As Venezuela emerges from its dire political, economic and humanitarian crisis, its lifeblood oil industry will play a central role in steering the country toward recovery. But state oil company PDVSA is in shambles, with plummeting output unlikely to rebound for years and skittish foreign investors not expected to infuse needed cash into the nation’s crumbling fields, upgraders, pipelines, refineries, and ports.
As embattled President Nicolas Maduro and US-backed opposition leader Juan Guaido continue to vie for power, analysts say the longer US sanctions stay in force, the deeper PDVSA’s predicament. Looming sulfur regulations on marine fuels and potential global climate change policies that have already steered investors away from carbon-intensive crudes will further challenge PDVSA, which has been banking on its heavy crude reserves in the Orinoco Belt to fuel future production growth.
“When you think about the fact that it’s hard to get the majors to even think about investing in the Arctic or they don’t want to do Canadian oil sands, they’re not going to go back and do Orinoco,” Amy Myers Jaffe, director of the Council on Foreign Relations’ energy security and climate program, said in an interview. “That was even more expensive and it’s in a foreign country with political risk. How realistic is it that these companies would plunk down billions of dollars to go into Venezuela to do heavy oil?”
Venezuela’s crude production in January fell to 1.16 million b/d, according to the latest S&P Global Platts survey of OPEC member output. That is just one-third of peak levels of nearly 3.5 million b/d in 1998. In just one year, output has dropped nearly 30% as two decades of financial mismanagement, political purges and underinvestment have decimated PDVSA, which was once a model state-run oil company held in as much international esteem as Saudi Aramco.
It could shrink even further to 500,000 b/d by year’s end, some analysts say, if US sanctions, which severely restrict crude and product flows in and out of Venezuela, continue to be enforced. US officials have said they will only lift the sanctions if Maduro gives up the presidency, but the leader, who claimed re-election last year in a vote that many international observers say was rigged, has so far resisted efforts to topple him.
A return to the “glory days” of Venezuela oil production “will take a decade, tens of billions in foreign investment, and a nationwide kumbaya of fast-moving political reconciliation and petro-recovery,” Scott Modell, a managing director of consultancy Rapidan Energy Group, told S&P Global Platts. Modell said that even under the “rosiest” of scenarios, which would likely require a rapid power transition, lifting of US sanctions and an influx of foreign investment, production in Venezuela could recover only 400,000 to 500,000 b/d over the course of six to 12 months.