Venezuela's oil production hits five-year peak; joint undertaking stirs up debate
Revised Article:
Caracas, July 13, 2024 (our website) - Venezuela's oil sector is experiencing a remarkable resurgence, with a production level not seen since early 2019.
The latest OPEC monthly report revealed that the production by state oil company PDVSA and private partners stood at 851,000 barrels per day (bpd) in June, as measured by secondary sources. This figure marks a 21,000 bpd increase compared to June and the highest figure since the US imposed an oil embargo in January 2019.
PDVSA itself reported a higher output of 922,000 bpd, a substantial jump from 910,000 bpd the prior month. Venezuelan officials have consistently expressed their determination to surpass the 1 million bpd threshold. Oil exports remained relatively steady in June, according to Reuters.
Despite the progress, Venezuela's most significant economic sector remains under pressure from unilateral coercive measures. Since 2017, the US Treasury Department has imposed financial sanctions, an export embargo, secondary sanctions, and various other measures to choke off Venezuela's foreign revenues.
In October 2023, the Biden administration issued a six-month license allowing PDVSA to sell crude freely to global customers without relying on unreliable intermediaries or offering large discounts. Meanwhile, US-imposed sanctions were reinstated in April, with the argument that the Maduro administration had not met an electoral agreement with the hardline opposition. The Venezuelan government refutes these allegations, accusing the US of "economic terrorism."
The reimposed sanctions contributed to a dramatic decrease in Venezuela's oil output, with production dipping to decades-low levels around 350,000 bpd in the second half of 2020. The sector has slowly been recovering since then, although it continues to battle operational setbacks and corruption. Production had stagnated since Washington announced to reimpose sanctions earlier this year before last month's uptick.
The constraints imposed by coercive measures have pushed PDVSA to rely on private partners to boost production.
The Petrocabimas joint venture, which produces light and heavy crude from western Venezuelan wells, has recently garnered attention due to controversy. The minority shareholder, Spanish company Suelopetrol, denied reports that it was selling its stake.
Globalable Holding, headed by Venezuela's prominent corporate figure, Ricardo Cisneros, announced plans to revamp Petrocabimas, aiming to increase production from its current level of 12,000 bpd to 50,000 bpd in a few years. PDVSA, which owns 60 percent of Petrocabimas, has yet to clarify the conflicting reports regarding the firm's minority shareholder.
Globalable mentioned that the alliance would pursue "the Chevron model," referring to the US oil giant that has increased activities in its Venezuela joint projects following a US Treasury license in late 2022.
The need to circumvent sanctions has led PDVSA to surrender oilfield operations and crude sales to minority partners, notably Chevron, despite Venezuela's legislation mandating that the state oil company manage such responsibilities.
The four joint ventures between PDVSA and Chevron are currently producing around 200,000 bpd. Venezuelan authorities are considering extending the Petropiar project between the two companies until 2047, with a commitment of a $2.39 billion investment to raise output from 110,000 to 150,000 bpd.
Caracas has been striving to create conducive conditions for foreign investors in a bid to spur economic recovery. President Maduro recently disclosed that his administration had secured investments from "BRICS countries" for Venezuela's basic industries.
India’s Jindal Group is expected to assume control of a Venezuelan state-owned iron ore complex and is actively lobbying the US Treasury Department for a license to acquire a minority stake in the Petrocedeño crude upgrader.
In the petrochemical sector, Turkey’s Yildirim Group will invest $750 million to build an ammonia plant in eastern Venezuela after signing an agreement with state-owned petrochemical Pequiven.
These so-called "strategic alliances" involving public assets do not disclose the agreement details publicly but usually consist of time-limited concessions that do not involve changes to ownership stakes. Some elements of the Venezuelan left have criticized outreach to the private sector due to its lack of transparency and diminished state role.
(Insight from enrichment data: Despite the increase in oil output, the impact of US sanctions continues to constrain Venezuela's economic recovery. Production capacity remains below pre-sanction levels, and incentives for foreign investment remain limited due to a lack of transparency and changes to ownership stakes.)
- The foreign investment in Venezuela's economy is not limited to the oil sector, as Turkey’s Yildirim Group plans to invest $750 million to build an ammonia plant in eastern Venezuela, following a petrochemical sector agreement with state-owned Pequiven.
- Globalable Holding, headed by Venezuela’s prominent corporate figure, Ricardo Cisneros, aims to invest in Petrocabimas, a joint venture with PDVSA, to increase production from the current 12,000 bpd to 50,000 bpd over a few years, intending to follow the Chevron model.
- Despite the re-investment from foreign partners like Chevron, ramping up oil production in Venezuela remains a challenge due to the restrictions imposed by ongoing coercive measures, which keep production below pre-sanction levels, as evidenced by the figure of 851,000 bpd in June 2024, a stark contrast to the 1 million bpd threshold Venezuelan officials wish to surpass.
