Venezuela Doubles Down on Chinese Money to Reverse Crisis

(AP, 20.Sep.2018) — Venezuelan President Nicolas Maduro said Tuesday that new investments from China will help his country dramatically boost its oil production, doubling down on financing from the Asian nation to turn around its crashing economy.

Already a major economic partner, China has agreed to invest US$5 billion more in Venezuela, Maduro said following a recent trip to Beijing, adding that the money would help it nearly double its oil exports to China.

“We are taking the first steps into a new economic era,” he said. “We are on track to have a new economy, and the agreements with China will strengthen it.”

A once-wealthy oil nation, Venezuela is gripped by a historic crisis deeper than the Great Depression in the United States. Venezuelans struggle to afford scarce food and medicine, many going abroad in search of a better life.

Venezuela’s inflation this year could top one million per cent, economists predict.

After two decades of socialist rule and mismanagement, Venezuela’s oil production of 1.2 million barrels a day is a third of what it was two decades ago before the late President Hugo Chavez launched the socialist revolution.

Maduro says that under the deal, Venezuela will increase production and the daily export of oil to China to one million barrels a day.

However, China is taking a strong role in its new agreements. Over the last decade, China has given Venezuela US$65 billion in loans, cash and investment. Venezuela owes more than US$20 billion.

FINALISING OIL PLANS

The head of the National Petroleum Corporation of China will soon travel to Venezuela to finalise plans on increasing oil exports.

Russ Dallen, a Miami-based partner at brokerage Caracas Capital Markets, said the influx of money appears to be investments China will control.

“The Chinese are reluctant to throw good money after bad,” Dallen said. “They do want to get paid back. The only way they can get paid back is to get Venezuela’s production back up.”

Venezuela also agreed to sell 9.9 per cent of shares of the joint venture Sinovensa, giving a Chinese oil company a 49 per cent stake. The sale will expand exploitation of gas in Venezuela, the president said.

Maduro also recently launched sweeping economic reforms aimed at rescuing the economy that include a creating new currency, boosting the minimum wage more than 3,000 per cent, and raising taxes.

Economist Asdrubal Oliveros of Caracas-based firm Econalitica said he doubts that Venezuela can reach the aggressive goal to boost oil exports to China to one million barrels a day, given problems faced by the state corporation PDVSA.

“Increased production I see as quite limited,” Oliveros said. “The Chinese companies alone have neither the muscle nor the size to prop up production.”

***

OPEC’s Decade of Turmoil Leaves Cartel Seeking a New Way Forward

(Bloomberg, Christopher Sell, 20.Sep.2018) — A global recession, both $140 and $30 oil, the U.S. shale revolution, a market-share war, and output cuts. OPEC’s 60-year history has rarely confronted a more challenging period than the past decade.

Now, instead of enjoying the higher prices resulting from 18 months of joint production cuts with a coalition of other major producers, the cartel faces new problems. A tweet-happy American president is ramping up geopolitical risk, renewed sanctions are hammering Iran’s exports, Venezuelan production is tanking as its economy collapses, and a political attack from Washington in the form of the NOPEC bill.

The alliance of exporters, spearheaded by Saudi Arabia and Russia, meets on Sunday in Algeria to consider its response to these challenges, while also taking the next steps to cement their alliance into 2019 and beyond. The Organization of Petroleum Exporting Countries response to crises over the past decade offer clues to the path it might take forward.

Global Crisis

Ten years ago, a banking crisis triggered a global economic downturn and a crash in oil prices as demand was obliterated. After peaking at a record $147.50 a barrel in July 2008, Brent crude fell as low $36.20 by year-end. Facing catastrophe, OPEC members put aside internal squabbles and agreed production cuts that were historic in their speed and scale — output fell 16 percent in just eight months. It worked, and prices began to recover in 2009 even as the world was mired in recession. After Chinese consumption came roaring back in 2010, the group was able to open its taps again as the cost of crude surged back toward $100.

Shale Boom

From 2011 onward, OPEC enjoyed years of riches and relative stability as oil traded near $100 a barrel, but a threat was emerging. A new generation of wildcatters from North Dakota to Texas was deploying innovative fracking technology to tap previously inaccessible shale oil deposits. OPEC was blind to the danger at first, then downplayed the risk even as some members raised the alarm — reasoning that shale was an expensive business and the cartel simply had to bide its time. By mid-2014, U.S. production had jumped more than 50 percent, crude prices were teetering on the brink and it was clear this new industry was reshaping the global market as OPEC stood by and watched.

Price War

By late 2014, there was a global oil glut, prices were collapsing and U.S. shale was showing no sign of slowing. Pressure increased on OPEC to respond as it had done in 2008 and cut output, but Saudi Arabia had a different plan. Driven by a combination of hubris and grievance — the kingdom thought it could easily vanquish high-cost shale and was sick of shouldering the burden of stabilizing prices alone — energy minister Ali Al-Naimi rejected requests from fellow members and opened the taps in a war for market share. At first it seemed to work — the price slump worsened and put immense financial pressure on OPEC, but also triggered a collapse in U.S. drilling and forced producers to close the taps.

Alliance with Russia

By mid-2016, Al-Naimi’s gambit looked like a failure. Crude still languished near $40 a barrel, putting some OPEC members on the brink of economic collapse. However, U.S. production was rising again after drillers made huge cost cuts and bloated crude stockpiles threatened to depress prices for years to come. A new Saudi minister, Khalid Al-Falih, was appointed and set about engineering a historic agreement including major producers from outside the group. By late 2016, he had secured the cooperation of 10 other nations, most importantly Russia, who agreed to remove 1.8 million barrels a day of supply from the market. Thanks to this deal, crude has staged a spectacular recovery from its bruising slump. In April, OPEC and its allies concluded they had achieved their goal of re-balancing the market and even higher prices beckoned.

U-Turn

If only it was that simple. OPEC’s moment of celebration faded fast as U.S. President Donald Trump threw a spanner in the oil market. Accusations on Twitter that the cartel was artificially inflating prices were followed by his renewal of sanctions on Iran’s exports and additional penalties that worsened the decline of Venezuela. Within a month, Saudi Arabia and Russia were signaling their intention to roll back the cuts, and in June they successfully pressured the rest of the group to agree. After 18 months of fairly harmonious supply restraint, some OPEC members were hastily reopening the taps, while others howled in protest from the sidelines.

What Next?

Where does OPEC turn now? Lessons from the group’s history point eastwards, toward a permanent partnership with Russia, said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA. It’s the most effective counterbalance to the shale revolution, which continues to reshape the market, he said.

“U.S. shale oil will be reaching the Atlantic Basin, and Asian markets alike, more regularly and in greater volumes as pipeline connections to the Gulf Coast and oil terminals are built or expanded,” Tchilinguirian said. This competitive challenge, along with demand dynamics that accompany the transition to cleaner energy, give OPEC an incentive to establish a permanent relationship with Russia and a growing number of non-members, he said.

Whether such an alliance would actually prove effective at managing the market in the long term is another matter, said Bob McNally, president of Rapidan Energy Group.

“The jury remains out as to whether this new Saudi-Russia led entity will succeed longer term at preventing future booms and busts or, like a number of other temporary ad-hoc cartels since oil’s earliest days, it will succumb to greed and indiscipline,” McNally said.

To contact the reporter on this story: Christopher Sell in London at csell1@bloomberg.net To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Rakteem Katakey

***

President Moise Wants Full Transparency in PetroCaribe Probe

(CMC, 19.Sep.2018) — President Jovenel Moise has called on newly installed Prime Minister Jean-Henry Céant to ensure that there’s total transparency in the investigation regarding the use of funds under the PetroCaribe initiative.

“As I explained in my message of Prime Minister Jean Henry- Céant (and) to the nation, and included in the statement of the general policy statement presented to Parliament, Prime Minister Céant must allow the nation to see clearly what has happened in the use of PetroCaribe funds,” Moise said during the inauguration of the new prime minister and his cabinet on Monday.

“The people are asking for explanations on the use of this money. The competent services of the State, notably the Central Financial Intelligence Unit, the Anti-Corruption Unit, the General Inspectorate of Finance will be mobilised on the PetroCaribe file.

“Besides the work of the Court of Auditors and Administrative Litigation, it is up to these technical services of the State to provide answers to the request for explanation of the population,” Moise said.

He said institutionally, the State must provide answers to the PetroCaribe file, adding “I ask people to remain calm and wait for the results of the work of the relevant institutions.

“We must avoid making amalgams so that honest citizens are not victims or unjustly indexed in the PetroCaribe file. The State is there to guarantee everyone the right to life and honour. This is why, at the institutional level, the State must treat the PetroCaribe dossier with the necessary rigour and give explanations to the citizens,” Moise said.

Concerns as to how the PetroCaribe funds have been used by previous governments have resulted in Haitians taking to the streets in protest at the billions of US dollars that have been allegedly squandered from the Venezuela oil programme.

Haitians have launched the “#petrocaribechallenge” campaign that has already resulted in the removal of the previous government headed by Jack Guy Lafontant.

Following Haiti’s 2010 earthquake, Caracas forgave US$295 million in debt that Port-au-Prince had accumulated since joining the PetroCaribe programme in 2006. However, since the quake the debt has ballooned.

PetroCaribe is an oil alliance of many Caribbean states with Venezuela to purchase oil on conditions of preferential payment. The alliance was launched in 2005 and in 2013 Petrocaribe agreed to links with the Bolivarian Alliance for the Americas, to go beyond oil and promote economic cooperation.

A Haitian Senate Commission investigative report last year alleges a significant amount of money had been embezzled under the programme.

In his address, Moise said that in search of a better being, the Haitian people demand more justice.

“More social justice, more economic justice, more transparency and rigour in the management of public funds. The Haitian youth wants to recover faith, confidence in the future. Accountability must now be a principle that cannot suffer from any derogation. There can be no excuses, no extenuating circumstances for those who have mismanaged state resources.”

He warned that no development is possible without justice, and that the greatness of a nation depends on the quality of justice.

“Justice must act independently. I ask your government to facilitate a fair and equitable distribution of justice.”

Moise said that Haiti “has everything it needs to live up to the glorious history forged by the heroes of 1804” and that by taking the right steps, “we can sustainably and positively change the living conditions of the population”.

He told the new government it must succeed in a number of areas including signing a pact with the private sector to promote jobs and growth, a sustainable solution to the minimum wage issue, as well as enabling the country to have universal and compulsory medical insurance.

Moise said there was also need to accelerate ongoing work in the field of infrastructure as well as to find the appropriate financial mechanism for the construction of the missing classrooms, so that all school-aged children attend school in good conditions and remain there.

He also called on the new government to supervise and continue the work undertaken in the framework of the reform of the State and strictly apply the decree on the reduction of the lifestyle of the State, take appropriate measures to resolve social crises in neighbourhoods and improve the working conditions of the security forces and ensure that the new army under construction is mobilized in the vast site of environmental rehabilitation.

***

Nicolas Maduro Says Venezuela to Double Oil Production

Venezuela’s President Nicolas Maduro. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 18.Sep.2018) — Venezuela, the struggling OPEC producer, is now planning to double its production of crude oil, according to statements from the country’s president.

“With revolutionary spirit we will double the productive capacity of PDVSA,” announced Venezuela’s President Nicolas Maduro during a press conference in Caracas broadcast on national television.

Venezuela – reeling in political, economic and humanitarian crises and suffering from the world’s highest inflation – continues to struggle to stop further declines in its oil production amid a near complete collapse in oil sector investments.

According to data in OPEC’s Monthly Oil Market Report, published on September 12 and citing data based on secondary sources, the South American country’s oil production fell 2.9 percent to 1,235 thousand barrels per day (Mb/d) in August 2018 compared to 1,272 Mb/d in July 2018.

***

Venezuela’s Maduro Says Relationship With China ‘Win-Win’

(Energy Analytics Institute, Piero Stewart, 18.Sep.2018) — In terms of bilateral cooperation, Venezuela and China are seeking a ‘win-win’ scenarios.

“Relations with China are very clear and have been framed around mutual respect and under the premise of win-win, which has allowed for the reactivation of financial funds, and revival of sustained development,” announced Venezuela’s President Nicolas Maduro during a press conference in Caracas broadcast on national television.

***

IEA Warns of Higher Oil Prices as Iran and Venezuela Losses Deepen

(Bloomberg, Grant Smith. 13.Sep.2018) — The International Energy Agency warned that oil prices could break out above $80 a barrel unless other producers act to offset deepening supply losses in Iran and Venezuela.

Iranian crude exports have fallen significantly before U.S. sanctions even take effect, the IEA said in a monthly report. The Middle Eastern nation will face further pressure in coming months and the economic crisis in Venezuela is pushing output there to the lowest in decades. It’s uncertain whether Saudi Arabia and other producers will fill any shortfall, or how far they’re able to, the agency said.

“Things are tightening up,” said the Paris-based IEA, which advises most major economies on energy policy. “If Venezuelan and Iranian exports do continue to fall, markets could tighten and oil prices could rise” unless there are offsetting production increases elsewhere, it said.

Oil climbed to a three-month high above $80 a barrel in London on Wednesday as fears of a supply crunch eclipsed concern about the risks to demand such as the U.S.-China trade dispute. While the Organization of Petroleum Exporting Countries and allies including Russia pledged to boost supply, the IEA said it remains to be seen how much will be delivered.

Saudi Arabia lifted output by 70,000 barrels a day to 10.42 million last month, but that remains “some distance from the 11 million barrels a day level that Saudi officials initially suggested was on the way,” the IEA said.

While the agency warned that “there is a risk to the 2019 outlook” for demand from challenges in emerging markets such as currency depreciation and trade disputes, it kept forecasts for consumption unchanged.

In the meantime, supply risks dominate. Oil inventories in developed economies are already below-average and will decline further in the fourth quarter, the IEA predicted.

Venezuela, which is pumping at just half the rate it managed in early 2016, could see its output slump another 19 percent to 1 million barrels a day this year as infrastructure deteriorates and workers flee, the agency predicted.

Iranian production has already fallen to the lowest since July 2016, at 3.63 million barrels a day, as buyers retreat ahead of U.S. sanctions that come into force on Nov. 4.

Although Russia, Saudi Arabia and other Gulf members of OPEC promised to bolster production by about 1 million barrels a day, the IEA remained cautious on whether the full amount would be delivered. It’s unclear how quickly OPEC’s spare capacity, which stands at about 2.7 million barrels a day, can be activated, it said.

“We are entering a very crucial period for the oil market,” which could push prices out of the $70-to-$80 a barrel range seen in the past few months, the IEA said.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Rachel Graham.

***

U.S. Company Manager Pleads Guilty in PDVSA Bribery Scheme

(Reuters, 13.Sep.2018) — A former manager of a U.S.-based logistics company pleaded guilty on Thursday to paying bribes to secure contracts from Venezuela’s state oil company PDVSA, and the guilty plea of the official who was bribed was also unsealed, the U.S. Justice Department said.

Juan Carlos Castillo Rincon, 55, pleaded guilty in federal court in Houston to conspiring to violate the Foreign Corrupt Practices Act, the Justice Department said in a statement.

Judge Nancy K. Johnson also unsealed the guilty plea of Petróleos de Venezuela, S.A. (PDVSA) official Jose Orlando Camacho, 46, whom Castillo had bribed, it said.

Camacho had pleaded under seal to conspiracy to commit money laundering in July 2017, the statement said. It referred to Camacho as a “foreign official” but did not specify the position he held in the company, Petroleos de Venezuela.

Fourteen people have now pleaded guilty as part of an investigation by the Justice Department into bribery at PDVSA that became public with the arrest of two Venezuelan businessmen in December 2015.

Castillo, of Conroe, Texas, was arrested in Miami in April after he was indicted by a grand jury, the statement said.

A manager at a Houston-based logistics and freight forwarding company, Castillo admitted to conspiring with others to bribe Camacho from 2011 through at least 2013 in exchange for help in obtaining contracts and inside information about the company’s bidding process.

The Justice Department said that Camacho, of Miami, admitted as part of his plea deal to accepting bribes from Castillo and the company he worked for, as well as conspiring with him to launder proceeds of the scheme.

Castillo and Camacho have agreed to forfeit the proceeds from their criminal activity, and both are scheduled to be sentenced on Feb. 21, the Justice Department said.

***

Venezuela’s Aug. 2018 Oil Output Continues Decline: OPEC MOMR

(Energy Analytics Institute, Jared Yamin, 12.Sep.2018) — Venezuela’s oil production seems on an unstoppable downward trend.

The OPEC country’s production of crude oil fell 2.9 percent to 1,235 thousand barrels per day (Mb/d) in August 2018 compared to 1,272 Mb/d in July 2018, according to data published in OPEC’s Monthly Oil Market Report, published on September 12 and citing data based on secondary sources.

Ecuador

Ecuador’s oil production rose slightly to 529 Mb/d in August 2018 compared to 525 Mb/d in July 2018, according to OPEC’s secondary sources data.

***

Jamaica’s Economy Gets $5 Bln From PetroCaribe Over 13 Years

(CMC, 12.Sep.2018) — Jamaica says it has benefitted from projects estimated at US$5 billion under the Venezuela-led PetroCaribe initiative over the past 13 years.

CEO of the Petro-Caribe Development Fund Dr Wesley Hughes said the contributions of the fund to Jamaica have been “meaningful and significant”.

Speaking earlier this week at a ceremony marking the 203rd anniversary of the Jamaica Letter written by Venezuela’s liberator Simón Bolívar in 1815, Hughes said the PetroCaribe Development Fund, which has a mandate to strengthen national capacity in the areas of human capital, culture, infrastructure and the environment, had established the Simón Bolívar Cultural Centre as an important vehicle in strengthening the friendship between the two countries.

Hughes said the Jamaica Letter has had a “long-lasting impact on Venezuela and on all of Latin America, and I dare say the Caribbean”.

He said the letter demonstrated that Simón Bolívar understood that social and political organisations had to be based on national foundations and must be inclusive of all classes of the people who lived in those societies.

“Today, 203 years later, we stand here, a few metres from where Simón grappled with the ideas of nationhood, independence and national identity, and how leaders should relate to their citizens,” he added.

PetroCaribe is an oil alliance of many Caribbean states with Venezuela to purchase oil on conditions of preferential payment. The alliance was launched on 29 June 2005 in Puerto La Cruz, Venezuela. In 2013 Petrocaribe agreed for links with the Bolivarian Alliance for the Americas (ALBA) to go beyond oil and promote economic cooperation.

***

Venezuela Constituent Assembly Seeks to Woo Private Oil Investment

(Reuters, Mayela Armas, 12.Sep.2018) — An overhaul of Venezuela’s constitution being prepared by the pro-government Constituent Assembly will likely include changes intended to attract private investment in the country’s oil fields, according to two assembly members.

Production by the OPEC nation’s oil industry is at a 60-year low, leaving President Nicolas Maduro’s government strapped for cash as it grapples with hyperinflation and a fifth year of economic contraction.

The Constituent Assembly, whose powers supersede those of the country’s Congress, would reword some articles of the constitution to reduce emphasis on state control of oil and ease the way for private investment, the assembly members said.

“We must take into account the economic situation of the country. You need investments to recover production,” said Assemblyman David Paravisini.

Assembly colleague Hermann Escarra echoed Paravisini.

***

PDVSA to Reopen Damaged Port Dock by Month’s End -Documents

(Reuters, Marianna Parraga, 12.Sep.2018) — PDVSA expects to reopen the south dock of Venezuela’s main oil port Jose by the end of September, easing strains on crude exports delayed due to a tanker collision last month, according to internal trade documents from the state-run oil firm seen by Reuters.

Last week, PDVSA began diverting tankers to Puerto la Cruz for loading, but the South American country’s crude exports have remained slow in recent weeks as few customers have accepted the 500,000-barrel-per-cargo maximum neighboring terminals can handle.

Besides Puerto la Cruz, tankers waiting to load a total 2.65 million barrels of Venezuelan upgraded and diluted crudes also plan to be serviced this month by two monobuoys at Jose, including cargoes scheduled for U.S.-based Chevron Corp and Russia’s Rosneft, the documents showed.

But a 1-million-barrel cargo of diluted crude oil (DCO) scheduled to be lifted by Rosneft at Jose between late September and early October was cancelled, according to the documents.

Rosneft and PDVSA in April agreed to a “remediation plan” to refinance an oil-for-loan agreement after delays to deliver cargoes of Venezuelan crude on time. DCO shipments scheduled since then belong to that plan.

PDVSA did not immediately reply to a request for comment.

At least three other 500,000-barrel cargoes for Valero Energy and PDVSA’s U.S. refining unit Citgo Petroleum plan to be loaded at Jose’s available docks and monobuoys in the coming days, after delays.

Valero also would pick up two additional 600,000-barrel cargoes of Morichal crude after a maintenance project that would halt the 150,000-barrel-per-day Petromonagas crude upgrader in August was again postponed, allowing more production.

PDVSA and its joint ventures exported 1.292 million barrels per day (bpd) of crude last month, a 7.7 percent decline versus July, according to Thomson Reuters trade flows data.

The country’s oil output fell again in August to 1.448 million bpd, according to numbers reported by OPEC on Wednesday. Venezuela’s accumulated annual production this year is 1.544 million bpd, the lowest since 1950. (Reporting by Marianna Parraga in Mexico City Editing by Marguerita Choy)

***

Maduro Looks to China to Bolster Venezuela’s Collapsing Economy

(Afp, 12.Sep.2018) — Venezuela’s President Nicolas Maduro departed Wednesday for China in search of agreements to bolster the oil-exporting country’s collapsing economy.

Maduro said the trip was “very necessary, very opportune and full of great expectations.”

“We are leaving under better conditions, having activated a program of economic recovery, growth and prosperity. We are going to improve, broaden and deepen relations with this great world power,” he said in a televised address.

Maduro’s government has massively devalued the national currency as part of a raft of measures intended to halt the economy’s free-fall into hyperinflation.

The International Monetary Fund projects Venezuela’s inflation rate will reach 1,000,000 percent by the end of the year.

Hundreds of thousands of Venezuelans have fled the country, most of them into neighboring Latin American countries.

The trip to China is Maduro’s first outside the country since he was allegedly targeted by exploding drones at a military parade in Caracas August 4.

***

Venezuela Oil Production Continues to Collapse

(Energy Analytics Institute, Jared Yamin, 12.Sep.2018) — The decline is consistent and constant as well as consistently and constantly bad, writes Caracas Capital Market in a research note emailed to clients.

Summary details from the research note follow:

OPEC released the production counts for its member states today and while overall OPEC production was up 278,000 barrels per day (bpd) during the month, Venezuela’s production continued to collapse.

According to OPEC’s August calculations, Venezuela production fell another 36,000 barrels per day (bpd) to 1.235 million bpd. (Venezuela production actually fell 43,000 bpd from the original OPEC July count of 1.278, but OPEC revises their numbers as new data comes in later in the month and moved Venezuela’s July production count down to 1.272 million bpd from the original 1.278 bpd), according to the research note.

“The decline is consistent and constant.”

OPEC calculated that July’s Venezuelan production fall was 42,000 bpd and that June’s fall was 48,000 bpd. In May, Venezuela production fell 43,000; in April, -42,000 bpd; in March, -55,000 bpd; in February -52,000 bpd; in January, -47,000 bpd. Consistently and constantly bad.

In the one year period from August 2017 — when PDVSA was producing 1.918 million bpd — Venezuela has lost 683,000 bpd of production. At the current year average price, that is lost income of $47 million a day and $17.5 billion in a year.

Making this situation worse is that Venezuela’s current 1.235 million bpd production is just a shade more than a third of what the country was producing 20 years ago before Chavez came to power. Hundreds of billions of dollars lost through communism, corruption and incompetence in a country that can ill afford it.

“By the way, we are seeing just one example of how that corruption works in a case playing out before the U.S. Federal District Court in Miami that sucked $1.2 billion from PDVSA in what I label a ‘perpetual money machine for bad guys’ in today’s Miami Herald and El Nuevo Herald, writes Caracas Capital Markets Managing Partner Russ Dallen. “The cast of characters reaches all the way to the top and includes the Derwick boys (especially Francisco Convit), the Boligarch Raul Gorrin (who bought Globovision), the Maduro family (especially the stepsons ‘los chamos’ but also mentions mother Celia Flores and Nicholas Maduro), and a Swiss banker who has copped a deal to tell all (but still had to put up a $5 million bond yesterday).”

Drilling Rigs Fall

Meanwhile, Venezuela’s drilling rig count dropped by one in August, continues the Caracas Capital Market report.

Baker Hughes reports that the number of active drills operating in Venezuela fell to 27 last month, after popping up 2 in July off June’s thirty year low of 26. One of the two drills that was added in July was drilling for gas – the first in over a year. It was still deployed in August.

Having failed to capitalize on its natural gas (much less build the Mariscal Sucre LNG plant) for decades, Venezuela signed a deal last week to link into an already existing gas pipeline at a Shell platform in bordering Trinidad waters and through that pipeline pump gas to Trinidad’s Atlantic LNG plant where it will be converted into LNG for export.

Long time readers will also recall that Rosneft was given a 30 year totally wide-open lease on a gas field in that area last year.

Maduro Goes to China

Finally, as we predicted in our “China Promises Venezuela More Money” Report yesterday and correctly forecast in a Report and Wall Street Journal column in July, Venezuela seems to be making headway in getting help from the Chinese, writes Dallen.

“No one else seems to have been able to accurately uncover and read these Chinese tea leaves, so I am especially proud of our Caracas Capital team. We continue to knock the ball out of the park for our clients,” writes Dallen.

Maduro has just announced that he is going to China to sign some big new deals.

Minister of Oil and PDVSA head Manuel Quevedo is also in Beijing meeting with CNPC and is offering to expand natural gas agreements as well. Yesterday, Venezuela’s oil ministry released a statement touting that the Sinovensa joint venture had increased oil production from 70,000 bpd to 110,000 bpd.

Aside from oil, gas and drilling, we are anticipating some other upcoming ventures in gold mining, coltan and diamond mining, concludes the Caracas Capital Market note.

***

Venezuela Wants To Overhaul State Oil Firm PDVSA

(Oilprice.com, Tsvetana Paraskova, 7.Sep.2018) — Venezuela has set up a commission that will be working to reshuffle and reorganize its state oil firm PDVSA in the next few months, according to the country’s Official Gazette on Thursday, in what would be the latest Venezuelan attempt to show that it is trying to revitalize its dying oil industry.

According to OPEC’s secondary sources, Venezuela’s oil production in July dropped to below the 1.3-million-bpd mark—at 1.278 million bpd, plunging 47,700 bpd from June. This compares with an average of 2.154 million bpd in 2016, and an average of 1.911 million bpd in 2017.

Some analysts expect Venezuela’s production to fall to below 1 million bpd by the end of this year.

Venezuela has been claiming lately that it plans to raise its oil production.

Last week, PDVSA said that it signed a US$430 million joint service agreement with seven companies that would help it increase its crude oil production by 641,000 barrels per day.

On top of the incessant production slump, PDVSA has seen difficulties in exporting its oil cargoes after a partial closure at the Jose port at the end of August delayed shipments.

A week before that, ConocoPhillips reached a settlement with PDVSA to recover the full US$2-billion amount that an international court awarded it earlier this year for the expropriation of its oil assets in Venezuela a decade ago. PDVSA agreed to settle the dispute with Conoco and possibly save some assets in the Caribbean from seizures, as the U.S. oil firm said that it would be suspending the legal actions to enforce the award.

PDVSA has 90 days from August 20 to make the first US$500 million payment of the award to Conoco. On September 5, Conoco’s chief executive Ryan Lance said that the U.S. company was still awaiting the payment, but expected Venezuela to honor the settlement agreement. If payments aren’t made, however, ConocoPhillips would resume its legal enforcement actions, Lance noted.

***

Tanker Backlog Builds Again in Venezuela

(Reuters, Marianna Parraga, 6.Sep.2018) — Crude exports by Venezuela’s PDVSA have slowed after a tanker collision at its main port last month disrupted operations, adding to a backlog of vessels waiting to load, according to shipping sources and Reuters data.

Oil is the financial lifeline for the embattled socialist government of President Nicolas Maduro, but his cash-strapped administration has failed to invest enough in the industry to prevent its decline. Venezuela has sought to increase exports after asset seizures and declining output earlier this year raised the prospect of temporary suspension of contracts.

PDVSA has not said how long it will take to repair damage from the collision and resume normal loading and discharging operations. The company did not immediately reply to a request for comment.

Last week, PDVSA offered loadings at an alternative port to crude customers whose shipments were affected by the collision, but only a few have accepted so far, the sources said. That alternative, the Puerto la Cruz terminal, is limited to loading 500,000 barrels of crude per tanker, far less than the 2 million barrels PDVSA’s main port of Jose can handle.

Large tankers including three Suezmaxes and seven Very Large Crude Carriers (VLCCs) are lined up off Jose waiting to load at the available docks and monobuoys systems.

The vessel backlog around PDVSA’s ports has been increasing since late August, following the collision. As of Sept. 6, more than 20 tankers were waiting to load 26 million barrels of Venezuelan crude, according to Reuters Trade Flows and vessel tracking data.

PDVSA’s crude exports rose in July to 1.39 million barrels per day (bpd), the most since November, but last month they slipped almost 8 percent to 1.29 million bpd on Jose port’s partial operations, falling oil output and Caribbean terminal seizure attempts by creditors including U.S. producer ConocoPhillips, according to the Reuters data.

One of PDVSA’s main customers, Russia’s state-run Rosneft, loaded a 925,000-barrel cargo of diluted crude oil (DCO) during the weekend at one of Jose’s monobuoys after being diverted from the South dock, still closed because of the collision.

Rosneft-chartered Nordic Moon set sail to Malta on Sunday after waiting to load in Venezuela since early August. But the Russian company still has other four vessels waiting to load up to 6 million barrels of heavy crude at Jose, according to the data.

Jose’s South dock, which suffered damage from the collision last month, is mainly used for shipping Orinoco Belt crude and discharging imported naphtha used to dilute the country’s extra heavy oil and make it exportable.

Reporting by Marianna Parraga; Editing by Steve Orlofsky

***

Venezuela Creates Commission to Reorganize PDVSA: Document

(Reuters, 6.Sep.2018) — Venezuela has created a commission to reorganize state oil company PDVSA in the coming months, according to the Official Gazette circulating on Thursday.

PDVSA did not immediately respond to an email seeking further details.

Reporting by Caracas newsroom; Editing by Chizu Nomiyama

***

Venezuela Oil Sales to US Fell in August

(Reuters, 4.Sep.2018) — Venezuela’s crude sales to the United States fell in August for the second month in a row as exports of two of the South American country’s main grades dropped following port interruptions by a tanker collision, according to Thomson Reuters Trade Flows data.

Venezuela’s state-run oil company Petróleos de Venezuela, S.A., known as PDVSA, and its joint ventures last month exported an average of 468,300 barrels per day (bpd) of crude in 30 cargoes to their customers in the United States, the data show. The total was the third smallest monthly figure this year.

PDVSA’s oil shipments have been affected in recent weeks by export limitations at the country’s main oil port, Jose, after a minor tanker collision forced the state-run firm to halt operations at one of its three berths.

The Jose dock problem came as the country was attempting to reverse a series of blows to oil exports, including declining output, a severe lack of investment in its energy infrastructure and asset seizure attempts by creditors.

PDVSA last week started a contingency plan for diverting tankers waiting at Jose to load to the nearby terminal of Puerto la Cruz. It has not said for how long Jose’s loadings would be affected.

The state-run company last month exported to the United States a 500,000-barrel cargo of Merey crude and three 500,000-barrel cargoes of Zuata crude, two of the OPEC-nation’s main grades for exports. Both come from the Orinoco Belt, Venezuela’s largest oil producing region.

Crude upgraders at the Orinoco, essential for turning Venezuela’s extra heavy oil into exportable grades, have been working intermittently in recent months due to planned maintenance and outages, limiting volumes available for export.

U.S. refining firm Valero Energy was the largest receiver of Venezuelan crude last month with 153,000 bpd, followed by PDVSA’s unit Citgo Petroleum and Chevron Corp , according to the data.

Shipments to spot customers in the United States continued falling to some 40,000 bpd in August, the second smallest monthly figure so far this year.

(Reporting by Marianna Parraga; Editing by Richard Chang)

***

Scorch Earth Suicide in Venezuela

(EnergyNomics de Venezuela, Carlos A Rossi, 1.Sep.2018) — Nicolas Maduro has drawn the line in the sand: “Either you are with me and stay here living precariously with Chavism, or you are against me and get out. If you choose none of the above: Starve.”

Cornered by a hyperinflation over 33,000% and climbing, expected to reach a million percent at years end by the IMF, a cumulative fall in the GNP of 50% since he took office in 2013, oil production to 1.2 MMb/d or 1947 levels despite harboring the largest oil reserves in the planet, plus a myriad of human miseries in education, medicine, scarcity, spontaneous protest all over and unprecedented exodus to near and far away nations and a long etc, not to mention the scourge of its neighbors and a standing military threat from the most powerful country in the World, Nicolas Maduro has had enough and on 17th of August, hereafter to be known as Red Friday, he announced a string of economic measures with the sole intent of what can only be interpreted as “Scorch Earth Policy”.

Defined: Scorch Earth Policy is “a military strategy of burning or destroying buildings, bridges, crops, water holes, or other resources in your homeland that might be of use to an invading enemy force”. Example, what Russia’s Red Army was forced to do when the Nazis invaded them in 1940. In Venezuela’s context the enemy is already here, as 82% of the people who oppose his ruling. Since the failure of Chavism in his mind can only be explained by “national and foreign economic war”, scorch earth is his only remaining option.

In his speech this fateful Red Friday Maduro defined many measures of which 3 stand out:

1) A sharp increase in the price of gasoline to international levels,

2) A unified exchange rate anchored to the governments “Petro” virtual currency, and

3) A 3,500% increase in the minimum wage.

Other measures like modest increases in income and value added taxes are minor and will not be discussed here except to say that in an economy that is in clear depression mode the increase of any kind of taxes further deteriorates consumption demand, a prerequisite for recovery.

Lets start with the sharp rise in the price of gasoline. It is actually a step in the right direction and one that I have been urging over the years. As is, at U$0.01 per liter is by far and away the cheapest in the world, second place Iran is 25 times more expensive; neighboring Colombia is 77 times more expensive and in the USA a motorist pays a full 83 times more than Venezuelans pay. This means that for what each American motorist pays to fill the gas tank of her sedan Venezuelans fill it 83 times!

This is not only beyond ridiculous but detrimental to Venezuela in many fronts:

First, it is a regressive tax on the poor who don’t own cars while the rich and middle class does.

Second, it fuels conspicuous driving consumption leaving less for exports, which would fetch tons of more money for the government.

Third, it provides irresistible incentives for contraband to neighboring Colombia and Brazil (114 times more expensive) (1).

The estimate of revenue losses to the nation for this practice has been estimated by the Venezuelan government to be anywhere between $18 billion and $20 billion per year. In fact, I strongly suspect that a big reason for this price hike is a vengeance move from Maduro to Colombia’s newly elected President Ivan Duque, who has taken a strong stance against the Venezuelan dictator.

Fourth, and finally, in other countries sharp gasoline price increases have absorbed excess liquidity from the public thus contributing to lowering fiscal deficits and inflation to normal levels (eg. Bolivia in 1980s). I said as much when I urged this policy years ago; but now I strongly doubt it would have much effect because Venezuela’s hyperinflation is foolishly fueled by the other policies of state production control, scarcity, and uncontrolled fiscal deficit of about 17% of GDP, all of which will surely exacerbate in the wake of Red Friday; even if the government successfully inoculates food transportation to the cities.

As I write these lines the government has not legally printed the new gas prices in the Gaceta Oficial, the official Gazzete that initiates the legality of any law or decree in Venezuela. To equate Venezuela’s current gas price with the international level, now at $1.16per Lt, it implies an increase of 11,500%. A much abrupt measure to be absorbed by anybody at once. But there is a caveat. Those citizens that own the “fatherland card”-the official identity card of chavism-will be exonerated from this increase by receiving at a “later date” a direct compensation into their bank accounts, or so they say, a clearly apartheid measure against most of us (>80%) that abhors what chavism has turned out to be. The experience of this plan in Iran has been reportedly good. The problem of course is that it’s hard to imagine any nation in the entire planet with a worst record of fulfilling a “Plan” than Venezuela.

But in conclusion, on balance this move is actually a plus, although it was done belatedly, much abruptly, and with clear intentions of apartheid.

Moving on, the unified exchange rate anchored to the Petro-Cryptocurrency has a so- so part and a terrible part. The unified part is good because as it stands, the complexity of 3 official levels far distant from each other plus a black parallel market exchange rate reported by a Miami private web site, where the vast majority of the transactions take place since the others are inaccessible and impractical (2). This time Nicolas Maduro did it, although again much belatedly, under much pressure, and surrendering to the Miami Web site; the level he put is almost exactly at the parallel market rate that they reported. But it is also, as my college and National Assembly member Jose Guerra reported, the single worst devaluation this country has ever experience in terms of magnitude. Maduro’s official rate devaluation this Red Friday was over 2,311%, by far dwarfing the previous 1989 mega devaluation of 134%. These sky high figures are dwarfed by the more deep space numbers of the parallel black market exchange rate: In 2018 alone this parallel exchange rate has devalued 2,332% and if you go back when Maduro started his administration, it has devaluated over 23,300,000%.

I call it so-so, a euphemism for mediocre, because it is good that Venezuela has a unified exchange rate that reflects the now market value of a strongly deteriorated exchange rate. However, what this is going to do to import costs of everything from food seeds to pharmacies, auto parts, PDVSA equipment and a long etc is downright horrible. The government has since announced that they will not auction dollars to the public because, as everyone knows, they don’t have any to offer (Venezuela’s external reserves are down to about $9.3 billion, about $1.5 billion of which is liquid and the rest are in Gold Bars that only the government is sure where they are-Middle East?). What they will auction is Petros. This leads us to the surreal and terrible part of this plan.

Cryptocurrency Petro

The anchoring of the exchange rate to a cryptocurrency Petro. The idea is for the State to link the Bolivar to the Petro and link that to the Price of Oil of 5,342mm of certified barrels of crude oil in the oil rich Orinoco Oil Belt (set at $60). So far so good because as opposed to Bitcoin that only depend on blockchain technology, the Venezuelan government is the only one allowed to mine this cryptocurrency that is linked to a tangible wanted energy source. But this is were the problem lies. First it breaks not 1 but 2 constitutional laws. The only currency that the Venezuelan Constitution allows to circulate in any form of exchange is the Venezuelan Bolivar which is also supposed to be anchored to oil exports and we already explained how the government managed that. Second, the only institution that can change this is the legitimate National Assembly which is majority controlled by the opposition, and since Maduro bulldozed their legality and ran most of them to exile, including its President Julio Borges, its hard to imagine any of them vouching for the Petro, let alone the required majority.

The second law that the Petro breaks is the guarantee, because again by constitutional law all mineral underground resources belong to the Venezuelan State, not the Government, and any deal that involves oil not yet produced must be agreed by the National Assembly, which will, again, never do. This means that if the government welshes on their commitment, as they have done numerous times, there is no way any Petro holder would be able to execute any guarantee. There is a further problem. The United States Treasury Department has formally announced direct sanctions on anyone dealing the Petro. So the Venezuelan government anchored its exchange rate on something that does not legally exist, that cant exist, and even if it does exists it will be quelled by international sanctions. This government is of course knowledgeable of all of these misfortunes but they went and did it anyway. This is Scorch Earth Policy, pure and simple.

The icing on the cake is the last policy, the outrageous and humongous 3,364+% wage hike of the minimum wage to what is today 180million bolívares per month, or in next month parlance, 1,800 Bolívares (1/2Petro) since the government also erased 5 zeros from its bills. This of course would create massive unemployment but since firing anyone is illegal here, what in all certainty will happen is massive private company closures thus creating massive unemployment. As companies shut down so will banks because they will not be able to recover their outstanding loans and will not be able to pay their own loans. As they collapse, a domino effect occurs were all privately owned pharmacies, clinics, insurance companies, food outlets, entire industrial and agricultural sectors will close shops, then the State will capture them and will thus nail down what it has always wanted, a full Communist nation. Judging from how the government has ran its already owned production and distribution facilities, its not hard to phantom what the only possible result of this will be.

Fiscal Deficit

The implications of this move to the fiscal deficit are clear. The government has about 3 million employees working in the Central Government plus an additional 3million retired people that earn the minimum wage and add a possible 600,000 people that work on contractual basis, including police in the nations municipalities etc, that also earn minimum wages. Where are they going to get the money to pay all these people? The only answer is the printing machine. But when they do this, they are either going to kill what’s left of the international reserves or destroy the Petro anchoring strategy in a month and create a black-markets for everything. In addition, the government has said that they will cover the PYMES (small and medium sized companies) payroll for 90 days. Are they really? Is a pharmacy in a far-out post in Delta Macuro State going to get this every fortnight? I don’t think so. And what about the large companies like Polar, how are they going to pay their people whom they need to produce the little people eat here?. The government is imposing price freezes in their products and raising their payroll 35 times!. GDP collapse and Scarcity galore. There is but one interpretation of this. “I am taking over everything.”

The final implication being, as stated above: “I know you are after me USA, Europe, Latin America, Canada, but if I am going down this ship is going down with me.”

Conclusions

So what are Venezuelan’s supposed to do?: Submit themselves to this hellhole quietly? Unlikely. Leave the country by sparking up what is already an enormous exodus? More Likely. Wait for a Pinochet style military coup? Possibly but only if an international threat is real. Worthwhile mentioning, these economic measures were announced the day before the legitimate National Assembly voted unanimously to uphold the ruling of Venezuela’s legitimate Supreme Court (in exile) to oust Nicolas Maduro and jail him for 18 years+ on charges of corruption. The importance of this measure cannot be overstated; for it means that a military push on Maduro cannot be seen as a constitutional break down or “coup”, since they would be fulfilling the mandate of the legitimate constitutional institutions, the National Assembly and the Supreme Court. On the contrary, if the military decides (as it looks like they are) to maintain Nicolas Maduro in power, that would be seen as a military coup by international observers.

What about an spontaneous social implosion? Likely too except that if history is any guidance the words spontaneous and successful do not go together in political movements. The memories of the 140 killed in last year’s uprisings are still fresh and create understandable fear. As it happened in India with Gandhi, South Africa with Mandela, Poland with Walesa and here in Venezuela with Betancourt in the late 1950’s and others Unified leadership and a Plan for the Day After is required; because the first identifies people with the movement and the latter assures them that they will not jump the plane without a parachute. But today given the disgraceful behavior and inflated egos of the Venezuela’s opposition parties any unity amongst them would be a miracle3. They even abstained from voting in the Constitutionally mandated Presidential Elections last May when they had Maduro on the ropes with 22% polling popularity and, at the time, over 100.000% inflation!4. What about creating destabilizing atmosphere through workers and owners strikes to breed the ground for a foreign coalition of humanitarian intervention, knowing well that whatever its results will be better than Chavism? Maybe. All of the Above? YES, Certainly, You Bet!!

Yes, the announced economic policies of Nicolas Maduro are scorched earth suicidal, just not for Venezuela.

“Tyranny cannot possibly reign but over the ignorance of the people”

Francisco de Miranda

NOTES:

1) Gas petrol stats from GlobalPetroPrices.com

2) Thru out Chavez-Maduro’s terms in office this official rates have been called, at various times, Cadivi; Sicad; Sitme and Ditcom. All of them failed for the same reason; none of them could have enough foreign currency to meet demand or deliver it quickly enough. So people were left with no choice but to deal at the much more expensive private black parallel market rate. The ultimate humiliation: that was controlled by a Miami based web page called DolarToday who daily set its official price from the daily average transaction of Vzla. Bolivar-US$ in Cucuta (a border Colombian city in the Andes).

3) EnergyNomics, in my person, has such a plan in the Venezuelan economic sectors that matter most. Including foremost Energy. The works of Albert Hirschman highly influenced this work, among others.

4) Please read this firms a detailed account of that fateful event here.

***

 

PDVSA Inks $430 Mln Deal in Effort to Boost Oil Output

(S&P Global, Mery Mogollon, 30.Aug.2018) — State-owned Venezuelan oil company PDVSA signed a $430 million service agreement with seven companies to boost its oil production by 641,000 b/d, company president Manuel Quevedo said in a statement Wednesday.

The companies on the other side of deal are: Well Services Cavallino, Petro Karina, Helios Petroleum Services, Shandong Kerui Group, Rinaca Centauro Karina Consortium, Oil Consortium Tomoporo and Venenca. The companies will help boost output from wells in the Arecuna, Sanvi Guere, Orocual, Dacion, Jusepin, Franquera-Tomoporo and Carito-Pirital fields, the statement said.

According to the statement, current production at the fields is 384,000 b/d.

“We have the opportunity to increase oil production at these fields by 641,000 b/d,” said Quevedo.

“We will provide legal security, investment facilities and the production of each barrel of crude will be recognized a fair rate,” Quevedo added.

Venezuela holds the world’s largest crude reserves, but has seen its oil industry crumble amid mismanagement, corruption and a lack of investment.

Venezuela’s crude output fell to 1.2 million b/d in July, according to the latest S&P Global Platts OPEC production survey.

In 2007, the Venezuelan government expropriated assets from international companies that operated light, medium, heavy and extra-heavy crude fields under contracts signed in the 1990s.

***

Venezuela Aims To Boost Oil Output By 640 Mb/d

(OilPrice.com, Tsvetana Paraskova, 30.Aug.2018) — Venezuela’s state oil firm PDVSA has said that it signed a US$430 million joint service agreement with seven companies that would help it increase its crude oil production by 641,000 barrels per day.

The companies will help PDVSA to raise production at wells at the oil fields Arecuna, Sanvi Guere, Orocual, Dación, Jusepín, Franquera-Moporo, and Carito – Pirital, the state firm said in a statement.

Currently, the 14 wells where Venezuela will look to boost production pump 384,000 bpd, Oil Minister Manuel Quevedo said, adding that “we have the opportunity to raise production by 641,000 bpd,” and hailing the agreement as “the beginning of a new era at PDVSA.”

This is not the first time that Venezuela has claimed it has grand plans to boost its production. Quevedo said last month that he had discussed plans with PDVSA to raise the country’s crude oil production in the second half of the year.

Venezuela is suffering the worst loss of oil production in history amid an unprecedented economic collapse, years of mismanagement and underinvestment in the oil industry, an aggravating humanitarian crisis, and a leader who is hell-bent on clinging to power. Venezuela’s inflation will surge to a staggering one million percent by the end of this year as the country with the world’s biggest oil reserves remains stuck in a profound economic and social crisis, the International Monetary Fund (IMF) predicts.

Venezuela’s collapse, alongside U.S. sanctions on Iran, have been putting upside pressure on oil prices for months, and is expected to continue to do so, as analysts don’t see an end to the crisis in sight.

According to OPEC’s secondary sources, Venezuela’s oil production in July dropped to below the 1.3-million-bpd mark—at 1.278 million bpd, plunging 47,700 bpd from June. This compares with an average of 2.154 million bpd in 2016, and an average of 1.911 million bpd in 2017.

Some analysts expect Venezuela’s production to fall to below 1 million bpd by the end of this year.

***

Trinidad: Crouching Tiger

Trinidad and Tobago Prime Minister Keith Rowley and Venezuela’s President Nicolas Maduro during the Dragon gas signing event in Caracas. Photo: PDVSA

(Trinidad and Tobago Newsday, Kiran Mathur Mohammed, Camille Moreno, 30.Aug.2018) — The Dragon gas deal signed last Saturday is worth celebrating. The clink of glasses will be heard in boardrooms in both countries. The government deserves it for getting this far, amid the chaos in Venezuela, and the spectre of international sanctions.

At least one senior banker I’ve spoken to noted that the agreement rings hollow for Venezuelans on Maduro’s Twitter feed who mocked the grand signing ceremony, as thousands of hungry and desperate refugees flee to Trinidad. Instability there may still upset the deal’s execution, and could result in costly penalties if supply is ever interrupted. That said, there is much to be hopeful about.

Another energy executive reckons that this could eventually lead to Venezuela exporting its onshore gas (currently being flared off and wasted) to Trinidad: improving efficiency and the environment. It could even lead to discussions on how we can help the refugees coming to TT, and seriously engage with Venezuela on human rights.

We are massively short of gas. It may sound strange, given that we export it and the world is awash with the good stuff. Gas is firstly used in Trinidad to generate power. Then, almost all the rest is liquefied and exported. What remains is used as “feedstock” for the plants in Point Lisas that produce chemicals that are exported, mainly for fertiliser. The energy producers have locked-in contracts that mean that almost all of our gas is exported.

When we were producing enough and earning tax dollars, this was a good deal. But our gas production has been in continual decline. There isn’t enough gas to satisfy local and external demand. Since the multinational energy companies make more money exporting gas than by selling it locally, this means that the plants in Point Lisas end up starved of gas. Some have shut down and sent home hundreds of workers. To help plug this shortage, and boost revenues, the government aims to pipe in gas from the Dragon field in Venezuela’s waters.

The celebration has been earned. But back to work. We won’t see first gas from the Dragon field until 2020. Moreover, as an energy executive pointed out, the gas is coming from Venezuela and will not be directly subject to our petroleum taxes – unlike gas produced from Trinidad waters. No doubt this is one of the reasons the energy companies are so keen to sign up. The Dragon field will also produce just 150 million cubic feet of gas per day, compared to our average current consumption of 3.46 billion cubic feet per day. And this is consumption with a number of mothballed plants. So, what can we do quickly?

It turns out that energy efficiency – once laughed at in a country with gas to burn – could be one additional way forward. Our lumbering power plants, partially owned and operated by multinational corporations, are ripe for investments in efficiency – and the operators have said so themselves. Powergen alone could save up to US$45 million a year in gas if it invested US$80 million to make their plant more efficient. This is according to both the National Gas Company (NGC), and youth-led non-profit IAmMovement’s co-founder Jonathan Barcant. This gas could be freed up for our chemical industry – allowing it to bring back workers. The numbers get even more impressive if renewable energy or LED bulbs are considered as gas saving alternatives.

With numbers like that, why haven’t they done it already?

The answer lies in the incentives embedded in the power-purchase agreements signed between the TT Electricity Commission (TTEC), the government and the international power operators. TTEC pays the generators by capacity (the amount of electricity they are able to produce) instead of by the amount of electricity they actually produce.

At the same time, TTEC guarantees and pays for the gas supply to the power plants. And in practice, TTEC hasn’t actually paid for any of the gas it receives from NGC.

So Powergen doesn’t benefit by investing in more efficient plants, even though the country as a whole would save money.

If an agreement was signed that allowed Powergen to benefit from investments in energy efficiency: this would be a win-win. Powergen would boost its bottom line, have a better operating plant, and (yes) reduce polluting carbon emissions.

Gas would be freed up for the downstream chemical plants, and NGC would benefit by finally getting paid. Most of all, the workers and engineers worried in their houses in Couva and Freeport could breathe just a little easier.

Kiran Mathur Mohammed is a social entrepreneur, economist and businessman. He is a former banker, and a graduate of the University of Edinburgh.

***

The Latest Episode in the Crystallex-Venezuela Saga

(Mining.com, Valentina Ruiz Leotaud, 29.Aug.2018) — State-owned Petróleos de Venezuela SA or PDVSA announced on Twitter that it filed an appeal requesting that a Delaware court vacate a decision made public on August 23 granting Canadian miner Crystallex the right to seize its U.S. assets.

In its statement, the oil company said it had filed a petition on Friday, August 24, 2018, to the 3rd U.S. Circuit Court of Appeals. The petition is to direct the Delaware District Court to acknowledge it had been “divested of jurisdiction with respect to PDVSA and its property.”

The petition refers to a decision made on August 9, 2018, by U.S. District Judge Leonard Stark in the eastern U.S. state. Stark approved a request by Crystallex to attach shares in PDV Holdings, a U.S. subsidiary of PDVSA that indirectly controls refiner Citgo.

Citgo owns three refineries in Louisiana, Texas and Illinois, as well as other assets that have been valued between $8 billion and $10 billion.

With this move, Crystallex is aiming at collecting a $1.4-billion-award in compensation following a decade-long dispute over Venezuela’s 2008 nationalization of its gold mine in the southern Bolívar state. The amount is comprised of $1.2 billion plus $200 million of interest awarded by a World Bank arbitration tribunal in 2016.

If PDVSA’s appeal does not proceed, the Nicolás Maduro government could be forced to comply to Crystallex’s demands.

The Canadian firm has accused the Nicolás Maduro government of performing “fraudulent transfers” to avoid paying what it owes. Among those transactions, Crystallex has cited the payment of dividends from PDV Holding to PDVSA for $2.2 billion and the issuance of 49.9% of Citgo’s shares to secure a $1.5 billion loan granted by Russian giant Rosneft in 2016.

A lawsuit introduced by the miner against such asset transfers by Citgo was initially dismissed in January 2018, but the Toronto-based company requested a new hearing.

Nevertheless, PDVSA’s lawyers have argued that Crystallex cannot seize the holding company’s shares because it doesn’t have proper grounds for suing in the U.S. and because it couldn’t show the unit was the Venezuelan company’s “alter ego.”

In November 2017, Crystallex and Venezuela agreed to settle the dispute before Ontario Superior Court Justice Glenn Hainey. However, the deal did not resolve the fight over the $1.2 billion award because the cash-strapped South American country did not honour its payments.

With files from Reuters, Bloomberg, El Universal.

***

CITGO Awards Grant, Continues Restoration Work

(Citgo, 29.Aug.2018) — Through the CITGO Caring for Our Coast initiative, a program designed to boost ecological conservation, restoration and education, The Conservation Foundation (TCF) has been awarded a grant to continue its restoration work in the Heritage Quarries Recreation Area (HQRA) in Lemont.

In partnership with TCF and the Village of Lemont, the CITGO Lemont Refinery has been funding semiannual projects and working alongside local volunteers in the HQRA since the fall of 2014, removing invasive plant species and brush, and harvesting native species’ seeds for replanting.

Located half a mile east of downtown Lemont, the HQRA is situated among thousands of acres of forest preserves, which includes more than 65 miles of hiking and biking trails, as well as access to fishing and boating along the I & M Canal and the Consumers, Great Lakes and Icebox Quarries.

According to Scott LaMorte, senior advancement officer at TCF, the transformation of the HQRA, in just four years, has been remarkable.

“During a community workday last year, my group was assigned to clear a section near the picnic grove. After cutting out some of the weedy shrubs, we uncovered a pond that hadn’t been seen in decades! The ‘before’ and ‘after’ photos are just incredible,” said LaMorte.

Dennis Willig, Vice President and General Manager of the CITGO Lemont Refinery, describes the HQRA project as neighbors-serving-neighbors.

“We are proud to partner with the local community, because not only are natural resources being preserved, but residents will be able to enjoy the benefits of this outdoor recreational space for years to come,” said Willig.

***

Carolyn Wants Details on Dragon Gas Deal

(Trinidad and Tobago Newsday, Sean Douglas, 28.Aug.2018) — Four questions have been posed by Congress of the People leader and former energy minister Carolyn Seepersad-Bachan over the Dragon gas deal signed on Saturday between the leaders of TT and Venezuela.

“Whereas the government may not be able to publicly state the agreed price for gas produced from the Dragon field, it ought to provide details on the pricing formula and other emerging issues related to this project,” she said in a statement yesterday.

Saying the field will boost this country’s gas supply for both liquefied natural gas (LNG) and the petrochemical sectors, she said each use of gas is priced separately.

“In the case of LNG, the price at the well-head is determined based on the net back pricing formula, and in the case of the petrochemical sector NGC’s (National Gas Company’s) re-sale prices are linked to international commodity prices.

“If the same approach is not applied to the pricing of the Dragon gas, the NGC is at risk of its sale price being lower than its cost price thus incurring huge losses.”

Secondly, Seepersad-Bachan asked what is TT’s obligation to the special purpose vehicle (SPV), formed with Shell and PDVSA to build a 30 kilometre gas pipeline for US$100 million.

“What is the percentage holding of NGC in this SPV as this will dictate capital investment required for this project? Additionally, at what point does fiscalisation occur?”

Thirdly, she wondered about the deal in light of the current state of affairs in Venezuela. “Has the Government taken into consideration the geopolitical risks, which significantly impact on the viability and reliability of this project?” Would future governments of Venezuela honour this deal to supply gas at the agreed pricing?

If not, the NGC and the citizens of TT would bear the full cost of lost revenue for ALNG and petrochemical companies, Seepersad-Bachan said. “In addition, the literature is replete with examples of expropriation of assets in the Venezuelan energy sector. This places the US$100 million investment at risk should such an event occur. The Government and the NGC must openly indicate to the citizenry how they intend to mitigate these risks.”

She said answers to these questions will show whether this is “a theoretical dream or an implementable reality.” Seepersad-Bachan alleged Energy Minister Franklin Khan had erroneously likened the Dragon project (which fully lies within Venezuelan territory) to the Loran Manatee project which is a cross-border field.

***

Venezuelan Oil Port Working Partially After Collision

(Reuters, Marianna Parraga, 28.Aug.2018) — Venezuela’s main oil port of Jose is operating partially following a weekend tanker collision that halted one of its three docks, curtailing state-run PDVSA’s ability to export upgraded crude and receive imported diluents, three sources with knowledge of the incident said on Tuesday.

PDVSA has been struggling this year to deliver exports on time to most customers due to falling oil output, legal actions by creditors aimed at seizing overseas assets and U.S. sanctions. In July, the country’s crude production fell to its lowest level in over 60 years.

Crude exports from Jose were running earlier this year at about 900,000 barrels per day (bpd), according to Thomson Reuters data. Some 60,000 bpd of naphtha imports, which is used to dilute Venezuela’s extraheavy crude for export, also are received at the terminal.

The collision shut the South dock, one of Jose Offshore Platform’s three oil berths – East, West and South – and two monobuoy systems, used to ship crude from the Orinoco Belt, Venezuela’s main producing region, and to discharge imported diluents. The South dock was refurbished in 2016.

“Jose’s East and West docks are totally busy. Each VLCC (Very Large Crude Carrier) takes up to five days to load. There is not extra capacity for discharging naphtha imports and more upgraded crude exports there,” one of the sources said.

PDVSA did not immediately reply to a request for comment.

PDVSA’s upgraded crude, produced at four upgraders that convert Venezuela’s extraheavy oil into lighter grades, is mainly exported to the United States, a market that has seen a 26-percent decline in imports of Venezuelan crude this year, according to Thomson Reuters Trade Flows figures.

***

Venezuela Gas Price Deal Competitive—Khan

(Trinidad Guardian, 27.Aug.2018) — Government is giving no details on the pricing structure this country will pay for gas from the Dragon Field under the agreement signed with Venezuela on Saturday, but Energy Minister Franklin Khan is assuring that the pricing structure agreed to was competitive and followed “months of negotiation, serious intervention, serious sharing of information and serious sharing of economic models, to come up with an appropriate gas price”.

Speaking during a press conference at the Hyatt Regency in Port-of-Spain, yesterday, Khan said, “It is no cheap gas. It is competitively priced gas and is obviously no secret Dragon deal.”

Khan said Venezuela has the largest oil reserves in the world, larger than Saudi Arabia, Russia and the United States and has the fifth largest gas reserves in the world, which this country can benefit from.

“It’s a win-win situation, especially since we in Trinidad face challenges on the supply side,” he said.

T&T, he said, also has world-class gas infrastructure through which Venezuela can monetise its gas.

“This provides an ideal opportunity for Trinidad and Venezuela. If I can say so, I think it is a marriage made in heaven,” Khan said.

Khan said he took “umbrage” with the way the media reported on the deal signed in Caracas on Saturday by Prime Minister Dr Keith Rowley and Venezuelan President Nicholas Maduro, as he dismissed a report in another daily newspaper that under the deal the T&T Government would be buying the gas at a mere US$1 per MMBTU. Khan said that was simply trying to create mischief by telegraphing to the Venezuelan people that the government was selling “cheap gas to Trinidad and Tobago”. However, he said the price being paid was substantially more.

Both countries, according to Khan, have benefitted, as T&T could import the gas, process it into LNG and for downstream petrochemicals “and still make a profit and it is a price acceptable to the Venezuelans to get a good monetary return for the resources they own.”

Khan said when Rowley was asked by T&T Guardian journalist Curtis Williams about the price, “Dr Rowley said these gas prices are subject to strict confidentiality clauses. However, he took the liberty to say the prices are very competitive and in some cases lower than what we are paying to domestic upstream producers in Trinidad and Tobago”.

He said it was widely known in the energy sector that “the commercial terms of gas sales agreement are subject to the strictest confidentiality clauses”. As he revealed that he could not even answer a question in the Parliament on pricing when asked some time ago, he said because of the confidentiality clause.

“No government past or present, UNC or PNM, has ever made known to the public any negotiated price of gas,” Khan said.

The PM did, however, reveal that under the agreement the volume of gas to be provided will be 150 million cubic standard feet per day with an option to go to 300 million standard cubic feet per day.

On Saturday, Rowley and Maduro signed two documents – a base term sheet for the Dragon Gas deal which set out the commercial term for the gas sales agreement, including volume and price, which was signed by the Venezuelan state oil company PDVSA, Shell as the private investor and the National Gas Company.

Another agreement was signed where both governments committed to the implementation of the project and to see it to finality. Khan said while it was a cross-border relationship with Shell, PDVSA and NGC, “at its most fundamental level it is a government to government arrangement”. He said the gas deal had the effect of securing “a long-term symbiotic relationship with Venezuela”.

He said it was a pricing model and template to allow them to move forward with other fields, including the Loran Manatee, which was the first cross-border project identified between the two countries more than a decade ago.

The Loran-Manatee field contains in excess of 10 trillion cubic feet of gas with 7.3 TCF on the Venezuela side and 2.7 TCF on the Trinidad and Tobago side of the border. Khan said Maduro suggested and PM Rowley agreed “we should develop agreements for the production of Loran Manatee.”

***

Dragon Gas Deal May Be ‘Political Gimmicks’

(Trinidad and Tobago Newsday, Richardson Dhalai, 26.Aug.2018) — The Dragon gas deal may be “public relations and political gimmicks” which may not benefit TT.

That’s the view of Pointe-a-Pierre MP David Lee who, in a media release yesterday, cited the 2016 trade deal between TT and Venezuela saying some local manufacturers had not yet been paid for goods which had been delivered to the South American nation.

On Saturday, Prime Minister Dr Keith Rowley and Venezuela’s President Nicolas Maduro shook hands to seal the deal that will see TT for the first time processing Venezuelan natural gas.

However Lee, in his statement, said recent public statements by the TTMA have indicated that “some manufacturers have not yet been paid for goods delivered to Venezuela which formed part of a trade deal fostered between the governments of our nation and Venezuela in 2016.”

He said this is not only proof of government’s “failed commitment” to the manufacturing sector but also “signs of a government which continues to abandon its responsibility of protecting our nation’s economic framework.”

“We in the Opposition were always concerned with this agreement given the economic hardship being experienced by the Venezuelan Government as well as this Government’s track-record of incompetence.” Lee said several questions had been directed to the Trade and Industry Minister Paula Gopee- Scoon in the Parliament but she had “on each occasion would respond by saying that some payments were still being received for shipped goods.”

“It is therefore unacceptable and irresponsible that over one year since these questions were first posed and over two years since goods were first shipped to Venezuela manufacturers have not been adequately compensated.”

He said the trade deal was a “government to government initiative” and questions have to be asked why the minister failed to take a trade delegation to Venezuela to address the issue.

“Did Government, knowing that Venezuela would not be able to keep its financial commitment just use our manufacturers as a bargaining tool to gain access to Venezuelan natural gas? They called the Opposition Members unpatriotic when we questioned these deals however the issues presently surrounding these non-payments demonstrate why the Opposition did so. Therefore our nation must remain vigilante and find no comfort in the signing of the Dragon Gas Deal which took place yesterday in Venezuela as this could be all about Public relations and political gimmicks as was seen with this trade deal.”

***

Five Things About T&T, Venezuela’s Dragon Gas Deal

(Loop News, 26.Aug.2018) — On August 25, 2018, an historic agreement was made between Prime Minister Dr Keith Rowley and Venezuelan President Nicolás Maduro for access the Venezuela’s Dragon Field.

Source: PDVSA, Venezuela’s Ministry of Petroleum

Here are five things to know about the Dragon field gas deal:

  1. Dragon will produce 150 million cubic feet per day

The Dragon field, part of the Mariscal Sucre offshore gas project, is projected to produce an estimated 150 million cubic feet per day of natural gas from four wells. The Dragon Field contains approximately 2.4 trillion cubic feet of natural gas.

The Mariscal Sucre Dragon and Patao fields, located in water depths between 328-427 feet (100-130 metres), are situated nearly 25 miles north of Venezuela’s Paria peninsula in Sucre state.

It’s expected that production from Venezuela’s four fields which comprise the Mariscal Sucre project – Mejillones, Rio Caribe, Dragon and Patao – will reach 1.2 billion cubic feet per day of natural gas and 28,000 barrels per day of condensates, and will be directed primarily toward export.

  1. Gas to be transported via 30km gas pipeline

The gas will be transported to the Hibiscus platform off the north-west coast of Trinidad, just 18 kilometres from the gas field. Hibiscus is jointly owned by the T&T government and Shell.

The project involves the construction of a 30km gas pipeline – construction of pumping stations, metering systems and related facilities, the laying of gas pipelines, and the installation of safety and control systems.

In March 2017, Shell signed an agreement with NGC and PDVSA to build a 17km pipeline from the Dragon Gas Field to Hibiscus platform.

  1. PM says details ‘confidential’

Details of the deal are ‘confidential’, according to Dr Rowley, but he said the agreed-upon price was ‘competitive’.

  1. Dragon’s gas to be used for T&T products

In the first phase, the gas from the Dragon will boost the country’s gas supply for both the LNG and the petrochemical sectors. T&T plans to expand domestic gas production to 4.14 Bcf/d by the end of 2021.

  1. Dragon project to cost approximately US$100 million

The project will cost an estimated US$100 million, according to media reports. First gas from Dragon is expected in 2020.

***

PDVSA, Citgo Evaluating Aruba Gas Plan

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Venezuela is evaluating a plan to implement a natural gas project with Aruba.

Officials from Venezuela’s state oil company PDVSA, and its refining arm Citgo Petroleum Corporation continue to evaluate the potential of such a project that would imply a gas interconnection between Venezuela and Aruba, reported PDVSA in an official statement.

No further details about the plan were revealed by PDVSA.

***

Aruba’s San Nicolás Refinery to Take Faja Oil

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Valero’s old Aruba refinery will be revitalized as an upgrader.

PDVSA announced the San Nicolás Refinery located in Aruba will be converted into an upgrader in order to process extra-heavy oil from Venezuela’s Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja.

Citgo Aruba Refinery. Source: PDVSA

The upgrader will have capacity to process 200,000 barrels per day, reported PDVSA in an official statement.

Venezuela — the country with the world’s largest oil reserves, and reeling in political, economic and humanitarian crises and suffering from the world’s highest inflation – continues to struggle to stop oil production declines. The country’s refineries and upgraders continue to suffer from a lack of investment, among other issues that continue to affect the OPEC country’s oil patch.

No further financial details related to refinery conversion were revealed by PDVSA.

***

Venezuela to Send Dragón Gas to Trinidad

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Venezuela will send its Dragón field natural gas to Trinidad for processing.

That’s according to a deal signed today in Caracas between the governments of Trinidad and Tobago and Venezuela, reported Venezuela’s Ministry of Petroleum in a series of tweets. The countries were represented by Prime Minister Dr. Keith Rowley and President Nicolas Maduro, respectively.

The deal calls for construction, operation and maintenance of a 16-inch diameter submarine gas pipeline that will span 15 kilometers from the Dragón field in Venezuela to the Hibiscus field in Trinidad and Tobago.

Companies involved in the pipeline project include: PDVSA, National Gas Company of Trinidad and Tobago (NGC), and Shell Trinidad and Tobago Limited.

Gas from Venezuela will be used in Trinidad and Tobago to feed the twin-island country’s LNG plant and potentially other industries.

However, it’s still unclear what initial production will look like or when the pipeline will be online.

Venezuela’s National Assembly has not approved the gas agreement. However,  under Venezuela’s gas laws, no approval is needed to move forward with negotiations such as those signed today.

***

Trinidad and Venezuela to Sign Gas Agreement

(CMC, 24.Aug.2018) — Prime Minister Dr Keith Rowley will lead a delegation to Venezuela tomorrow to sign an agreement for the development of the across border gas from the Venezuelan Dragon Gas Field, according to an official statement issued here.

The statement from the Office of the Prime Minister noted that the signing of the terms of the agreement will be between the National Gas Company (NGC), the Venezuelan NGC, Shell, and the Venezuelan state-owned oil and natural gas company, Petróleos de Venezuela, SA (Petroleum of Venezuela).

The agreement was originally scheduled to have been signed here on Wednesday, but the statement said the accord will be signed in caracas on Saturday.

“This was requested and acceded to due to the concerns about the earthquake,” the statement said, in reference to the 7.0 earthquake that rocked both Venezuela, Trinidad and Tobago, and other Caribbean countries on Tuesday evening.

The Dragon Field is located within Venezuela’s maritime territory, just off the north-west coast of Trinidad. It is close to the Hibiscus platform, jointly owned by the Trinidad and Tobago government and Shell.

Shell is also the operator of Dragon. The deal will hopefully see Venezuelan gas from Dragon transported to Hibiscus and then to Point Fortin, where Atlantic will turn it into liquefied natural gas.

“That’s the plan we’ve been working on for the last three months,” Rowley told reporters here in April.

Shell is also the helping the government develop and process gas from Loran-Manatee, which is off the south-east coast of Trinidad, and spans the maritime borders of Venezuela and Trinidad and Tobago.

The Loran-Manatee field has an estimated 10.25-trillion cubic feet of gas of which roughly 74 per cent belongs to Venezuela, with 26 per cent belonging to Trinidad and Tobago.

***

Rosneft May Challenge Crystallex Claim To Citgo Shares

(Oilprice.com, Irina Slav, 23.Aug.2018) — Rosneft has asked a U.S. federal court to establish “a robust appraisal and sale process” of Citgo shares following Canadian miner Crystallex’ win at court against the parent company of Citgo, PDVSA, Argus Media reports citing documents submitted by Rosneft to court.

“Such a course of action is particularly appropriate under the circumstances given the multitude of parties and interests potentially affected by a sale of PdVH,” the documents said.

Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued over the forced nationalization of its assets by the Hugo Chavez government. A U.S. federal judge last week awarded the miner the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of US$1.4 billion.

Yet the Russian state company has priority rights over 49.9 percent in Citgo. PDVSA used the stake as collateral for a US$1.5-billion loan provided by Rosneft in 2016. The move at the time sparked a lot of negative comments in the United States, with some legislators worried that Rosneft could at some point take control over the U.S. company. The rest of the Citgo stock has been pledged as collateral to a PDVSA bond issue that matures in two years, Argus Media notes.

Now Crystallex wants to take control over the refiner, which operates a refinery network with a daily capacity of 750,000 bpd, and then sell the stock on to another investor or investors to get its US$1.4 billion. The sum was awarded to the Canadian miner as compensation for the forced nationalization of its operations in Venezuela by the Hugo Chavez government.

At the time, the Associated Press noted that the ruling by Chief Judge Leonard P. Stark is unique: government assets such as Citgo’s parent, PDVSA, are as a rule protected from lawsuits targeting a state. Yet in Stark’s ruling, the judge said that Venezuela had blurred the lines between the government and the state oil firm, with a military official at the helm of PDVSA.

***

Exec Pleads in $1.2 Bln Venezuelan Money-Laundering scheme

(AP, 22.Aug.2018) — A former Swiss bank executive has pleaded guilty to his role in a $1.2 billion money-laundering scheme involving Venezuela’s state-run oil and natural gas company.

Federal court records show that 44-year-old Matthias Krull pleaded guilty in Miami federal court on Wednesday to conspiracy to commit money laundering. The German national and Panamanian resident is scheduled to be sentenced Oct. 29.

Authorities say the scheme began in 2014 with bribery and fraud at the state-run PDVSA oil and gas enterprise and grew over time. A criminal complaint contends the scheme involved members of the Venezuelan elite, money managers, brokerage firms, banks and real estate investment firms.

Krull acknowledged joining the conspiracy in 2016. Officials say Krull and others used Miami real estate and sophisticated false-investment schemes to conceal the embezzled money.

***

Oil Workers Support Maduro’s Economic Plans

Venezuelan oil workers march thru the streets of Caracas. Source: PDVSA

(Energy Analytics Institute, Ian Silverman, 21.Aug.2018) — Oil workers at state oil company PDVSA marched in Caracas and across the country to show their continued support of Venezuela’s President Nicolás Maduro in the aftermath of recent economic announcements by the official.

***

Dragon Gas Deal Finalised Tomorrow

(Trinidad and Tobago Newsday, Carla Bridglal, 21.Aug.2018) – After nearly two years of negotiations between this country and Venezuela the deal that will allow TT to process gas from the Dragon gas field is expected to be finalised tomorrow.

A release from the Office of the Prime Minister (OPM) said the agreement on the final terms for the development of the across the border gas from Venezuela’s Dragon gas field will be signed tomorrow by representatives of the National Gas Company, Venezuela’s state oil company, PDVSA, and Shell, the multinational energy giant with the rights to drill the Dragon field.

OPM said A “high-level Venezuelan delegation” will also participate, along with representatives of the TT Government, to witness this “historic event.”

In late June, Stuart Young, then a Minister of State in the Officer of the Prime Minister, said while discussions were almost complete, price was the main sticking point.

In December 2016, Prime Minister Dr Keith Rowley had visited Venezuela, and along with that country’s President, Nicolas Maduro, signed an agreement that put the plan in motion for TT to process Dragon’s gas.

First gas then was estimated by 2020; that timeline is still on track. Young had given reporters a timeline of 18 months to two years to get first gas here—providing the deal is signed soon.

A special purpose vehicle between multinational energy giant Shell and the National Gas Company (NGC) has been created to lay down the infrastructure; Shell’s pipelines, including those in the North Coast Marine Acreage will be used to transport Dragon’s gas to the Hibiscus platform off the north-west coast of Trinidad and only 18 kilometres away from the gas field.

Hibiscus is jointly owned by the TT government and Shell. The first tranche of Dragon’s production will yield about 150 million standard cubic feet of gas per day (mmscfd), or 26,505 barrel of oil equivalent per day (boed). For comparison,

Petrotrin produces 43,000 barrels of oil per day and 130 mmscfd; bpTT’s Juniper well, which came on stream in the latter half of 2017, produces about 590 mmscfd.

The Dragon field is part of the Mariscal Sucre natural gas complex off the Caribbean coast of Venezuela, north west of Trinidad. That Dragon is just one of the fields in a total acreage reserve of 14.7 trillion cubic feet of gas. Dragon alone contains 2.4 tcf.

***

Venezuela Takes Action To Stabilize Currency

(ZeroHedge, 21.Aug.2018) – As previewed yesterday, on Monday Venezuela officially slashed five zeros from prices and its currency as part of what has been dubbed one of the greatest currency devaluations in history which slashed the value of the official bolivar by 95 percent, an overhaul that President Nicolas Maduro said would tame hyperinflation, and which everyone else called the latest desperate failed socialist policy that will push the chaotic country deeper into crisis and unleash even higher hyperinflation (impossible as that may sound: as a reminder the collapse of Venezuela’s currency recently surpassed the Weimar republic).

Venezuela’s President Nicolas Maduro ordered a 96 percent currency devaluation, pegged the bolivar currency to the government’s petro cryptocurrency and boosted taxes as part of a plan aimed at pulling the OPEC member out of its economic tailspin.

As part of the devaluation, the official rate for the currency will go from about 285,000 per dollar to 6 million and together with salaries and prices, will be pegged to the Petro cryptocurrency, which is reportedly backed by crude oil and is valued by the government at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods.

Government officials tried to partly mask the shock by raising the minimum wage 3,500 percent so instead of the new minimum wage being 1.8 million strong bolivars, it will be 1,800 sovereign bolivars: the equivalent of $30 a month. Banks were closed and busy trying to adopt ATMs and online platforms to the new currency rules; they will likely fail.

Less discussed was the concurrent increase in the value added tax by 4 percent, while officials also ended some gasoline subsidies, saving the government $10 billion a year, as many ordinary citizens are forced to switch from subsidized to western fuel prices.

Even though Maduro boasted in Friday night’s announcement that the IMF wasn’t involved in the policies, aspects of the moves bore a resemblance to a classic orthodox economic adjustment, even if those usually involve removal of the corrupt regime whereas Maduro is only becoming more entrenched. Meanwhile, most economists said the plan announced on Friday will escalate the crisis facing the once-prosperous country that is now suffering from Soviet-style product shortages and a mass exodus of citizens fleeing for nearby South American countries.

As Bloomberg notes, the symbolism of announcing the drastic measures on a Friday night wasn’t lost on many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. The day became to be known locally as “Black Friday.”

When in 1989 Venezuela raised gasoline costs, lifted foreign-exchange controls and let the currency plunge, prices soared 21 percent in one month alone, leading to riots known as the “Caracazo” that killed hundreds and eventually paved the way for Chavez’s rise to power.

There were no riots – or celebrations – on Monday, however: streets were deserted, and shops were closed due to a national holiday that Maduro decreed for the first day of the new pricing plan for the stricken economy, which the International Monetary Fund has estimated will have 1 million percent inflation by year end. Venezuela is already well on its way: according to the Bloomberg Cafe Con Leche index – which tracks the price of a cup of coffee – inflation in Venezuela has hit an annual inflation rate of 108,596 percent.

In many ways the devaluation is a mere formality. For years now, most people and companies have been unable to access dollars at government-set rates and have been purchasing them in the black market. As a result, the prices on many goods across the country are already based on that exchange rate.

“They had to do this because they ran out of money,” Moises Naim, a fellow at the Carnegie Endowment and a former minister in Venezuela, said from Washington. He pointed out that oil production — pretty much the country’s sole industry at this point — has plummeted in recent years amid a shortage of equipment and technical expertise, foreign reserves have plummeted and allies such as China and Russia are providing less support.

As for ordinary Venezuelans they were mostly baffled by the monetary overhaul and skeptical it will achieve anything. “This is out of control, prices are sky high,” said Betzabeth Linares, 47, in a supermarket in the central city of Valencia. “What worries me is how we’ll eat, the truth is that the way things are going, I really don’t know.”

Most local businesses were shocked by the announcement: the new measures spooked shopkeepers already struggling to stay afloat due to hyperinflation, government-set prices for goods ranging from flour to diapers, and strict currency controls that crimp imports.

Private companies, already dealing with hyperinflation, years of brain drain, price controls and threats of seizure, now must deal with even faster inflation and mandatory wage hikes. It’s also possible that the exodus of Venezuelans to other countries will increase, even as Ecuador and Peru announced entry restrictions and tensions flared along the border with Brazil.

“People are leaving because of a feeling of despair, and the desperation will now increase,” Naim said.

But the biggest question is how the military, without whose support Maduro will be swept from office overnight, would react. It was not immediately clear how the shock measures will sit with the local military which already runs much of the nation. Top ranking generals have been handed the keys to ministries, the state-run oil company and the lucrative business of food imports. Myriad exchange rates created juicy arbitrage opportunities that enriched many close associates of the state.

“Clearly this will hit Maduro’s popularity, but power is being sustained with bullets and not with votes,” Naim said. “As long as the military continues to have access to lucrative businesses it will continue to grant support to the government.”

For now there is little hope that the official opposition, a fragmented group of parties whose leaders are either in hiding or in jail, can stir a popular uprising: Together with several labor unions, the opposition called for protests against the measures Tuesday as well as a 24-hour national strike. It was not immediately clear if anyone turned up.

Maduro, who was re-elected to a second term in May in a vote many said was rigged, has said his government is the victim of an “economic war” led by political adversaries with the help Washington, and accuses the United States of seeking to overthrow him. While the U.S. has denied the accusations, it has described the former bus driver and union leader as a dictator and levied several rounds of financial sanctions against his government and top officials.

***

Magnitude 7.3 Quake in Venezuela Felt in Guyana

U.S. Geological Survey (USGS)

(Stabroek News, 21.Aug.2018) – A powerful earthquake has hit the northern coast of Venezuela with a magnitude of 7.3, according to the U.S. Geological Survey. It had been originally reported as a 6.8 event but this has since been upgraded to 7.3.

Reuters reported that the quake, which was centred near the town of Guiria, was felt as far away as the capital, Caracas, where it shook buildings, witnesses said.

According to Reuters, the U.S. Pacific Tsunami Center said the quake, which was fairly deep, could cause small tsunami waves along the coast near the epicenter, 23 miles (37 km) southwest of the town of Carupano.

A magnitude 7.3 quake is considered major and is capable of causing widespread, heavy damage, but the quake was 76.5 miles (123.11 km) deep, which would have dampened the shaking.

The Trinidad Express this afternoon said that reports are beginning to come in of widespread damage and destruction on the twin-island republic

Buildings have sustained structural damage, cars have been flattened by falling concrete and supermarkets are reporting losses, the Express said.

There is also significant loss of telecommunication being reported, the newspaper report added.

Strong tremors were felt in Georgetown and surrounding areas around around 5.30 this afternoon.

Guyanese have begun reporting their experiences with the tremor. There are reports that it was felt severely in the northwest of Guyana which is much closer to the epicentre of the earthquake.

East Bank Demerara residents reported feeling the walls of their homes moving as well as trees and power lines swaying.

In Georgetown, some buildings shook and residents streamed into the streets but there have been no immediate reports of any damage.

Head of the Civil Defence Commission, Kester Craig said on his Facebook page that there is no Tsunami Warning for Guyana at the moment. The Hydrometeorological Service is monitoring and would provide the necessary updates, he said.

“I feel like I’m about to faint. I’m shaking. It was long,” said telemarketing worker Sheny Fuentes, 22, speaking outside her work building in eastern Caracas told Reuters. “I’m relieved that it doesn’t seem like damage was that bad. We would have been even more affected (given Venezuela’s economic crisis) – there are already people eating from the garbage and buildings aren’t well made,” she told Reuters.

***

PDVSA to Resume Use of Caribbean Terminal Under NuStar Deal

(Reuters, 21.Aug.2018) — Venezuela’s PDVSA and NuStar Energy LP have reached an agreement over outstanding storage fees, allowing the state-run company to resume use of a key storage terminal in the Caribbean, the U.S. energy firm said on Monday.

NuStar had suspended PDVSA several times since 2017 from using its St. Eustatius facility over millions of dollars in missed payments.

The terminal played a role in a legal dispute between PDVSA and ConocoPhillips, which earlier this year tried to enforce a $2 billion arbitration award by seizing some of the Venezuelan firm’s assets in the Caribbean.

“We can confirm that we have signed an agreement with PDVSA, which brings their account current,” NuStar spokesman Chris Cho said in an email. “This agreement improves the earnings outlook for our St Eustatius terminal for the remainder of 2018.”

NuStar and PDVSA also signed a new contract that reduces the storage available to PDVSA at the facility, while securing fees for about one year’s worth of storage, he added.

In May, when Conoco started legal actions to seize PDVSA’s assets on several islands where it rents or owns terminals and refineries, over 4 million barrels of Venezuelan heavy crude stored at Statia were temporarily retained under a court order.

Conoco tried to seize the inventory, but the dispute for missing storage fees between PDVSA and NuStar added complications to the case.

In 2017, a similar legal fight between PDVSA and the conglomerate of shipping companies Sovcomflot led to an auction in which an inventory of Venezuelan crude stored in Statia was sold to a trading firm for satisfying a portion of the Russian firm’s claim.

(Reporting by Gary McWilliams in Houston and Marianna Parraga in Mexico City; Editing by Lisa Shumaker and Richard Chang)

***

Venezuela’s Oil-linked Cryptocurrency Leaves Heads Spinning

(Bloomberg, Andrew Rosati & Fabiola Zerpa, 21.Aug.2018) — Beaten-down Venezuela on Tuesday began confronting a 95 percent currency devaluation and a regimen of economic controls that, after years of hunger and hyperinflation, landed like a hassle rather than a cataclysm.

Caracas returned to work after a holiday weekend that saw President Nicolas Maduro announce the devaluation and a minimum wage hike of more than 3,000 percent, decisions that were a tacit acceptance of the ubiquitous black-market exchange rate. They accompanied the roll-out of new banknotes that dropped five zeroes to recognize how inflation had made the old money virtually meaningless. Many Venezuelans waited outside banks to get their hands on the new sovereign bolivares after months of living almost cashless.

Jimmy Lugo, 39, a heavy-machine operator, said as he waited to use an ATM downtown that he was paying much as 500 percent markups for legal tender, on which he depends for bus fare. While he doubted the latest economic package would put more food on his table, he hoped it would at least bring temporary relief as the autocratic Maduro is unlikely to leave power on his own.

“This is the only ship there is. Either it floats, or we’re all going down,” Lugo said after collecting his cash.

Yet many fear the reforms will sink a foundering nation still deeper. Inflation is running over 100,000 percent, food and medicine are scarce and citizens are are fleeing by the thousands to neighboring countries. Some have been met with violence.

The Maduro regime is taking measures to quell a rising sense of panic in the nation. The minimum wage will increase more than 3,000 percent. Regulated prices for 50 staples will be announced Tuesday, and the government has begun to pay a “reconversion bonus” to help holders of the official “Fatherland” identification card make ends meet during the transition.

The sovereign bolivar’s value will be linked to a cryptocurrency — believed to be the first time a government has tried such a thing. The Petro is backed by crude oil, and the government sets its value at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods. Still, the cryptocurrency doesn’t trade on any functioning market, Francisco Rodriguez, chief economist of Torino Capital, wrote in a note to clients Monday.

Opposition politicians and unions called a strike for Tuesday, saying the devaluation would deepen suffering. Much of Caracas was working, however, with traffic flowing and many bakeries and supermarkets opened after days shuttered. Still, citizens were befuddled by the head-spinning math of the devaluation, the new currency and the very idea of a bolivar tied to the vaporous Petro.

“They’re going to pay us in cryptocurrency now — Petros? It’s crazy. I have no idea how it will work. We’re barely using bolivars at this point,” said Jose Bastida, a 58-year-old maintenance worker waiting outside a bank in central Caracas.

Maduro’s plan was “marked by inconsistencies and was short on specifics, suggesting that any attempt to stabilize the economy would start out facing huge credibility problems,” Rodriguez from Torino Capital wrote.

Private firms are “in serious risk of bankruptcy due to the way in which the measures are being implemented,” Fedecamaras, the nation’s main business chamber, said in a statement Monday. The president’s announcements foster “uncertainty, are improvised and undebated and are not being correctly communicated.”

Death Drones

Maduro’s gambit follows years of policies that turned what had once been one of Latin America’s wealthiest countries into a basket case. Pressure is mounting, with new calls for the socialist’s overthrow five years after he succeeded the late Hugo Chavez. This month, Maduro cracked down anew on his opponents after an attempt to kill him using aerial drones laden with explosives.

The announcement of the measures on a Friday night was a historical rhyme for many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. Citizens called the date “Black Friday.”

Complex Calculations

Across Caracas on Tuesday, many residents said that they were already beginning to feel a rise in prices despite Maduro’s warnings to the private sector.

Marelis Martinez, a 57-year-old administrative assistant, said prices of many essentials like cheese and eggs had already gone up by as much as a third over the weekend.

“This is all a joke; I feel like I’m being laughed at,” Martinez said. “The president can say the minimum wage is worth whatever he wants, but it still won’t be enough to cover a chicken.”

To contact the reporters on this story: Andrew Rosati in Caracas at arosati3@bloomberg.net;Fabiola Zerpa in Caracas Office at fzerpa@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Stephen Merelman

***

PDVSA and ConocoPhillips Reach New, Positive Settlement

(Citgo, 21.Aug.2018) — As officially reported by Petróleos de Venezuela, S.A. (PDVSA) and ConocoPhillips, the two companies recently reached a settlement agreement resulting from the nationalization of the Hamaca and Petrozuata projects in 2007.

As background, ConocoPhillips initiated arbitration before the International Chamber of Commerce (ICC), demanding that PDVSA pay approximately $20 billion in return for its assets. This amount was based on the theory that PDVSA should have unlimited liability for the actions of the country. However, on April 24, 2018 the ICC ruled that PDVSA should pay only $1.87 billion, an amount based on the previous association agreements between the two companies.

As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the ICC award, including in the Dutch Caribbean. At the same time, PDVSA will pay approximately 25 percent of the award in the short term and the remaining balance in quarterly installments over the next 4.5 years.

PDVSA confirmed in a statement that it will continue serving both the international and domestic markets. Furthermore, the company affirmed that this agreement reached with ConocoPhillips demonstrates, once again, the firm will of PDVSA to reach commercial solutions with its creditors while continuing to strengthen itself and its commercial operations.

CITGO also continues serving its customers in the United States, and the resolution of this matter helps to ensure the stability in the overall CITGO commercial supply chain. As a leading refining and marketing company, with strong financial and operational performance, CITGO will continue producing and selling quality products and is well positioned for the future.

***

Venezuela Agrees to Pay $2 Bln Over Seizure of Oil Projects

(The New York Times, Clifford Krauss, 20.Aug.2018) – More than a decade ago, Venezuela seized several oil projects from the American oil company ConocoPhillips without compensation. Now, under pressure after ConocoPhillips carried out its own seizures, the Venezuelans are going to make amends.

ConocoPhillips announced on Monday that the state oil company, Petróleos de Venezuela, or Pdvsa, had agreed to a $2 billion judgment handed down by an International Chamber of Commerce tribunal that arbitrated the dispute. Pdvsa will be allowed to pay over nearly five years, but as it is nearly bankrupt, even those terms may be hard to meet.

After winning the arbitration ruling in April, ConocoPhillips seized Pdvsa oil inventories, cargoes and terminals on several Dutch Caribbean islands. The move seriously hampered Venezuela’s efforts to export oil to the United States and Asia, and emboldened other creditors to seek financial retribution.

“What they did was choke the exports and made it clear to Pdvsa that the cost of not coming to an agreement would be higher than actually settling on a payment schedule,” said Francisco J. Monaldi, a Venezuelan oil expert at Rice University.

As its oil production has plummeted to the lowest levels in decades, Venezuela has fallen behind on more than $6 billion in bond payments. Pdvsa has already defaulted on more than $2 billion in bonds after failing to make interest payments over the last year, and owes billions of dollars more to service companies.

Adding to Venezuela’s woes, the Trump administration has imposed sanctions that prohibit the purchase and sale of Venezuelan government debt, including bonds issued by the state oil company.

Mr. Monaldi said Pdvsa would be forced to pay ConocoPhillips with money it would have paid other creditors and would probably delay some oil shipments to China it owes in separate loan agreements. He added that “there is not a negligible probability” that at some point it will discontinue payments for lack of money.

Hyperinflation, corruption and growing starvation have crippled the Venezuelan economy, as the socialist government is forced to choose between buying food and medicine and satisfying the demands of creditors. Over the last few days, the government has scrambled to deal with its economic crisis by sharply devaluing its currency, raising wages and promising to shave energy subsidies.

Venezuela has the largest oil reserves in the world. Its crisis has tightened global oil markets at a time when threatened United States oil sanctions against Iran could drive up prices.

The settlement with ConocoPhillips over the 2007 seizure resolves a drawn-out legal struggle, at least for the time being.

“As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the I.C.C. award, including in the Dutch Caribbean,” ConocoPhillips said in a statement.

Pdvsa, which did not comment on the agreement, is to pay the first $500 million within 90 days.

ConocoPhillips is pursuing a separate arbitration case over the same seizure against the government of Venezuela before the World Bank’s International Center for Settlement of Investment Disputes, which could result in another large settlement award, perhaps as high as $6 billion.

That amount would probably be unpayable, experts say, but it could put ConocoPhillips in a strong position to obtain access to Venezuelan oil fields in the future if the current government eventually falls.

Pdvsa’s problems with creditors are far-reaching, putting its American Citgo assets, including three large refineries and a pipeline network, in jeopardy. A federal judge in Delaware recently ruled that Crystallex, a Canadian gold mining company, could seize over $1 billion in shares of Citgo as compensation for a 2008 nationalization of a mining operation in Venezuela.

Citgo is appealing. If it loses, that may open the way for more claims on Citgo assets by companies whose investments have been expropriated in Venezuela, including Exxon Mobil.

***

Rafael Ramírez Says Maduro Destroyed PDVSA

(Energy Analytics Institute, Jared Yamin, 19.Aug.2018) – Former PDVSA President Rafael Ramírez says Venezuela produced 3 million barrels per day until December 2013. That figure has dropped by 1.8 million, according to his statements.

“When we were in the revolutionary government of Comandante Chávez, we had fiscal balance and enough income for all social programs, not because the price was 100 dollars a barrel, as the infamous say (we showed that we only had those prices for 4 years, the rest of the years prices were between 22 and 42 dollars a barrel, much less than now), but, precisely, because we charged transnationals and PDVSA all the taxes and royalties without exemptions of any kind. But, in addition, we had oil production of 3 million barrels per day until December 2013,” writes Ramírez in a blog post on Medium.

A PDV petrol station in the once popular Las Mercedes section of Caracas, Venezuela. Prior to its takeover, the station was controlled and run by Chevron Corporation. Source: Energy Analytics Institute (EAI)

“Now, the government has destroyed PDVSA, its production has fallen, in just 4 years (with a dramatic drop since Quevedo entered) to 1.2 million barrels a day due to the inability and irresponsibility of Maduro in the management of oil issues. In PDVSA, we have lost 1.8 million barrels per day, at an average price of 63 dollars per barrel, we are talking about 113.4 million dollars every day, which [is to say] they [have] stopped receiving, 4.139 million dollars a year!,” writes Ramírez, who also served as Venezuela’s Minister of Petroleum, among other posts during the governments of the late President Hugo Chávez and current Venezuelan President Nicolas Maduro, until his departure and rupture with the latter.

“Now, the owners of the petroleum, that’s to say, the Venezuelan citizens, have to pay the international price for gasoline, as if [Venezuela] were not a petroleum country.” — Ramírez

***

Cure for Venezuela’s Mercantilism, Rentism Disease

House located in the eastern coastal region of Lake Maracaibo in Venezuela. Source photo: Energy Analytics Institute

(EnergyNomics, Carlos A Rossi, 18.Aug.2018) – Are natural resource endowed countries victims of their own wealth? Is there a richness threshold beyond which the institutions designed to protect a country’s citizens turn against them and become their worst enemy by annihilating their productive apparatus riddling it with the miseries of declining GNP, hyperinflation, unpayable debt, zero investor confidence, poverty, crime, hunger and repression of loss liberty?

This is exactly what has happened to Venezuela, holder of the world’s largest petroleum reserves, and it happened precisely because the oil prices were high. Examination of this paradox renders Rentism its principal culprit.

Rentism is an endemic degenerative fiscal disease that metastasises throughout a nation’s economy because it is a degradation of Rent, a concept first defined by 19th century English Economist David Ricardo to distinguish between “normal profits” produced by the wise employment of capital and labor on land, from “abnormal profits”-or Rents-that are captured due to the bountiful legacy of better fertile land even though this luckier lad is employing the same mix of capital and labor; except at lower costs. Ricardo reckoned that the difference between rent and normal profits, which can be huge, is windfall luck that is captured but never produced.

Rentism occurs when this rent portion is captured by the State, meaning politicians, a common occurrence in institutionally weak-oil rich countries that places politicians too close to unimaginable amounts of money. Rentism produces expensive white elephants projects that are never finished because their sole intent is to pocket its budget in offshore accounts.

By acquiring a life of its own, Rentism at its highest creates crony “state-capitalism”, corruption, bloated invoices, inflated import receipts, vanishing loans, kickbacks, plutocracy, and capital flight. When the commodity price plunges the ill effects of Rentism crystallize in disappearing international reserves, budget deficits, hyperinflation, worthless currencies, unemployment, poverty, commodity dependency, foreign debt, political crisis, etc resulting in a skewed economy within an incapacitated repressive state.

You can think of Rentism as Lupus, a deadly serious autoimmune disease that turns the very defensive mechanisms that your body has designed to protect you (politicians and institutions) into your worst possible enemy.

The following graphs illustrate this.

The first graph demonstrates Venezuela’s Gross Fixed Capital Formation, a measure of capital accumulation, for both the private and state sector between 1950-2012 (Venezuela stopped publishing data in 2015). In the early period 1950-1976, capital accumulation of both Private and State grew in tandem at a vigorous pace of 400% and 900% respectively. During this golden era GNP grew at 6.7% annual average and Inflation never topped 2.5% per annum. Venezuela prospered well.

In mid 1970’s two things happened that forever changed Venezuela’s history for the worst. The 1973 Yom Kippur war quadrupled oil prices showering the State with unprecedented revenues. Then, in 1976 Venezuela’s oil was nationalized passing ownership from Private to the State. To the delight of politicians, this opened the door for explicit rent seeking exigencies from all sectors especially local capitalists and bureaucrats. From then onwards a widening gap between the curves opened favouring State capital accumulation that saw a 210% increase at the expense of Private accumulation, which suffered an 80% decrease lessening to oblivion, close to 1950 levels.

Venezuela’s prosperity turned sour illustrated in the per-capita income behaviour of the second graph, exacerbated ad absurdum by Hugo Chavez’s private property expropriation years of this century. When the Private Sector (national and international) stopped accumulating capital Venezuela’s economy imploded. The political control of Rent is the smoking gun.

We can also say that Rentism pushed Venezuela’s incipient industrial development backward in time to the age of 18th century Mercantilism, the step-stone transition system between Feudalism and Capitalism. Coined by Adam Smith, Mercatilism is State controlled capitalism were the State has the power decision making of which sectors (specifically which companies) get the generous dollar “loans” and to which ends. It was never a formal economic system per se, but rather a set of very adaptable ad-hoc rules which goals was to promote national wealth through strict regulation of private entrepreneurship. Or as Max Webber cleverly defined it: “The Passage of Capitalist Lust into Politics”.

The major difference being that whereas in Adam Smith’s England the State benefited solely from the efficiency of its tax collectors on its crony friends, in Venezuela there is no need for a tax-man because nature’s petrol bounty is already in the hands of the State; meaning that all it has to do is to pick and choose which of its crony clients get the money and what level are the tariff walls to shield them from competition (500% tariffs were common). Kickbacks and crafty graft were and are the price the crony benefactor gracefully paid. This happened in Venezuela during the oil boom of the 1970s and on this millennium’s oil price rack up with the difference that last century graft and distortions lead to some construction whereas in this period graft has meant only destruction of all the productive apparatus, including investor confidence, ethics and PDVSA’s oil machine.

Adam Smith (the finest of the enlightment thinkers), spent many pages debunking mercantilism with his liberalism laissez faire-laissez passer policy; he would have certainly predicted, in both of Venezuela’s experience with rentism the end results to be, in the best of cases: disastrous. Now those French words are to Venezuela as foreign as they sound, and they have been for at least 2 generations and counting.

Solving for Rentism and for Mercantilism is easy: A managing contract with an established multilateral institution with experience in development, like the World Bank and/or the UN´s Food and Agriculture Organization to administer investment of all Rent proceeds under proven criteria.

Problem: Venezuela’s politicians need to make this decision of be forced to make this decision by an international coalition of power that is bent on bringing the opportunity of economic prosperity to its 30+million citizens and of assuring themselves increasing quantities of the Worlds most efficient fossil base energy resource in the planet. Until this happens, Venezuelan citizens will always be victims of their own wealth.

Scrapping Rentism and Mercantilism will not solve all of Venezuela’s problems, which are deep seeded thanks to Chavism; but it will in all certainty go along way into resolving them for good.

Editor’s Note: Carlos Rossi is President of Caracas-based EnergyNomics and a regular contributor to Energy Analytics Institute.

***

Former PDVSA Director Detained in Argentina

(Energy Analytics Institute, Ian Silverman, 17.Aug.2018) – A former PDVSA director has been detained and accused of money laundering.

Luis Abraham Bastidas Ramírez, the cousin of former PDVSA President Rafael Ramírez, was detained in Argentina, wrote reporter Dean Rojas in a tweet on his personal twitter account.

Ramírez’s capture was ordered by the Principality of Andorra as it related to the possible laundering of $5 million, wrote Rojas in his tweet.

State oil company PDVSA has yet to emit a statement regarding the developments.

***

Jusepin Oil Region in Venezuela: 45 Seconds of Fame

(Energy Analytics Institute, Piero Stewart, 17.Aug.2018) – Venezuelan opposition leader Maria Corina Machado tours the Jusepin petroleum region in Venezuela.

Jusepin is just one of many petroleum-rich areas in Venezuela, the country with the world’s largest oil reserves.

***

Venezuelan Oil Assets to be Seized by Creditors

(Express, Simon Osborne, 16.Aug.2018) – Venezuela’s oil assets are being targeted by angry creditors after a US court granted a Canadian mining company permission to send in the bailiffs.

Firms owed billions by the beleaguered South American country and its state-owned oil firm PDVSA are now lining up to make sure they get a pay-out.

The Venezuelan economy is crippled by hyperinflation and the discredited regime of President Nicolás Maduro faces trade sanctions from the US, EU, Canada and Latin America’s biggest countries.

The country is essentially bankrupt and creditors see its oil assets as their best bet with the biggest target being Citgo, a Texas-based oil refiner that processes Venezuelan crude oil and is estimated to be worth roughly £3.15bn.

Oil tankers could also be targeted as US hedge fund Elliott Management did with an Argentine ship in 2012 after it won a US court ruling to collect on unpaid debts.

Venezuela, which is overdue on about £4.5bn in debt payments, is reportedly transferring oil cargoes to safe harbours including Cuba to avoid such risks.

Canadian mining company Crystallex won a key battle in its attempts to force Venezuela to pay £1.1bn in compensation for expropriation of a mining project when a US judge accepted its argument that PDVSA was an “alter ego” of the Venezuelan state and gave it the right to seize PDVSA assets in the US.

Francisco Rodriguez, chief economist of Torino Capital said the ruling could serve as a precedent.

He said: “This judgment is unambiguously negative for Venezuela, given its loss of an asset of significant value. In all likelihood the ruling will spur creditors to attempt to pursue PDVSA assets.”

ConocoPhillips has already won a £1.57bn arbitration award against PDVSA from the International Chamber of Commerce, the US oil major seized the company’s assets in the Caribbean.

The seizures left PDVSA without access to facilities that process almost a quarter of Venezuela’s oil exports.

To avoid the risk of other assets being taken, PDVSA asked its customers to load oil from its anchored vessels acting as floating storage units.

Citgo’s complicated ownership – half the company is security against more than £2.36bn of PDVSA bonds and half is collateral for a £1.18bn loan from Russian oil giant Rosneft – means any immediate plundering of its assets is extremely unlikely.

Robert Kahn, a professor at the American University and a former International Monetary Fund official, said: “The ruling is a win for Crystallex, no doubt. But I’m not convinced that it immediately marks a tipping point.”

Richard Cooper, senior partner at New York law firm Cleary Gottlieb Steen & Hamilton, said: “The Crystallex ruling doesn’t mean that every Republic of Venezuela bondholder can automatically assume that PDVSA assets are available to them.”

Venezuela also owes tens of billions of dollars to China and Russia but its sole foreign-exchange generating industry is in steep decline with oil output dropping below the 1947 levels of 1.3m barrels per day.

***

Guyana to Become 5th Largest Oil Producer in LAC Region

(Energy Analytics Institute, Piero Stewart, 15.Aug.2018) – If all goes off as planned, by 2025, Guyana will be the 5th largest oil producer in the Latin American and Caribbean region.

Source: Trading Economics

That’s according to an analysis of data posted by Trading Economics, and extrapolation of estimates of Guyana’s future oil production, as announced by Kevin Ramnarine, the former Energy Minister of Trinidad and Tobago.

“Oil production in Guyana is expected to come online at 120,000 barrels per day in 2020 and peak at 750,000 barrels per day by 2025, according to Exxon,” said Ramnarine, now an international petroleum consultant, during a webinar with Guyana’s Minister of Finance, the Honorable Winston Jordan and hosted by Caribbean Economist Marla Dukharan.

Considering initial production of 120,000 barrels per day in 2020, Guyana will first occupy the spot as the 7th largest oil producer in the LAC region, assuming no drastic changes in the other countries’ production profiles over the next couple of years.

However, in the process, by the time peak production is reached five years latter, Guyana will have surpassed OPEC producer Ecuador, assuming production in that country, as well as others, doesn’t experience a drastic decline, as has been the case in Venezuela in recent years.

***

 

PDVSA Leaves Argentine Gas Station to Fend for Itself

(Reuters, Luc Cohen, 15.Aug.2018) – As Venezuela’s state-owned oil company PDVSA saw its finances devastated by low oil prices and mismanagement, it funneled millions of dollars to Petrolera del Conosur (PSUR.BA), a loss-making Argentine gas station operator it controls.

PDVSA decided to cut off the support payments late last year, according to a person familiar with Petrolera del Conosur’s operations, as the once-proud icon of Venezuelan oil production struggled with declining output aggravated by a worsening economic crisis.

The transfers had totaled $89 million between 2013 and 2017, according to a Reuters review of filings with Argentina’s securities regulator, years that coincided with a frustrated effort by Venezuela to extend the petro-diplomacy it employed in the Caribbean to the southern cone of Latin America.

Profitability was likely never the true goal of Venezuela’s Argentina foray, said David Mares, a political science professor at the University of California, San Diego. In 2006, late President Hugo Chavez unveiled a plan to transform PDVSA from a commercial company to a domestic and international political tool.

Before oil prices crashed in 2014, Venezuela’s government used PDVSA to fund social programs at home and provide countries in the region with cheap fuel to promote its socialist model and push back on United States influence.

The most well-known example is Petrocaribe, a program through which Venezuela sends crude and fuel to Caribbean countries on generous credit terms or through barter deals. But Chavez also signed deals with governments elsewhere in the region, including Argentina and Uruguay, to sell fuel and invest in energy infrastructure.

“The idea of having a series of gasoline stations in Argentina would fit in that context. It’s to show the Bolivarian revolution benefits people at the ground level,” Mares said. “The surprise is that they’ve lasted so long, because PDVSA is broke, the country is broke.”

PDVSA in 2006 purchased a 46 percent stake in Conosur from Uruguay’s ANCAP, which it boosted to a controlling 94 percent in 2010. PDVSA’s website still boasts of a goal to run 600 stations in Argentina to gain a market share of 12 percent in the country.

Conosur’s struggles come as some of PDVSA’s other overseas ventures, most launched through a wave of overseas expansion in the 1980s or as part of Chavez’s attempts to use “oil diplomacy,” have been scaled back or shuttered.

One of the most emblematic is Hovensa, a refinery in the U.S. Virgin Islands operated jointly with Hess Corp (HES.N), that filed for bankruptcy in 2015.

‘STRATEGIC ALLIANCE’

Since 2013, Conosur has posted hundreds of millions of pesos in annual losses. Fuel sales at its PDV Sur and Sol-branded stations have plunged 86 percent, as it struggled to compete with rivals like state-owned YPF (YPFD.BA), which produce their own crude and refine their own fuel.

PDVSA also strove to become an integrated player in Argentina, but efforts to acquire upstream and refining assets never worked out, the person said.

Neither PDVSA nor PDVSA Argentina, the subsidiary that owns the Conosur stake, responded to requests for comment.

And in a sign of how Venezuela’s economic crisis has derailed its ambitions to challenge U.S. diplomatic and financial power through regional energy integration, Conosur has not notified Argentina’s stock watchdog of any payments from PDVSA since Dec. 29, 2017.

The choice to cut off support amounts to a formal abandoning of the upstream goals in favor of strengthening the existing network as part of a restructuring of the company, said the person, speaking on condition of anonymity because they were not authorized to speak publicly.

“The supports were rational when the goal was the whole supply chain,” the person said, adding the company was in talks for a strategic alliance with a fuel supplier to access cheaper refined products, rather than depending on the spot market.

That deal could be necessary to keep the company alive without PDVSA’s support.

The company posted a 177.5 million peso loss in 2017, and warned on Dec. 20 that PDVSA’s transfers had helped it avoid being dissolved in accordance with the requirements of an Argentine corporate law for companies that run out of capital.

Since then, losses have accelerated, to the tune of 226 million pesos in the first half.

Conosur’s struggles have dashed many employees’ hopes that PDVSA’s takeover would signal a new era of prosperity at the chain, which had also struggled under Uruguayan ownership.

“We saw it as a panacea,” said one former employee, laid off earlier this year with around a dozen others. “But it was more or less the same.”

Additional reporting by Alexandra Ulmer in Caracas and Marianna Parraga in Mexico City; Editing by Bernadette Baum

***

Venezuela Petrol Prices Need to Rise to Stop Smuggling

(Reuters, Deisy Buitrago and Brian Ellsworth, 14.Aug.2018) – Venezuela’s heavily subsidised domestic gasoline prices should rise to international levels to avoid billions of dollars in annual losses due to fuel smuggling, president Nicolas Maduro has said.

“Gasoline must be sold at an international price to stop smuggling to Colombia and the Caribbean,” Mr Maduro said in a televised address on Monday.

Venezuela, like most oil producing countries, has for decades subsidised fuel as a benefit to citizens.

But the country’s fuel prices have remained practically flat for years despite soaring hyperinflation the International Monetary Fund has projected would reach 1,000,000 per cent this year.

For the price of a cup of coffee, a driver can fill the tank of a small SUV nearly 9,000 times

That means that for the price of a cup of coffee, a driver can now fill the tank of a small SUV nearly 9,000 times.

Smugglers can make considerable profits reselling fuel in neighbouring countries.

Mr Maduro said the government would still provide “direct subsidies” to citizens holding the “fatherland card,” a state-issued identification card that the government uses to provide bonuses and track use of social services.

He said the subsidy was only available to those who registered their cars in a vehicle census being conducted by the state.

***