Riding spiking crude prices the Venezuelan oil industry, once thought to have been too mismanaged to ever again regain relevance, is now experiencing a surprising rebound amid economic crises and the Russia-Ukraine war.
With crude prices rising above $100 per barrel, Venezuela, home to the world’s largest oil reserves and one of the founding members of OPEC, has more than doubled its oil production since late 2020 and experts believe there’s more room for output to grow.
A post-pandemic rebound and questions over Russia’s invasion of Ukraine have buyers scrambling to purchase all the fuel they can get their hands on and Venezuela is becoming a sought after producer.
The country is mounting a comeback once thought unthinkable. Petroleos de Venezuela S.A. (PDVSA), Venezuela’s primary state-run driller, has experienced several setbacks over the years including financial sanctions from the U.S. in 2017 as well as in 2019 that disrupted trading of its oil and forced contractors to suspend expansion.
In addition, the country lost its oil storage capacity in the Caribbean and electricity outages have been known to knock production offline in the country, once for an entire week. The global pandemic, that sent crude prices tumbling, also hit the South American country hard.
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The Venezuelan economy also saw its foreign currency reserves shrink by an astounding 99 percent in the six years ending in early 2021.
Despite all this the industry is on a rebound.
How is Venezuela doing it?
The Venezuelan oil industry has worked out a strategy to give its struggling sector new life after seeing its output plummet to only 374,000 barrels a day in June 2020.
They are now importing light-oil from Iran, a condensate, and mixing it with its thicker crude to make its product easier to move and are now selling its product to China through middlemen. The strategy has boosted PDVSA’s oil output to roughly 800,000 barrels a day, amounting to around 60 percent of what it produced prior to the U.S. oil sanctions coming into effect in January 2019.
Analysts believe that this production level is sustainable since prices continue to surge and the Biden administration appears less stringent in enforcing economic sanctions.
The tar-like heavy crude drilled in eastern Venezuela accounts for roughly 70 percent of the country’s total oil output. The condensate, supplied by Iran and mixed with the crude, allows the crude to be transported via pipeline some 300 kilometers (186 miles) to PDVSA’s exporting port. Without the condensate the oil would clog the pipeline.
Jacques Rousseau, managing director at Clearview Energy Partners LLC told Bloomberg, “Access to Iranian diluents is key for production to continue to ramp up,” adding that, “With oil prices so high and dwindling supplies of the type of heavy oil Venezuela produces, it’s certainly worth it to pay more attention to what they are doing.”
In the 1990s Venezuela was producing some 3 million barrels a day, so there is still significant room to grow should Venezuela continue innovating. In addition, many oil fields that had been shut down, can be quickly reopened, meaning there is indeed room to grow.
Venezuelan president Maduro, has set an ambitious 1.5 million barrel-per-day production goal; however, Clearview Energy’s Rousseau said, “it’s unlikely that output will go back to once it was.”
That said, few expected to see the resurgence currently being observed in the Venezuela oil sector, so Maduro’s goals may very well be both achievable and surpassable.