Mounting political unrest under an increasingly oppressive government is only one reason Venezuela is having more trouble coping with depressed crude oil prices than other major producing countries, speakers said at a Columbia University Center on Global Energy Policy event in New York. National oil company Petroleos de Venezuela SA’s wholly owned production has declined more quickly than production in joint ventures with outside partners, noted Francisco Monaldi, who spoke as CGEP released his paper, “The Impact of the Decline in Oil Prices on the Economics, Politics, and Oil Industry in Venezuela,” at a Sept. 10 event. “It has less capital,” said Monaldi, who is Baker Institute Fellow in Latin American Energy Policy and Adjunct Professor of Energy Economics at Rice University in Houston. “Very recently, there’s been a slight increase in exports which has brought in some fresh cash. Nevertheless, almost half of the production doesn’t generate fresh revenue because it has to be applied to outstanding loan obligations with China and other countries.”
Depressed crude prices challenge any oil company, Monaldi said. “A lot of PDVSA’s production is not paid for because the domestic market is a cash drain,” he said. Programs that divert revenue to social reform projects effectively make it sell gasoline domestically at about 1¢/gal, which also has increased demand, he said. PDVSA has serious human resources problems ranging from massive firings of executives and engineers since 2003 to low wages now, he added. Venezuela’s reputation of being the country with the highest perceived operating risks for outside companies, even when other countries are added, also harms its oil industry, Monaldi said. “The human resources and risk environment help create a macro-picture that is troubling,” he said. “All of this is leading to a strong dose of pragmatism—or what some people might call desperation.”