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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Venezuela’s Crumbling Oil Industry Is An Environmental Nightmare

The near failure of the Venezuelan state, caused by the breakdown of the country’s oil industry, has triggered the second worst humanitarian crisis of the 21st century. While the collapse of Venezuela’s oil industry and what was once the richest economy in South America are well documented, there is little coverage of the immense environmental damage being caused by the decay of its energy infrastructure.

The autocratic Maduro regime is determined to squeeze whatever oil and gasoline production it can generate from Venezuela’s crumbling oilfields, corroded refineries and rusting pipelines. The situation is so dire that oil spills are a regular event in the near-failed state, especially since Washington ratcheted up sanctions, preventing Caracas from obtaining the capital required to conduct critical maintenance and overhauls. Under Maduro’s leadership Venezuela’s government, including national oil company PDVSA, has ceased collecting and releasing data, making it near-impossible for international observers to ascertain what is occurring in the country. PDVSA data (Spanish) from 2016, before the national oil company stopped releasing operational information, showed that oil spills had multiplied fourfold since 1999. This was a worrying portent of what was to come because the worst of the decline for Venezuela’s oil industry did not start until 2018 as progressively stricter U.S. sanctions were imposed.

Aside from PDVSA ceasing to publicly report operational data, Caracas regularly attempts to ignore or even cover up oil spills. That makes it extremely difficult for neighboring countries and the international community to discern just how much environmental damage is occurring.

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In late-2019, a massive oil spill covering thousands of kilometers washed up on Brazil’s coastline, which was the worst in the Latin American country’s history. Initially, Brasilia was unable to determine where the crude oil had come from, but an analysis indicated it was of Venezuelan origin. Brazil’s government, while unable to confirm the point of origin, believes the spill came from a Greek-flagged tanker carrying Venezuelan crude oil, although Caracas denied responsibility.

Caracas’ denial of petroleum spills coupled with the government and PDVSA’s lack of resources means that many spills are cleaned up by local communities and volunteers without access to the appropriate equipment to manage and resolve such incidents. Many of Venezuela’s oil spills are the result of ruptures and leaks from aging crude oil pipelines as well as decaying refineries that have not been adequately maintained or overhauled for nearly a decade. A major issue weighing heavily on PDVSA’s ability to produce crude oil is that its storage facilities are full, forcing the company to shutter production until capacity is available. When Caracas can dodge U.S. sanctions, PDVSA loads tankers for crude oil shipments to Iran and China thereby freeing up storage capacity and allowing it to restart shuttered operations, leading derelict pipelines to start pumping again, spraying oil into the surrounding environment. 

Tehran’s provision of assistance to the Maduro regime to restart Venezuela’s severely corroded refineries added to the considerable existing environmental damage. After a Chinese contractor balked at completing the maintenance required to restart Venezuela’s major refineries, Iran stepped in providing technicians and parts including catalyzers as well as heat exchangers. That saw the refurbishment of the 140,000 barrel per day El Palito refinery allowing operations to recommence in August 2020. Since that troubled 2020 restart, the facility has suffered regular equipment failures and fires precipitating a series of oil spills, the worst recorded event being a 25,000-barrel leakage onto Venezuela’s western coastline in August 2020.

This was followed by a smaller spill in October 2020, which according to the Caracas Chronicle was the third oil spill from El Palito that year. According to residents of El Palito, the beachside town where the refinery is located, every time the refinery operates it spews crude oil into the surrounding environment. Staff from the refinery claim its waste storage pits are full and overflowing causing crude oil waste from the facility to flow into the Caribbean. 

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Independent experts believe the problem is far worse at the Paraguana refinery complex, which is the third-largest facility of its type globally. The complex is comprised of the Cardon, Amuay, and Bajo Grande refineries which have a daily processing capacity of 305,000, 645,000, and 16,000 barrels respectively giving the Paraguana complex a total refining capacity of 966,000 barrels per day. A September 2020 leak from pipelines at the complex created an oil slick in the Caribbean Sea in the Golfete de Coro. The severely dilapidated state of Venezuela’s refineries is underscored by regular production outages caused by explosions and crucial equipment failures. The Amuay refinery in the Paraguana complex suffered an explosion in October 2020, which Maduro attributed to terrorism but was likely caused by a water leak causing a vapor blast in the distillation unit. Venezuela’s refineries, when operating, aside from emitting crude oil are known to belch toxic fumes into the atmosphere. 

Airborne pollution in Venezuela is being worsened by PDVSA continuing to engage in the controversial process known as flaring. This is where excess gas produced during oil extraction and refinery operations is collected and burnt to reduce pressure and the risk of explosions. The activity is hugely harmful to the enviroment, not only emitting carbon dioxide, the primary cause of global warming, but also other greenhouse gases such as methane, sulfur dioxide, and nitrous oxide which cause acid rain, smog and damage the earth’s ozone layer. In March 2021, an Ecuadorean court recognized the dangers of flaring banning the practice in the country’s Amazon region, mainly the provinces of Sucumbíos and Orellana. A local indigenous community had filed a 2020 complaint against the practice, asserting it was responsible for contributing to climate change, local air as well as water pollution, and causing a heightened risk of cancer.

The heavily corroded state of PDVSA’s energy infrastructure, coupled with a lack of regulation, skilled technicians, and environmental protections in Maduro’s Venezuela means the damage from flaring is much greater than in Ecuador. The World Bank, in an April 2021 report, identified that Venezuela is the sixth top country by gas flaring after Algeria, the U.S., Iran, Iraq, and Russia. Furthermore, Venezuela despite having the world’s largest petroleum reserves of 304 billion, is only pumping a fraction of the petroleum produced by those countries. For April 2021, the Latin American OPEC member only pumped an average of 445,000 barrels per day, which aside from being roughly a fifth of Venezuela’s pre-Maduro 2012 oil output is less than a 20th of U.S. average daily production.

Even before Maduro’s ascension to power and the breakdown of Venezuela’s once-mighty petroleum industry, there was already substantial environmental damage linked to the petrostate’s energy sector. Lake Maracaibo, which has been the heartland of Venezuela’s petroleum industry since the first commercial well was drilled in 1914 in the Mene Grande oilfield on the lake’s shores, has suffered tremendously. The lake has suffered because of over a century of commercial oil extraction and been the location of numerous oil spills. According to local communities, these spills have irreparably damaged the local environment, wiped out fish species in Lake Maracaibo, and have been linked to high rates of cancers as well as other diseases.

The mounting damage to Venezuela’s environment caused by a rapidly deteriorating petroleum industry is not a problem solely for Venezuela. It is impacting many countries in South America and the Caribbean, notably Trinidad and Tobago, Brazil, and Colombia. The colossal amounts of capital required to renovate and restore Venezuela’s shattered oil industry to pre-Chavez levels of production, estimated to be anywhere between $58 billion and $250 billion, do not appear to incorporate the billions of dollars urgently needed to clean up Venezuela’s environment.

For as long as Washington maintains strict sanctions against Venezuela, extreme environmental damage will keep occurring, particularly with Maduro focused on squeezing every producible barrel out of the petrostates rundown oil industry. That makes it imperative for the Biden administration to urgently consider alternatives to strict U.S. sanctions which have failed to trigger regime change and indirectly contributed to massive environmental degradation in Venezuela.

By Matthew Smith for Oilprice.com

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  • Mamdouh Salameh on May 19 2021 said:
    Venezuela is facing a Catch-22 situation. It can’t deal with its crumbling oil industry and its environmental nightmare without money. But money isn’t coming because of the very intrusive US sanctions. The US isn’t showing signs that it will lift the sanctions soon so the money won’t materialize soon either. So we end up with more crumbling of the Venezuelan oil industry and also more environmental nightmares and therein lies the dilemma.

    Those who are lamenting the state of Venezuela’s oil industry and its environmental nightmare should exert pressure on the United States to lift sanctions on Venezuela rather lamenting the state of affairs there.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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