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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Venezuelan Oil Enters The Disaster Zone


The decline of Venezuela’s oil production for the foreseeable future has been assumed, and to a large extent, already priced into the market. However, an acceleration in the rate of decline is possible, and a few recent developments raise the odds that such a disaster will become a reality.

Reuters reported that state-owned PDVSA is completely falling apart, with workers walking off the job at a frightening pace. The conditions for oil workers has deteriorated for years, with shortages of food, unsafe working conditions, and hyperinflation utterly hollowing out the value of paychecks.

Since last year, however, things have grown worse. Venezuela President Nicolas Maduro sacked the head of PDVSA and handed over control to the military in order to keep the armed forces on his side. But Major General Manuel Quevedo has only accelerated the decline of PDVSA, which once held a reputation as one of the better managed state-owned oil companies in the world.

Reuters reports that about 25,000 workers have quit PDVSA between January 2017 and January 2018, a staggering sum. PDVSA employs roughly 146,000 people. Thousands of workers are walking off of job sites, fed up with going to work hungry, putting their lives at risk at rickety refineries, all for a paycheck that fails to cover even the most basic expenses.

The worker exodus has grown so bad that the company has in some cases refused to process resignations. Those higher up are no less unhappy. Reuters says that General Quevedo “quickly alienated the firm’s embattled upper echelon and its rank-and-file.” Related: Is Saudi Arabia Losing Its Asian Oil Market Share?

The loss of both top level engineers and managers as well as workers on the ground ensure the oil production losses will continue. Reuters reports that some rigs in the Orinoco Belt, where PDVSA produces heavy oil, are only operating “intermittently for lack of crews.”

Moreover, the situation at the company’s refineries are arguably worse. Fires are breaking out because they are falling apart and they no longer even have the staff to run them properly. Even ports are reducing operations because of a lack of workers.

But the problems don’t stop there. PDVSA only accounts for about half of the nation’s oil production on its own. The rest comes from joint ventures with international oil companies. Production at the joint ventures has eroded at a much slower pace than operations run solely by PDVSA.

Yet, the Venezuelan government is in danger of sparking steeper losses from joint venture operations. On Tuesday, Chevron said that two of its workers were arrested in Venezuela. Chevron has not fled the country even as its peers have packed up and departed, but the detainment of the oil company’s workers could very well lead the oil major into rethinking its operations. “Chevron has been one of the more steadfast participants in Venezuela, having stuck around through some of the most challenging times over the past two years,” Mara Roberts Duque, a BMI Research analyst, told Bloomberg. “These arrests will likely encourage them to turn away from Venezuela in a more definitive manner.”

Reuters says that Venezuelan intelligence “burst into the Petropiar joint venture’s office” and arrested two workers. The arrests appear to be the first to directly hit an international company operating in the country. Related: Can Saudi Arabia Afford Its Megaprojects?

“Oil industry companies would do well to be cautious and stop assuming that good relations with PDVSA can last forever due to a common interest in pumping oil,” Raul Gallegos, associate director with the consultancy Control Risks, and author of Crude Nation, a book about how oil ruined the Venezuelan economy, said in an interview with Reuters. “The level of corruption in PDVSA, especially under a military administration, can and will trump production logic.”

It isn’t necessarily that the few remaining international oil companies in Venezuela will immediately withdraw their personnel. But at some point the costs of operating become too high. Companies like Chevron and others have long been frustrated with lack of payment. Reuters reports that they are now also increasingly aggravated by PDVSA’s chief Miguel Quevedo, who refused to enact reforms to stop the decimation of the country’s oil and refining facilities.


Ultimately, President Maduro’s grip on the nation will become increasingly shaky. Utterly dependent on oil exports for revenues, the resources available to Maduro are vanishing.

By Nick Cunningham of Oilprice.com

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  • John Scior on April 18 2018 said:
    To say that oil "ruined" the Venezuelan economy is too quick of a conclusion. Oil didn't ruin Saudi Arabia nor many other nations. It is the "ideal" of communism and inept management of this resource that has ruined not only the Venezuelan economy but the country as a whole. On another point, how well will that Venezuelan cryptocurrency hold its value when the oil upon which it is supposedly backed cannot be pumped ? A cryptocurrency as a solution is the ultimate joke ! Why not just get some cardboard signs and plead for money.
  • Extra Long Trains on April 19 2018 said:
    As Venezuelan heavy oil exports disappear, what happens to US Gulf Coast Refineries that are configured to run heavy oil? Will Canadian Heavy Oil become more desirable? Is railing the Canadian heavy oil to the Gulf Coast the best option? As Canada struggles to build their Trans Mountain Pipeline, could Keystone XL again become a desirable option? Will API's never ending battle with ethanol, poison the well, for ever building Keystone through Corn Country? Currently if no ethanol production was exported and it was all blended into the US gasoline pool, the current blend rate would be about 11%. The US gasoline market is growing again by about 3% over last year, or averaging about +263,000 Barrels per day, year to date. So my question is this, is battling corn over a fraction of share of the gasoline market, worth it, in light of Venezuela's demise and the need for more heavy oil access to the US Gulf Coast?
  • WILLIAM Haller on April 22 2018 said:
    I agree somewhat with another post, oil did not ruin Venezuela. The euphimistic "Dutch disease" did a play a strong role. But IMO, the more contributing cause was uncontrolled illegal immigration from other Latin states. Venezuelans created an underclass in the midst of their plenty. These people were then exploited politically by Chavez. Couple that with weak federal institutions that were unable to check Chavez' power grab. So we fast forward to today when no amount of money would be enough to stop whats coming in what was once the most vibrant democracy in Latin America.

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