Venezuela’s oil production took another hit in recent days, as the country struggles with brimming storage tanks and no buyers.
PDVSA slashed output in the Orinoco Belt to just 200,000 bpd, according to Bloomberg, after averaging roughly double that for much of this year. The lack of space in storage forced production cuts, including at joint venture projects, where output has been more stable. Sources told Bloomberg that the Sinovensa blending facility would be idled for at least a week.
Venezuela’s oil sector has been in a downward spiral for several years, with the losses accelerating dramatically after the U.S. introduced crippling sanctions at the start of 2019. Production fell by more than half from 1.6 million barrels per day (mb/d) in 2018 to a little more than 750,000 bpd in July.
Output had held up in recent months, and President Nicolas Maduro seemed to survive the onslaught from the United States. While monthly totals bounce around from month to month, Venezuela’s production was more or less stable at 750,000 bpd from April on, the last time that opposition leader Juan Guaidó attempted to overthrow Maduro.
In July, the U.S. extended a waiver that it had granted to Chevron, allowing the company to continue to operate in the country. Officials within the Trump administration were not in agreement on what to do, with the hawkish national security advisor John Bolton pushing to let the waiver expire in order to increase pressure on Maduro.
Secretary of State Mike Pompeo wanted an extension to preserve an “American beachhead” in Venezuela, a move that would also prevent greater influence by Russian or Chinese state-owned oil companies. Pompeo’s position won out, and the U.S. extended the waiver by three months. Related: World’s Leading Nat Gas Producer Is About To Get Even Bigger
However, after months of relatively stable output, production began to slide again in August, falling to 712,000 bpd, according to OPEC’s secondary sources.
Venezuela may now be on the verge of another decline. According to Bloomberg, the country only exported 495,000 bpd in September, and in the last week production fell to 510,000 bpd following the temporary shutdown of upstream heavy oil operations.
Worse, the industry is in disrepair. Widespread pillaging, a worker exodus, lack of equipment, and a lack of capital plague oil operations. Bloomberg reporters traveled around the Orinoco field and said that what they saw was stark. “The journey, whose legs were timed to avoid heavily armed military patrols and checkpoints, showed that the nation’s industrial and economic engine has been stripped of equipment and neglected to the point of collapse,” Lucia Kassai and Fabiola Zerpa wrote.
Luis Pacheco, who sits on the PDVSA board appointed by Guaidó, estimates that the industry needs $120 billion in order to turn things around. Needless to say, that money is not forthcoming. There is almost no chance of even a faction of that without a change in the political context.
However, the problem is that the Trump administration has lost interest in Venezuela, having seen its regime change campaign run aground. To the extent that American officials had a high-degree of focus on Venezuela, it came in the form of John Bolton, who fought aggressively to topple Maduro. Having been fired, and with Trump facing impeachment, Venezuela is far down on the list of priorities.
Maduro dodged the American bullet, but sanctions remain. Just as with the case of Iran, where the Trump administration has lost interest but maintains harsh sanctions, there is simultaneously no avenue for a breakthrough while also a lack of interest to find an alternative course. Sanctions remain, but there is no other strategy. Related: The Oil Majors Leading The M&A Boom In Oil And Gas
“With the exception of a new round of sanctions, announced at the start of August, on businesses and governments that work with Caracas, the administration’s tactics now seem reduced to tough talk and clumsy ‘psy-ops’,” Christopher Sabatini writes for Chatham House. “What has become clear is that the Trump administration had no backup plan once the military failed to step in and remove Maduro on January 23, February 23 or April 30.”
Millions of people have fled Venezuela, and the total number of refugees could far exceed that of Syria. Last week, the Wall Street Journal published a harrowing account of one couple’s journey fleeing Venezuela, traveling across the continent to Chile.
The human toll continues to mount, and while Maduro has presided over the collapse, the U.S. government owns a great deal of blame – and continues to make things worse.
“The White House’s Venezuela policy now looks increasingly chaotic and offers little comfort for Venezuelans continuing to suffer under a repressive, corrupt autocratic regime, suffering made worse as US oil sanctions start to bite,” Sabatini added.
By Nick Cunningham of Oilprice.com
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