for black gold in the year of the pandemic. Historical figures that everyone agrees will not be repeated this year due to the rise in the price of crude, although the underlying problems that have led to this situation are still there.
This is how Francisco J. Monaldi , Director of the Latin American Energy Program at the Baker Institute of Rice University in Houston, Texas understands it . Speaking to elEconomista.es , the expert affirms that he agrees with the Bloomberg estimates and adds that “between the fall in oil and the sanctions it was very difficult to export and barrels were often sold for less than 3 and 2 dollars ” .
“The latest sanctions complete a process of collapse that has been going on for years, ” explains Monaldi. “PDVSA first entered a situation of default and the refinancing was already crazy , with very high interest rates.” After this, he affirms that “the entry into force of the first sanctions was a severe blow to refinancing and the closure of the US as a market, its most important destination, changed everything.” According to the expert, the drop in income coincided with the rise in the cost of production, linked to the difficulties in importing diluents, derived from the sanctions.
“Without a doubt it had already charted a trajectory of collapse, but the sanctions have accelerated it completely”
At that point, Venezuela depended logistically on Russia, China and India, a system that generated less revenue but still worked. However, “in 2020, secondary sanctions were applied to these three countries, which dramatically reduced their purchases. This last year they have redesigned their system”, but they have needed time with exports to a minimum and with the price of a barrel on the ground. . “Without a doubt it had already traced a trajectory of collapse, but the sanctions have accelerated it completely”, Monaldi sentence.
To deal with this situation, Maduro entrusted himself (at least in his speeches) to foreign investors, whom he invited to produce in exchange for large profits . A solution that would help avoid sanctions and solve many of your problems. However, the opposite has happened so far. A few months ago, several companies have announced that they are leaving the country due to the delicate situation.
Total and Equinor leave Venezuela
Throughout this summer, Total Energies and Equinor have announced that they are abandoning the most important project in the country and the only one in which they were partners: the Orinoco Belt. Both firms have given, without conditions and without demanding anything in return , 100% of their participation in the project to PDVSA, which keeps all the capital stock.
Total and Equinor had spent decades investing in what was promised to be the most profitable oil extraction area in the country. After a couple of years waiting for the political and social situation to improve and, therefore, for the accumulated losses to become a great opportunity, they have finally thrown in the towel.
“We are almost certain that if they had seen the possibility of a new government they would have stayed”
The companies did not mention the sanctions or the Venezuelan situation in their statements. Total stated that it was due to environmental reasons and social responsibility given that this project had a high degree of carbon emissions, even within the fossil energy sector . From Equinor, for their part, they spoke of geostrategic reasons to achieve a focus on other international areas.
From the Baker Institute they affirm that “operating in Venezuela was already complicated by political problems and the relationship with PDVSA, which many times did not meet its payments.” They affirm that the companies remained because “despite the fact that their production was 100% paralyzed (with the losses that this entails)”, they expected a change of course at the political level. “We are almost certain that if they had seen the possibility of a new government they would have stayed.”
However, they believe that ESG and environmental criteria have been decisive. “Their shareholders (many of them funds that invest with eco criteria) were pushing for them to go to less polluting projects.” In particular, they believe that the Europeans and the governments linked to them, have put a lot of pressure. “The Norwegian Sovereign Fund in particular has been very carbon intensive.”
The liberalization that does not arrive
Three PDVSA presidents have already spoken openly about opening the market abroad. Monaldi affirms that “there are those who point out that the military are the ones who oppose this measure.” Several high-ranking military officials have been taking over relevant positions in PDVSA for some time now. The appointment as vice president of the public company to Lieutenant Colonel Antonio Pérez last year stands out. The last step in this direction was the creation of the Compañía Anónima Militar de Industrias Mining, Oil and Gas. According to the decree that gave them this concession, this company will be in charge of “everything related to the legal activities of oil services, gas and mining in general, without this implying any limitation”.
Various experts believe that this parallel company serving PDVSA could run into problems if foreign firms enter to compete . The opposition believes that this new initiative corresponds to Maduro’s interest in having the sympathy of the military sector and thus shielding himself in power.
“With the absolute control of the National Assembly, it does not make sense that measures are not taken if they want to do so”, emphasizes Professor Monaldi. At the moment, no law has been approved so that the current minority shareholders can become majority shareholders and can extract crude oil themselves.
Venezuela will ‘resurface’ in 2021
Despite everything, Venezuela will experience an improvement this year, especially supported by the rise in oil prices. In the case of Brent, it has gone from 20 euros at its worst in 2020 to now trading at more than 84 euros . A substantial improvement that will make it more profitable to produce.
According to OPEC , Venezuela is currently exporting nearly 700,000 barrels a day , well below its ‘golden age’. However, it is a much better figure than the one given by the Venezuelan Minister of the People’s Power for Oil Tareck El Aissami, which pointed to below 400,000 barrels per day, levels of the 1930s. Other producers, such as Saudi Arabia , they export an average of about 10 million barrels per day.
In addition, the Baker Institute emphasizes that, with an eventual slight reduction in sanctions, Chinese companies could respond to Maduro’s call and flock to extract oil from the country. ” China has a very big project that would skyrocket production.” He adds that the Asian giant “imports more and more crude and with current prices, Venezuela could be interesting despite all the sanctions.”