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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 Oil Crisis Is An Environmental Time Bomb

The international media think tanks and government agencies have discussed at length the near failure of Venezuela, once Latin America’s most stable and developed nation, and the emergence of this century’s second-worst humanitarian crisis. The country’s implosion can be blamed upon a variety of factors, the key being the socialist Maduro regime’s gross mismanagement of its economic engine, Venezuela’s oil industry. While the economic, political, and humanitarian fallout from what can only be described as the world’s worst peacetime economic crisis is widely recognized, the environmental consequences have long been ignored. The rapid and what appears to be the increasingly irreversible collapse of Venezuela’s leviathan oil industry as well as related infrastructure has caused a range of environmental incidents. It wasn’t until the U.S. Embassy in Trinidad and Tobago issued a statement concerning the environmental risks posed by the Venezuelan-flagged floating and storage offloading vessel Nabarima, that attention was directed to the environmental crisis engulfing Venezuela. The Nabarima, floating in Venezuela’s Gulf of Paria, was listing badly sparking fears it could dump its crude oil cargo of 1.3 million barrels into the Caribbean sea potentially triggering an environmental disaster worse than the Exxon Valdez oil spill 31 years ago. Many international commentators and observers fail to comprehend is the scale of the environmental tragedy unfolding in Venezuela. According to the English language independent Venezuelan news outlet Caracas Chronicles, oil spills are a regular part of life on the Carabobo coastline. Those spills are blamed on the 140,000 barrel per day El Palito Refinery in Puerto Cabello Carabobo state. The pollution is so severe a fisherman who regularly sails off Puerto Cabello was quoted in the Caracas Chronicles saying he must remove pollution from the fish he catches and oil comes out of their mouths. During August 2020, the opposition-controlled National Assembly investigated an oil spill that affected Morrocoy National Park that linked to the El Palito refinery. It is claimed that El Palito experienced three oil spills this year and they are caused by overflowing disposal wells due to equipment failures within the refinery’s catalytic cracking plant.

There have been frequent allegations of oil seeping from abandoned and poorly maintained wells and pipelines, bubbling to the surface in towns and smearing buildings and roads in a noxious smelling black residue where PDVSA has operations. It is the appalling state of Venezuela’s steadily crumbling petroleum infrastructure which is to blame. Localized pipeline explosions and leaks are also a regular occurrence as is noxious gases escaping from refineries with many, including smaller oil spills, linked to the 940,000 barrel per day Paraguana Refining Complex. It was the 630,000 barrel a day Amuay refinery, which along with 305,000-barrel Cardon forms the complex, that experienced an explosion in its distillation unit last month. While Maduro claimed it was an act of terrorism, a union official quoted by Argus Media said it was likely caused by a water leak that caused a vapor blast. A distinct lack of critical maintenance of oil infrastructure by state-controlled oil company PDVSA is not only responsible for declining oil production, which fell to 367,000 barrels daily during October 2020, but for a litany of oil spills, leaks, explosions and operational failings. It is believed that in 2017 PDVSA experienced 4,000 such incidents, which is thought to be a 20-fold increase compared to a decade earlier. Since then a lack of information has made it all but impossible to measure what is occurring in Venezuela but many sources believe that the volume of incidents is rising. The abject state of PDVSA’s steadily corroding petroleum infrastructure is highlighted by recent estimates that it could take up to $200 billion and 10 years to rebuild Venezuela’s oil industry.

Related: Climate Targets Could Slash Natural Gas Investment By $1 Trillion

Of greater concern are the lengths Maduro’s autocratic socialist regime will undertake to cover up such spills. The national government in Caracas did not provide any information regarding the August 2020 spill which impacted the Morrocoy National Park and investigated by the National Assembly. National oil company PDVSA ceased providing information and operational data at the end of 2016, as did Venezuela’s oil ministry. The Maduro regime is actively seeking to silence anyone who provides information regarding Venezuela’s oil industry to outside media. According to a recent Argus Media report two oil industry union officials were arrested last week, one for leaking sensitive information to the international media and another for allegedly being responsible for the Amuay refinery explosion. Such flagrant attempts to prevent the outside world from knowing what is occurring in Venezuela indicates that claims of a sharp rise in environmental incidents related to PDVSA’s operations are credible.

This is an international problem of potentially catastrophic proportions. As the Nabarima FSO incident and reports of crude oil washing up on Northern Brazilian beaches highlight, oil spills in Venezuela can have significant environmental impacts for neighboring countries and the ecologically sensitive Caribbean sea. Venezuela is ranked as the world’s tenth most ecologically diverse country underscoring the considerable environmental damage being caused by the litany of oil spills in recent years. There is every sign that the volume of spills and other environmental incidents will keep rising. Venezuela’s economic implosion is far from over. The IMF predicts the Latin American country’s oil-driven economy will shrink 25% this year and then by another 15% over 2021 and 2022. As financial pressures on Caracas mount because of the fallout from the COVID-19 pandemic, significantly weaker oil prices, and strict U.S. sanctions, funding for vital oil maintenance activities will keep declining. That means already heavily decayed oil infrastructure will keep crumbling causing the volume of oil spills, leaks, and other environmentally damaging incidents to mount. These not only damage the environment but also sharply impact the livelihood and health of everyday Venezuelans who are already caught amid one of the worst humanitarian crises of the 21st century. Such severe environmentally damaging events exponentially increase the costs associated with rebuilding a shattered Venezuela and its broken oil industry once Maduro is ousted from power.

By Matthew Smith for Oilprice.com

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