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The Venezuelan National Assembly will consider reforms to the country’s oil law that will open the door to “new business models,” President Nicolas Maduro said this week, as quoted by Reuters.
Maduro did not offer any details on the reforms and what these new business models would entail. The statement appears to be the latest attempt by the Venezuelan government to reverse a seemingly irreversible downturn in the country’s oil industry, resulting from years of underinvestment, mismanagement, and U.S. sanctions.
The current law states that PDVSA must hold majority stakes in any oil venture with foreign and local private companies, and is the only entity allowed to market Venezuelan oil.
PDVSA has joint ventures with Russian and Chinese companies, and it operated a joint venture with Chevron until President Trump ordered the major to leave Venezuela last year. Reports said that even though PDVSA was the majority partner in these joint ventures, the day-to-day operations were largely left to be managed by the foreign partner.
Venezuela’s oil production has been on a steady and severe decline over the past few years, ever since the 2014 oil price crisis began, plunging the country into an economic crisis. Then after Donald Trump became president of the United States, sanctions targeting Venezuela’s oil industry added to the government’s woes with underinvestment and mismanagement.
Exports of crude have also been stifled by U.S. sanctions, but Venezuela, like its sanction buddy Iran, has been finding ways to get its oil to buyers abroad. Tactics have included masking the oil’s origin by adding chemicals to it, ship-to-ship transfers at sea, and selling the oil through companies with no track record in oil trading.
As a result, the latest tanker tracking data revealed that February exports rose to over 500,000 bpd, from less than 500,000 bpd in January. According to a Reuters report, the February export average, including both crude and fuels, was the highest in 10 months.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
President Maduro, the survivor of US sanctions and plots to remove him from power, will in effect be legislating into law what is already happening on the ground. This means that he will allow foreign oil companies to have a majority share in oil projects in the country and running these projects rather than limiting this right to PDVSA.
For instance, Russia’s oil giant Rosneft already has huge investments in PDVSA and joint ownership in many oil projects in the country. Furthermore, Rosneft has been until recently marketing Venezuelan crude oil in defiance of US sanctions. US oil giant Chevron has been running the day-to-day operations of the projects it jointly shares with PDVSA until ordered by former President Trump to cease operations.
And contrary to various claims, Venezuela has been managing to export up to 1.0 million barrels a day (mbd) of crude and fuel exports. Moreover, it doesn’t announce the size of its exports or report it to OPEC so as not to invite new sanctions.
Venezuela has learnt from Iran tried-and-trusted sanction-busting methods including masking of Venezuelan crude through the addition of certain chemicals to obscure its origin, ship-to-ship transfers and using entities with no track record in oil trading to circumvent U.S. sanctions.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London