(Energy Analytics Institute, 28.May.2018) — Venezuela’s upstream, downstream and midstream sectors remain attractive, yet unattractive to investors.
Why the contradiction?
The three sectors remain highly attractive due to the fact that Venezuela — the country with the world’s largest crude oil reserve base and the eighth largest natural gas reserve base — is arguably one of the most attractive geological locations in the world. Petroleum reservoirs here contain light and medium oil deposits, while the Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja, contains the largest accumulation of heavy and extra-heavy crude oil (EHCO) in the world. From the prolific Lake Maracaibo in the west to the massive Faja in the east, the opportunity set is second to none. And that’s excluding other natural resources from iron ore to gold that makes this place that much more attractive.
However, above surface issues continue to ruin the energy party due to continued political, economic and financial turmoil as well as an ongoing humanitarian crisis. A list of some of the issues from these crises, in no specific order, include corruption, price and currency controls, five-digit inflation, homicide rates among the highest in the world, kidnappings of foreigners and embassy employees, worthless currency, the Petro, a brain-drain of talent, a FDI drought, Nicolas Maduro, ongoing nationalization threats, gas deficits, black and brown outages, refinery output trending towards nothing, oil production in steady decline, service providers payment backlog, political appointees at PDVSA, drug trafficking, and mismanagement of resources, continue to prove Venezuela is not for the light of heart investors.
Taking these issues, among others, coupled with recent detentions of executives from companies from Houston-based Citgo Petroleum to PDVSA to California-based Chevron Corporation only serve as evidence to the still complicated operating environment that exists in this OPEC nation of around 30 million citizens.
Nowadays, political issues above ground continue to dictate what goes on below ground, even if indirectly. When has that ever been otherwise in Venezuela? There’s no doubt Venezuela — or if you prefer, Cuba with petroleum and the Russians (in contrast or comparison to Cuba and the Soviets in the past) — will remain a country to watch for petroleum investors for many years to come.
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By Pietro D. Pitts, special Energy Analytics Institute. © Energy Analytics Institute (EAI). All Rights Reserved.