Post by ukipa on Jun 2, 2012 19:24:13 GMT 4
People continue to ask about Venezuela, Hugo Chavez's health problems and the famous Venezuelan bonds; commonly known as "VeBonds". The following article describes in full detail why this wonderful country paralyzed by incompetency and bureaucracy, has a chance to recover in the very near future. The odds are in favor on the Venezuelan people.
Article's author is unknown.
Why the health of Hugo Chavez matters to Alberta’s oil sands
A political challenge to the dictator could reverse years of decline at PDVSA
For those of us who have followed Venezuelan political developments for years, the address by Hugo Chavez to the United Nations on September 22, 2006 was a highly anticipated event. Chavez had become a controversial figure: A mixture of political clown and visionary who liked to befriend the more unsavory world leaders as long as they were in the United States’ bad books.
His performance in New York City that day did not disappoint. The highlight of his address – or lowlight, depending on your point of view – came when the leftist Venezuelan president called then U.S. President George W. Bush the devil, mocking him by saying the podium still smelled like sulfur. The anti-American tenor of his speech converted Chavez into something of an international sensation.
But Chavez’s rhetorical flare for the dramatic aside, by 2006 the Venezuelan president had made a sizeable impact on the global petroleum industry. He, along with President Vladimir Putin of Russia, was the one who brought back the concept of “resource nationalism” as a central political variable redefining international relations.
Chavez was the first in a group of Latin American leaders over the last decade to represent a new form of the left. Contrary to past revolutionaries, including Cuba’s Fidel Castro, Chavez identified with the people he claimed to represent because he was one of them. He was not the child of a well-to-do family going rogue, a romantic revolutionary like “el Che” Guevara, who grew up wealthy. Chavez experienced all the discrimination and hardships of the Venezuelan poor.
And Chavez brought a new form of politics to Venezuela. He used popular language understood by his supporters, even if it was ridiculed by the elites who saw him as a buffoon with limited education and experience. But that was his key to success. Since his dramatic entry into Venezuelan politics during a failed coup attempt in 1992, he has been underestimated. The Venezuelan elite were never concerned that Chavez could bring about political change, despite rapid social, political and economic collapse in their country. Six years later, Chavez was elected president.
Much like Venezuela’s elite, the world did not pay too much attention to the young colonel-turned-president, either.
Oil prices averaged US$12 in 1998. Oil supermajors were investing billions developing the vast resources of the Orinoco belt in central Venezuela, a region with so much heavy oil and bitumen deposits that the U.S. Geological Survey has said the mean recoverable oil resources there totals 513 billion barrels of crude. Moreover, Chavez did not sound threatening; he initially adopted “orthodox” economic policies. In short, with low oil prices and the Organization of Petroleum Exporting Countries (OPEC) in disarray in the late 1990s, Venezuela didn’t really matter.
However, when a country has as much oil as Venezuela possesses, it always matters. Today, the country stands at a crossroads, both politically and economically. During Chavez’s 13-year reign, the country’s once-proud oil and gas industry has underperformed and grown inefficient – something that has benefitted Alberta and its oil sands sector.
He is also waging what some observers suspect is a losing battle against cancer. To make matters worse, a united and organized opposition, led by a charismatic free market presidential candidate in Henrique Capriles, is presenting a serious threat to his regime. And so, with Chavez fighting – literally and politically – for his life, the question becomes: what would a Venezuela run by someone other than Hugo Chavez look like?
It’s a question the people who occupy the office towers in Calgary and Houston are asking themselves. For what happens in this fall’s Venezuela presidential election will have ramifications for the oil and gas industry both in Canada and worldwide.
Chavez, despite his recent troubles, is still a formidable figure. Turn back the clock to 2006 and he had achieved an impressive political record. He had won two elections and a referendum, survived a coup attempt and a disruptive strike from the national oil company, the mighty Petróleos de Venezuela, S.A (PDVSA). He drastically changed oil contracts and “re-nationalized” the oil industry, directly confronting ExxonMobil and the other commanding highs of the oil industry.
He engaged in vast wealth redistribution programs, a massive nationalization spree, expropriating and acquiring any activity deemed “strategic” to the regime. He implemented an oil transfer program to energy dependent Central American and Caribbean countries, allowing him to gain geopolitical influence. He redirected Venezuelan foreign and petroleum policy, from a U.S.-centric strategy to one aimed at market diversification and strong integration with China, Russia and Latin America. He brought Venezuela back into the OPEC quota system, and became a leader of its price hawks. Finally, he helped to revitalize Cuba’s dying regime by exchanging around 100,000 barrels of oil every day for Cuban doctors, social workers and intelligence experts.
With 2006 oil prices having increased five times from 1998 levels, averaging US$58 per barrel, the war in Iraq raging, and with demand from China and India suggesting that oil prices would inexorably move up, Chavez was feeling confident about the future in 2006. He expected that his rule would extend to 2021 or beyond.
But the 57-year-old’s political star has faded considerably since the halcyon days of 2006. Although oil prices surpassed US$100 per barrel in 2008, he experienced his first electoral defeat in 2007 when he proposed some amendments to the constitution, including indefinite re-election for the president. Venezuela experienced a recession in 2009 and 2010 and only by 2011, fueled by recovering oil prices and massive public spending, did the economy improve. However, Venezuela today has the highest inflation in Latin America, its debt levels are increasing fast, and public services are deteriorating. Citizens live in constant fear due to increasing criminality and insecurity.
The country’s deteriorating conditions have soured the electorate, to some degree, on Chavez. The political opposition, characterized by its incompetence and inefficiency in the past, finally launched a clever and well organized primary process in 2011.
Venezuelans were exposed to a diversity of options from the candidates seeking the nomination of the “Mesa de la Unidad Democratica” (MUD) party. The chosen leader, 39-year-old Capriles, is a young and charismatic center-left politician who has cleverly focused on issues close to the day-to-day lives of Venezuelans: crime, corruption, declining services, inflation and jobs. He has avoided any direct attack on the president, calling instead for a government of reconciliation and national unity. With a total of three million votes cast during the primary elections in February, the MUD did better than expected, but it is still far below the seven million votes Chavez achieved in the 2006 elections.
Venezuela’s oil production just before Chavez took office was 3.5 million barrels per day (bpd). Since then production has declined below 2.6 million bpd − although government sources claim current production at around three million barrels daily. During the “old PDVSA” the company’s objective was to produce five million barrels daily by the middle of the last decade.
In 2005 the “new PDVSA” launched a six-year plan called “Siembra Petrolera”. It proposed oil production of 5.8 million bpd by 2012 and an investment of US$239 billion. Not only has the ambitious production goal not been met, but the financial results of the company have severely deteriorated. Its debt increased from US$2.7 billion in 2005 to near US$33 billion now.
The plan also included an expansion of refining capacity, proposing the construction of four new refineries, none of which have been completed. Moreover, existing refineries suffer from constant accidents and insufficient maintenance.
PDVSA’s natural gas objectives have not fared any better during Chavez’s reign. By now natural gas production should have been around 11 billion cubic feet (bcf) per day, but it has only reached 6.8 bcf. Venezuela was supposed to be a large exporter of liquefied natural gas, and its gas pipeline infrastructure should be connecting the western and the eastern regions of the country.
Instead, Venezuela continues to import gas from Colombia to keep its oil production flowing from the declining Maracaibo fields. The new “Siembra Petrolera” plan for 2011-2015 has more modest goals than its predecessor – reaching daily production of 4.15 million bpd of oil and 13.8 bcf per day of gas by 2015.
As production flatlines, PDVSA has been borrowing money at an incredible speed. From 2008 to 2011, the company’s debt increased by 138 per cent. A large component of that debt comes from China’s oil or debt scheme, perceived by many analysts as too costly for Venezuela. Moreover, not all the funds from China have been used for capital development, to the increasing consternation of the Chinese lenders.
With production stagnating and domestic demand growing, the cost of subsidising oil consumption in Venezuela is becoming a heavy burden, costing the government around US$15 billion per year. The burden is greater since PDVSA is forced to import more and more oil products because its existing refining capacity has been unable to meet domestic demand.
Alberta’s oil sands have been one of the benefactors of the fall from grace of PDVSA and the Venezuelan oil and gas industry during the Chavez presidency. His anti-U.S. rhetoric, plus the threat of nationalization and expropriation, caused some of Big Oil’s players to shift their capital elsewhere, notably to bitumen deposits located in landlocked northern Alberta, which has accelerated development of the resource.
But a Chavez defeat in this fall’s presidential elections, and a return to the Venezuela and PDVSA of the early 1990s, could have the oil and gas industry flocking to Venezuela once again and focusing less on investing in a high-cost resource like the oil sands. While there might not be any threat of expropriation in Alberta, the fact is crude oil from the Orinoco is far cheaper to produce and transport than oil sands crude. What’s more, it only takes five days to move a supertanker from Venezuela to the U.S. Gulf Coast.
But whether Venezuela is poised for a regime change is open for much debate. General elections will be held on October 7, 2012. Currently Venezuelans are bombarded by an opinion poll war, but all of them show Chavez ahead. If he is healthy enough to run, he is likely to win the elections. However, his health is a mystery.
In 2011 he underwent an operation in Cuba to extract cancer from his pelvic region. Since then he has undergone a series of chemotherapy treatments and a second operation in February. He continues to travel to Cuba for more cancer treatment, but his public appearances are becoming more infrequent and there are rumors he is losing his fight to beat the disease.
Currently there is no clear successor within the “Chavista” circles to replace Chavez, but the recent appointment of a Council of State headed by his vice-president, Elias Jaua, could be seen as a plausible transition mechanism. Inevitably some of Chavez’s close advisors are discreetly positioning for such an eventuality. Three possible successors include his brother, Adam Chavez, and Diosdado Cabello – the head of Venezuela’s National Assembly, as well as Venezuela’s Foreign Minister, Nicolas Maduro.
A status quo scenario, where Chavez or a Chavista substitute is in power, would result in a slow but progressive improvement of Venezuela oil output. The ambitious expansion programs may not be achieved on time, but one can expect a positive trend.
Improved governance between PDVSA and its foreign partners is likely to allow for that to occur. If so, new players would be interested in entering this country’s risky oil and gas game again.
Capriles’ petroleum policies are harder to discern, but his rare comments on the matter point to favoring a strong national oil company that would be able, with different management, to achieve high levels of efficiency. What is required is simply to liberate PDVSA from all that political interference. Capriles denies any desire to privatize the company, but would like to attract more private investment in the sector. Apparently influenced by the Brazilian model, he likes to think Venezuela could learn from Norway, something Brazil claims to have done. Unfortunately, neither Brazil nor Venezuela is Norway.
If Capriles were to be elected, the new administration will face numerous challenges starting with a National Assembly, and other key institutions, such as the armed forces, the electoral authorities and PDVSA, controlled by Chavistas. The new president would be reluctant to deviate too much from PDVSA’s current strategy. Moreover, current legislation allows the government to increase private sector participation in the oil industry. His focus, therefore, is likely to be on lifting production and improving earnings.
It’s important to point out that any efforts to revive a “technocratic” PDVSA may face some political realities. Chavez’s meddling in petroleum matters caused many of Venezuela’s best and brightest petroleum minds to leave the country. The expertise lost is now leading an oil boom in Colombia; and one would doubt that after being successful in the private sector, former employees would want to return to a “government job”.
As difficult as the situation is, there are reasons to believe the period of production decline in Venezuela is over. In fact, realizing its huge financial burden and numerous operational challenges, PDVSA seems willing to assign more resources to capital development. Central to the reversal of production is the US$2-billion “Tri- color” investment plan in the Orinoco belt, aimed at boosting production there to 1.6 million bpd by the end of the year. Secondly, PDVSA appears to be asking its partners to help finance its share of their joint ventures. Large companies such as Chevron and the China National Petroleum Corporation seem willing to accept the request in exchange for better governance in the joint ventures.
However, the question remains if Capriles, Chavez or a Chavista successor would have the vision and capabilities to further open up the sector, improving contractual terms and offering a concession model that would bring back the capital and competition necessary to finally meet its old goal of doubling current production by the time the next presidential elections take place. If that were the case, Venezuela, free of ideological hobbles, could focus on regaining market share in its most profitable market, the U.S. Gulf of Mexico – the main target of Alberta oil producers.
Article's author is unknown.
Why the health of Hugo Chavez matters to Alberta’s oil sands
A political challenge to the dictator could reverse years of decline at PDVSA
For those of us who have followed Venezuelan political developments for years, the address by Hugo Chavez to the United Nations on September 22, 2006 was a highly anticipated event. Chavez had become a controversial figure: A mixture of political clown and visionary who liked to befriend the more unsavory world leaders as long as they were in the United States’ bad books.
His performance in New York City that day did not disappoint. The highlight of his address – or lowlight, depending on your point of view – came when the leftist Venezuelan president called then U.S. President George W. Bush the devil, mocking him by saying the podium still smelled like sulfur. The anti-American tenor of his speech converted Chavez into something of an international sensation.
But Chavez’s rhetorical flare for the dramatic aside, by 2006 the Venezuelan president had made a sizeable impact on the global petroleum industry. He, along with President Vladimir Putin of Russia, was the one who brought back the concept of “resource nationalism” as a central political variable redefining international relations.
Chavez was the first in a group of Latin American leaders over the last decade to represent a new form of the left. Contrary to past revolutionaries, including Cuba’s Fidel Castro, Chavez identified with the people he claimed to represent because he was one of them. He was not the child of a well-to-do family going rogue, a romantic revolutionary like “el Che” Guevara, who grew up wealthy. Chavez experienced all the discrimination and hardships of the Venezuelan poor.
And Chavez brought a new form of politics to Venezuela. He used popular language understood by his supporters, even if it was ridiculed by the elites who saw him as a buffoon with limited education and experience. But that was his key to success. Since his dramatic entry into Venezuelan politics during a failed coup attempt in 1992, he has been underestimated. The Venezuelan elite were never concerned that Chavez could bring about political change, despite rapid social, political and economic collapse in their country. Six years later, Chavez was elected president.
Much like Venezuela’s elite, the world did not pay too much attention to the young colonel-turned-president, either.
Oil prices averaged US$12 in 1998. Oil supermajors were investing billions developing the vast resources of the Orinoco belt in central Venezuela, a region with so much heavy oil and bitumen deposits that the U.S. Geological Survey has said the mean recoverable oil resources there totals 513 billion barrels of crude. Moreover, Chavez did not sound threatening; he initially adopted “orthodox” economic policies. In short, with low oil prices and the Organization of Petroleum Exporting Countries (OPEC) in disarray in the late 1990s, Venezuela didn’t really matter.
However, when a country has as much oil as Venezuela possesses, it always matters. Today, the country stands at a crossroads, both politically and economically. During Chavez’s 13-year reign, the country’s once-proud oil and gas industry has underperformed and grown inefficient – something that has benefitted Alberta and its oil sands sector.
He is also waging what some observers suspect is a losing battle against cancer. To make matters worse, a united and organized opposition, led by a charismatic free market presidential candidate in Henrique Capriles, is presenting a serious threat to his regime. And so, with Chavez fighting – literally and politically – for his life, the question becomes: what would a Venezuela run by someone other than Hugo Chavez look like?
It’s a question the people who occupy the office towers in Calgary and Houston are asking themselves. For what happens in this fall’s Venezuela presidential election will have ramifications for the oil and gas industry both in Canada and worldwide.
Chavez, despite his recent troubles, is still a formidable figure. Turn back the clock to 2006 and he had achieved an impressive political record. He had won two elections and a referendum, survived a coup attempt and a disruptive strike from the national oil company, the mighty Petróleos de Venezuela, S.A (PDVSA). He drastically changed oil contracts and “re-nationalized” the oil industry, directly confronting ExxonMobil and the other commanding highs of the oil industry.
He engaged in vast wealth redistribution programs, a massive nationalization spree, expropriating and acquiring any activity deemed “strategic” to the regime. He implemented an oil transfer program to energy dependent Central American and Caribbean countries, allowing him to gain geopolitical influence. He redirected Venezuelan foreign and petroleum policy, from a U.S.-centric strategy to one aimed at market diversification and strong integration with China, Russia and Latin America. He brought Venezuela back into the OPEC quota system, and became a leader of its price hawks. Finally, he helped to revitalize Cuba’s dying regime by exchanging around 100,000 barrels of oil every day for Cuban doctors, social workers and intelligence experts.
With 2006 oil prices having increased five times from 1998 levels, averaging US$58 per barrel, the war in Iraq raging, and with demand from China and India suggesting that oil prices would inexorably move up, Chavez was feeling confident about the future in 2006. He expected that his rule would extend to 2021 or beyond.
But the 57-year-old’s political star has faded considerably since the halcyon days of 2006. Although oil prices surpassed US$100 per barrel in 2008, he experienced his first electoral defeat in 2007 when he proposed some amendments to the constitution, including indefinite re-election for the president. Venezuela experienced a recession in 2009 and 2010 and only by 2011, fueled by recovering oil prices and massive public spending, did the economy improve. However, Venezuela today has the highest inflation in Latin America, its debt levels are increasing fast, and public services are deteriorating. Citizens live in constant fear due to increasing criminality and insecurity.
The country’s deteriorating conditions have soured the electorate, to some degree, on Chavez. The political opposition, characterized by its incompetence and inefficiency in the past, finally launched a clever and well organized primary process in 2011.
Venezuelans were exposed to a diversity of options from the candidates seeking the nomination of the “Mesa de la Unidad Democratica” (MUD) party. The chosen leader, 39-year-old Capriles, is a young and charismatic center-left politician who has cleverly focused on issues close to the day-to-day lives of Venezuelans: crime, corruption, declining services, inflation and jobs. He has avoided any direct attack on the president, calling instead for a government of reconciliation and national unity. With a total of three million votes cast during the primary elections in February, the MUD did better than expected, but it is still far below the seven million votes Chavez achieved in the 2006 elections.
Venezuela’s oil production just before Chavez took office was 3.5 million barrels per day (bpd). Since then production has declined below 2.6 million bpd − although government sources claim current production at around three million barrels daily. During the “old PDVSA” the company’s objective was to produce five million barrels daily by the middle of the last decade.
In 2005 the “new PDVSA” launched a six-year plan called “Siembra Petrolera”. It proposed oil production of 5.8 million bpd by 2012 and an investment of US$239 billion. Not only has the ambitious production goal not been met, but the financial results of the company have severely deteriorated. Its debt increased from US$2.7 billion in 2005 to near US$33 billion now.
The plan also included an expansion of refining capacity, proposing the construction of four new refineries, none of which have been completed. Moreover, existing refineries suffer from constant accidents and insufficient maintenance.
PDVSA’s natural gas objectives have not fared any better during Chavez’s reign. By now natural gas production should have been around 11 billion cubic feet (bcf) per day, but it has only reached 6.8 bcf. Venezuela was supposed to be a large exporter of liquefied natural gas, and its gas pipeline infrastructure should be connecting the western and the eastern regions of the country.
Instead, Venezuela continues to import gas from Colombia to keep its oil production flowing from the declining Maracaibo fields. The new “Siembra Petrolera” plan for 2011-2015 has more modest goals than its predecessor – reaching daily production of 4.15 million bpd of oil and 13.8 bcf per day of gas by 2015.
As production flatlines, PDVSA has been borrowing money at an incredible speed. From 2008 to 2011, the company’s debt increased by 138 per cent. A large component of that debt comes from China’s oil or debt scheme, perceived by many analysts as too costly for Venezuela. Moreover, not all the funds from China have been used for capital development, to the increasing consternation of the Chinese lenders.
With production stagnating and domestic demand growing, the cost of subsidising oil consumption in Venezuela is becoming a heavy burden, costing the government around US$15 billion per year. The burden is greater since PDVSA is forced to import more and more oil products because its existing refining capacity has been unable to meet domestic demand.
Alberta’s oil sands have been one of the benefactors of the fall from grace of PDVSA and the Venezuelan oil and gas industry during the Chavez presidency. His anti-U.S. rhetoric, plus the threat of nationalization and expropriation, caused some of Big Oil’s players to shift their capital elsewhere, notably to bitumen deposits located in landlocked northern Alberta, which has accelerated development of the resource.
But a Chavez defeat in this fall’s presidential elections, and a return to the Venezuela and PDVSA of the early 1990s, could have the oil and gas industry flocking to Venezuela once again and focusing less on investing in a high-cost resource like the oil sands. While there might not be any threat of expropriation in Alberta, the fact is crude oil from the Orinoco is far cheaper to produce and transport than oil sands crude. What’s more, it only takes five days to move a supertanker from Venezuela to the U.S. Gulf Coast.
But whether Venezuela is poised for a regime change is open for much debate. General elections will be held on October 7, 2012. Currently Venezuelans are bombarded by an opinion poll war, but all of them show Chavez ahead. If he is healthy enough to run, he is likely to win the elections. However, his health is a mystery.
In 2011 he underwent an operation in Cuba to extract cancer from his pelvic region. Since then he has undergone a series of chemotherapy treatments and a second operation in February. He continues to travel to Cuba for more cancer treatment, but his public appearances are becoming more infrequent and there are rumors he is losing his fight to beat the disease.
Currently there is no clear successor within the “Chavista” circles to replace Chavez, but the recent appointment of a Council of State headed by his vice-president, Elias Jaua, could be seen as a plausible transition mechanism. Inevitably some of Chavez’s close advisors are discreetly positioning for such an eventuality. Three possible successors include his brother, Adam Chavez, and Diosdado Cabello – the head of Venezuela’s National Assembly, as well as Venezuela’s Foreign Minister, Nicolas Maduro.
A status quo scenario, where Chavez or a Chavista substitute is in power, would result in a slow but progressive improvement of Venezuela oil output. The ambitious expansion programs may not be achieved on time, but one can expect a positive trend.
Improved governance between PDVSA and its foreign partners is likely to allow for that to occur. If so, new players would be interested in entering this country’s risky oil and gas game again.
Capriles’ petroleum policies are harder to discern, but his rare comments on the matter point to favoring a strong national oil company that would be able, with different management, to achieve high levels of efficiency. What is required is simply to liberate PDVSA from all that political interference. Capriles denies any desire to privatize the company, but would like to attract more private investment in the sector. Apparently influenced by the Brazilian model, he likes to think Venezuela could learn from Norway, something Brazil claims to have done. Unfortunately, neither Brazil nor Venezuela is Norway.
If Capriles were to be elected, the new administration will face numerous challenges starting with a National Assembly, and other key institutions, such as the armed forces, the electoral authorities and PDVSA, controlled by Chavistas. The new president would be reluctant to deviate too much from PDVSA’s current strategy. Moreover, current legislation allows the government to increase private sector participation in the oil industry. His focus, therefore, is likely to be on lifting production and improving earnings.
It’s important to point out that any efforts to revive a “technocratic” PDVSA may face some political realities. Chavez’s meddling in petroleum matters caused many of Venezuela’s best and brightest petroleum minds to leave the country. The expertise lost is now leading an oil boom in Colombia; and one would doubt that after being successful in the private sector, former employees would want to return to a “government job”.
As difficult as the situation is, there are reasons to believe the period of production decline in Venezuela is over. In fact, realizing its huge financial burden and numerous operational challenges, PDVSA seems willing to assign more resources to capital development. Central to the reversal of production is the US$2-billion “Tri- color” investment plan in the Orinoco belt, aimed at boosting production there to 1.6 million bpd by the end of the year. Secondly, PDVSA appears to be asking its partners to help finance its share of their joint ventures. Large companies such as Chevron and the China National Petroleum Corporation seem willing to accept the request in exchange for better governance in the joint ventures.
However, the question remains if Capriles, Chavez or a Chavista successor would have the vision and capabilities to further open up the sector, improving contractual terms and offering a concession model that would bring back the capital and competition necessary to finally meet its old goal of doubling current production by the time the next presidential elections take place. If that were the case, Venezuela, free of ideological hobbles, could focus on regaining market share in its most profitable market, the U.S. Gulf of Mexico – the main target of Alberta oil producers.