Venezuela Petroleum in the US Market

The regime change in Venezuela was peaceful, but the oil-wealthy nation faces many challenges under its new president. Dependent almost exclusively on petroleum as the driving industry in his country’s economy, President Nicolas Maduro has to decide if he will continue the anti-U.S. policy of the late Hugo Chavez or choose a more pragmatic path. His decisions in the next few months will determine the future of Venezuela’s economy and the energy market in the United States.

Despite having been chosen by the dying Venezuelan president Hugo Chavez as his successor, Nicolas Maduro was elected by a razor-thin majority in the April 14, 2013 elections, overcoming opposing Henrique Capriles Radonski (Democratic Unity Roundtable) by barely 1.8% of the vote. Even that narrow victory has been called into question, most recently by U.S. Secretary of State John Kerry who, speaking before the House Foreign Affairs Committee on April 18^th, called for a recount, citing irregularities in the vote count. (Maduro’s response was, predictably, “Get out of here.”)

Maduro ran his campaign almost entirely behind the image of Chavez – even using the late president’s photograph on his election posters, instead of his own – while promising to continue to follow the philosophy of chavismo as expounded by his mentor. A key element of chavismo is hostility towards the United States, a stance that Chavez could maintain during his lifetime. The question is: Can Maduro afford to continue along that line?

Venezuela’s economy is balanced almost entirely on a single industry: Petroleum. As much as the economies of Saudi Arabia and other Persian Gulf states, Venezuela depends upon oil exports for almost all (95%) of its exports and, internally, for a dangerously large (18%) portion of its GDP. Equally lopsided are Venezuela’s petroleum exports. Despite the political philosophy of chavismo, the United States is the single largest consumer (41%) of both crude and refined product.

In terms of raw reserves, the numbers look very good for the country: Proven reserves have risen from 99.4 billion barrels in 2009 to more than 211 billion, after recent discoveries. Analysis by Oil and Gas Journal estimate that even these large amounts could increase to 316 billion if the Magna Reserva fields prove out. Even at current figures, Venezuela is placed as possessing the 8^th largest petroleum reserves in the world and is the largest – by far – in the Western Hemisphere.

While there are huge amounts of oil in the ground, getting it out and to the worldwide market is becoming more difficult. The national petroleum monopoly, Petroleos de Venezuela S.A. (PdVSA), has not been investing enough in drilling and pipeline infrastructure to maintain production. Overall production is down, partly because of natural decline of mature fields but also because of poor maintenance of equipment and pipelines. Certainly, given recent history, corporate investors are not inclined to invest in PdVSA, and the ideologically sympathetic nations which might be acceptable partners are either too poor (Cuba), far away (Iran) or out of business themselves (the Gaddafi regime in Libya). Currently, only Japanese and Russian consortia are showing interest in partnering in developing future fields.

On the American side of the equation, imports are down. Petroleum imports from Venezuela have been declining from 13% in 1999 (when Chavez first took power) to 8.3% in 2011 (the most recent year for which reliable figures are available). While this still places Venezuela as the 4^th largest source of American petroleum imports, after Canada, Mexico and Saudi Arabia, it’s a declining 4^th place. As domestic U.S. production increases – despite the Obama Administration’s continued refusal to license deep-water drilling in the Gulf of Mexico and the completion of the Canada-U.S. Keystone XL Pipeline – dependence upon imported petroleum declines in general, and Venezuela specifically. In due time, the United States will no longer be a captive market for Venezuelan oil.

This leaves Maduro facing an uncertain future. He does possess the mantle of Chavez – for now. He has control of the government and the chavista-inspired population – if he can keep it. The unemployment rate is only 7.6%  – so far. But without a stable export market, investors who are comfortable with the economic climate in the country, a healthy petroleum industrial infrastructure (upon which the entire economy depends) and a growing economy to absorb a rapidly growing demand for jobs, the new president is facing a difficult future.

In an odd way, the best hope for Maduro to achieve Chavez’s goal of causing mischief to the United States would be to abandon chavismo and liberalize relations. As long as Venezuela is a difficult trading partner, the U.S. will continue, despite the Obama policies, to develop strong domestic petroleum production. If oil were to flow without hindrance to the north, it would keep the North Americans dependent upon the oil fields of Venezuela.

Bio

Laura Ginn likes to keep up to date with world affairs and known how the influence on the economy can be reflected in the nations fuel prices. Which is why when it comes to getting the best deal on her home energy, she compares energy suppliers using uSwitch.com and their incredible online comparison site.