Plummeting Oil Prices and Venezuela’s Energy
Outlook
-- Agenda -All times are Pacific Times (GMT/UTC – 8 hours)
11: 00 – 11:05 am
11:05 – 11:10 am
11:10 – 11:30 am
11:30 – 12:00 pm
12:00 pm
Review of agenda & logistics by Alexis Arthur, Energy Policy Associate at the
Institute of the Americas
Introductory remarks by Jeremy Martin, Energy Program Director at the Institute
of the Americas
Presentation by Francisco J. Monaldi, Harvard Kennedy School
Question & answer session
Session close
Follow the conversation on Twitter @IOA_Energy
Venezuela Oil Industry Outlook
Francisco Monaldi, Ph.D.
Visiting Professor and Roy Family Senior Fellow, Harvard Kennedy School
Non-Resident Fellow, Baker Institute, Rice University
Faculty Associate, School of Government, Tecnologico de Monterrey
Director, International Center on Energy and the Environment, IESA
Institute of the Americas, December 2014
Consumption and Popularity
75
65
55
45
35
Chavez popularity (lhs)
Maduro (lhs)
Real consumption growth (rhs)
25
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: BCV and Datanalisis
25
20
15
10
5
0
-5
-10
-15
-20
-25
The current macro situation
• Government deficit estimated at 20% of GDP in 2014 (about
16-17% before the price decline).
• Inflation rose above 65% in 2014 and estimates are above
100% for 2015.
• Fiscal breakeven at more than $170 with current exchange
rate mix (about Bs. 12), can be reduced with a major
devaluation to Bs. 35, but deficit still would be above 14%.
• Current account breakeven at around $70-80.
• Average Venezuela basket for this year $91 ($98 in 2013). Last
week $62.
• President’s popularity in free fall. From 51% in 2013 to 24%
today, and falling.
Oil industry’s performance: key points
1.
Private investment boom in the decade before 2003 added 1 mbd of
production. That and the price boom made expropriation very attractive.
2.
A decade of very favorable conditions for development of the oil sector
was wasted. High oil prices, very large reserves, and new investment
projects in the pipeline.
3.
Reality of decline and mismanagement. Production declining, subsidized
domestic consumption increasing, exports declining, large external
subsidies, costs increasing, number of workers increasing, arrears and
debt going up.
4.
Uncertain future. Conventional production keeps declining. Extra-heavy
requires large investments that are unlikely to materialize.
Venezuela will continue to produce oil… until the world demands it
Venezuela’s official proven oil reserves are 298 billion barrels (using a 20% recovery rate on the
Orinoco Belt, for 257 billion barrels). The USGS estimates that 510 billion barrels would be ultimately
recoverable in the Orinoco Belt (using a 45% recovery rate). Even using a 10% recovery rate
Venezuela would have the second largest reserves after Saudi Arabia, at around 190 billion barrels
300.0
297.6
250.0
Billions of barrels
200.0
150.0
100.0
50.0
0.0
1980
1985
1990
1995
2000
Sources: PODE hasta 2008, (*) Informe Operacional y Financiero de Pdvsa (2009), (**)
Informe de Gestión PDVSA 2010 e (***) Informe de Gestión PDVSA 2011.
2005
2010
9
Reserves/production comparison
Venezuela still offers an outstanding potential as an oil producer. The question is
how to take advantage of that potential.
Non.OPEC
OPEC
Nigeria
United Arab Emirates
Saudi Arabia
Kuwait
Iran
Russian Federation
Venezuela
US
0
50
100
150
200
Years of production
Source: BP Statistical Review of World Energy (2013)
250
300
350
Venezuela: Proven Reserves (billion barrels)
Type
Condensates
Grav, API
>39
Reserves
2
Light
30 – 38.9
11
Medium
22 – 29.9
10
Heavy
10 – 21.9
18
X Heavy
0 – 9.9
257
TOTAL
298
Orinoco
H=4
XH = 255
Source: PDVSA
3500
3000
Net oil exports
3007
2760
2500
2000
1846
1500
Venezuela
1000
Mexico
855
500
0
-500
-858
-1000
-1500
Source: BP Statistical Review of Energy
Brazil
Traditional Areas Decline. Orinoco partly compensates.
14
Source: PDVSA, IPD
Declining production, declining exports,
and more than one third of total production is not paid for…
North America (St. Croix included)
Central America & The Caribbean
Not paid (MBD)
Cuba 90
Others 60
Asia
Europe
Domestic market 750
(Smuggling 100, Imports 100)
South America
China loans 350
Total ~ 1.25 MMBD
Cash flow production 1.5 MMBD
Africa
Others
0
2012
200
400
600
2011
2010
2009
800
2008
1000
2007
1200
1400
1600
1800
2006
Source: PDVSA
15
The Reputational Legacy
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Texas 5
Qatar 33
United Arab Emirates 39
Colombia 48
Alberta 51
Trinidad and Tobago 58
Brazil 66
Alaska 83
Angola 118
Nigeria 124
Algeria 126
Russia 127
Libya 128
Iraq 129
Kazakhstan 131
Iran 132
Bolivia 133
Ecuador 134
Venezuela 135
Fraser Institute Global Petroleum Survey 2011:
Jurisdictional rankings according to the extent of investment barriers
(based on All-Inclusive Composite Index values)
136 jurisdictions ranked
Fraser Institute Ranking
Ranking Venezuela
Considered jurisdictions
2009 2010 2011 2012 2013
141
132
135
146
157
141
133
135
147
157
16
Investment and Social Spending
PDVSA’s Debt (US$
•
•
•
•
Millions)
PDVSA’s current external debt at ~US$44 billion
> US$10-15 billion in accounts payable
>US$6-8 billion in probable arbitration settlements. Exxon $2.1 bn.
>VEB Bs.500 billion debt with Central Bank.
50000
45000
43384
40000
35000
Millions US$
30000
25000
20000
15000
10000
5000
2914
0
2006
2007
2008
2009
2010
2011
2012
2013
18
Source: PDVSA
19
Daily production per employee
b/d per employee
120.00
PDVSA
PEMEX
Petrobras
100.00
80.00
60.00
30.37
40.00
26.14
20.00
19.32
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0.00
20
Venezuela Domestic Oil Consumption
Gasoline price: $0.07 per gallon or $0.005 at black market exchange rate.
1 cent per barrel versus $20 in Saudi Arabia.
Domestic subsidies: $24 billion in 2013
21
Source: BP
Gasoline subsidies
Gasoline Subsidies
MM US$
(2013 =100)
15,000
13,094
10,000
5,000
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
0
1,959
-5,000
Source: Menpet, EIA, Bureau of Labor Statistics and own calculations
•
Gasoline subsidies in 2013 were seven times higher than those of 2000
•
Gasoline + diesel subsidies could suffice to cover healthcare, education and social
security budget.
•
Subsidies are highly regressive: Most of it goes to rich and middle classes.
•
Social costs and externalities: Wasted time in traffic equivalent to US$ 2,000 Millions
Sowing the Oil Plan, 2013 – 2019
•
The Plan Siembra Petrolera requires investments of US$ 257 billion,
US$ 189 billion for E&P. PDVSA would have to fund about 80% of those investments
2005
Production (K b/d)
Refining (K b/d)
Exports (K b/d)
Natural Gas (MM cfd)
3269
3142
2993
6885
2012
2012
Growth (Decline)
2019
(Planned) (Observed)
(Observed)
(Planned)
5837
2910
-0,11
6.000*
4050
2822
-0,1
4600
4700
2568
-0,14
5600
9780
7327
+6.4%
11947
* FPO: 4.000 K b/d in 2019
•
•
•
•
2014 Forecast: 3.300 KBD (Previously 4.000 KBD)
2014 Investments: USD 32.7 bn.
Increase proposal: 600 KBD/year
Historical record:140 KBD/year (average 1943-1958)
Is it possible to achieve? NO!
Source: PDVSA Annual Report. Multiple years
Venezuela: Production Forecast IEA
4.1
3.9
3.7
2011 Forecast
3.5
3.3
2012 Forecast
2013 Forecast
3.1
2.9
2.7
2.5
2015
Source: IEA
2020
2025
2030
2035
24
Oil Production by contract, Venezuela 1990-2013
3.5
3
23%
MBD
2.5
16%
2
1.5
61%
1
0.5
0
Heavy-weight crudes, Joint Ventures (former strategic agreements)
Conventional crudes, Joint Ventures (former operative agreements)
Pdvsa direct management
Source: PDVSA
Source: Oil and Mining Ministry (PODE 2007-2008); PDVSA Annual Reports, 2009, 2010, 2011 & 2013.
Note 1: Since 2006 the conventional crude operative agreements transformed into Joint Ventures
Note 2: Since 2007, the heavy oil strategic agreements transformed into Joint Ventures.
Note 3: Production data does not include Natural Gas Liquids
Joint Ventures
Key partners include:
• Petroboscán
• Petroindependencia
• Petropiar
Chevron
• Petrourica
• Sinovensa
• Petromonagas
• Petromiranda
CNPC
• Petrosucre
• Petroleras Paria &
Guiria
• Petrojunín
ENI
Rosneft
• Petrokariña
• PetroVen-Bras
Petrobras
• Petrochiriquire
• Petrocarabobo
Repsol
• Petrocedeño
Total &
Statoil
Maduro’s Oil Policy: The Return of Pragmatism
 More pragmatism or is it desperation?
 Windfall tax reduction in 2013 and waiver in new Orinoco Belt
projects (before investment recovery).
 Promise of more operational and project execution control for
partners.
 Loans guaranteed by export revenues (Chevron loan to
Petroboscan and others following).
 The exchange rate.
 Reduction in Petrocaribe subsidies? Domestic subsidies?
 Pragamatic move to oil blending instead of upgrading?
 But still difficult to get the necessary investments.




PDVSA’s problems: cash flow, infrastructure, and operational issues.
Macroeconomic and political instability.
Credibility and sunk investments.
The fall in oil prices
27
Financing Agreements
Financing Agreements for $12 billion have been signed between
PDVSA and JV partners during 2013-14
Partner
Amount (USD)
JV
CNPC
4 billion
Sinovensa
Chevron
2 billion
Petroboscán
ENI
1.2 billion
Petrojunín
Gazprom
1 billion
Petrozamora
Repsol
1.2 billion
Petroquiriquire
Perenco
0.4 billion
Petrowarao
Repsol & ENI
1 billion
Perla (Gas)
Citgo
Source IHS
29
Conclusions
• More pragmatism might lead to some increase in investment,
but production is unlikely to increase much in the next year or
two.
• The production basket will get heavier and less profitable.
• The pre-tax breakeven of most Venezuelan production is well
below current prices.
• Imports of light oil and refined products will increase.
• The inhibitors of investments are still: PDVSA’s lack of
investment capacity and human resources, political and
macro instability, and the fall in the price of oil.
Upcoming Energy Programs
•
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Energy – St. Thomas, US Virgin Islands
•
February 11 or 12: 6th Annual Dominican Republic Energy Roundtable – Santo Domingo,
Dominican Republic
•
May 20 – 21: XXIV La Jolla Energy Conference - La Jolla, CA www.iamericas.org/lajolla
•
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