Nicolas Maduro

Chevron Stayed In Venezuela Long After Rivals Quit

(Wall Street Journal, Kejal Vyas and Bradley Olson, 8.Nov.2018) — For nearly a century, Chevron Corp. has weathered dictatorships, coups and nationalization drives to keep pumping oil in Venezuela.

But recently, executives at the last U.S. oil major in the country have debated whether it may be time to get out, according to people familiar with their deliberations.

For now, Chevron hopes to hang on and outlast President Nicolás Maduro, as it did with his late mentor Hugo Chávez and other rulers.

“We’re committed to our position in Venezuela,” Clay Neff, Chevron’s president of exploration and production in Africa and Latin America, said in an interview Thursday following initial online publication of this story.

Chevron’s dilemma is both moral and commercial. The California-based giant long enjoyed close relations with the socialist regime that controls the world’s largest oil reserves, and has earned big money in Venezuela—about $2.8 billion between 2004 and 2014, according to cash-flow estimates by analytics firmGlobalData .

The company is aware a pullout could trigger a collapse of the government’s finances, because a significant chunk of its scarce hard currency comes from joint operations with Chevron.

Yet by staying in the country as its economic and humanitarian crises deepen, the company risks damage to its reputation by being seen as supporting an authoritarian regime sanctioned by the U.S. government. It also isn’t making much money here anymore.

Chevron has had to put up with many provocations in Venezuela, including late payments, requests for employees to attend political rallies and bickering over loans Venezuela sought because it couldn’t afford oil-field maintenance. Chevron’s joint ventures with the state oil company are regularly subjected to what Venezuelan prosecutors have labeled corrupt overcharging by vendors. Graft and the risk it will worsen have weighed on executives as they consider Chevron’s position in the country.

It has become harder to stomach since the big money disappeared from the Venezuela operations, say people familiar with the company. Chevron operations in Venezuela lost money from 2015 to 2017, according to GlobalData, then eked out a modest profit this year thanks to higher oil prices. Oil fields are aging, and unless more reserves are opened up, Chevron’s work in Venezuela will run out of steam in less than five years, GlobalData estimates.

A turning point for foreign companies operating in Venezuela came in 2006, when Mr. Chávez began nationalizing oil fields managed by foreign operators and sharply raising taxes.

Rewritten contracts made Petroleos de Venezuela SA, known as PdVSA, the operator and majority owner of most projects. Chevron’s top U.S. competitors, Exxon Mobil Corp. and ConocoPhillips ,balked at the changes, left, and filed suit. Exxon has yet to recover the full value of the billions in equipment and other assets it left behind. ConocoPhillips recently reached a $2 billion settlement.

Some European oil companies, such as Total SA and Equinor AS A (then called Statoil), remained but reduced their holdings.

Chevron decided to stay, and—led by a charismatic Iranian-American executive named Ali Moshiri—formed an array of partnerships with PdVSA. Mr. Moshiri, who was head of Chevron’s business in Latin America and Africa, sometimes appeared in public with Mr. Chávez, who called him a “dear friend” on one occasion.

Joint ventures Mr. Moshiri pioneered became a model for foreign companies doing business in Venezuela. A venture called Petropiar between Chevron and PdVSA is one of four so-called upgrader ventures between the state oil company and foreign operators to blend Venezuela’s tar-like heavy crude with lighter oil or other substances and make it transportable.

Though Chevron’s bet paid off financially for years, an oil-price crash beginning in late 2014 triggered a vicious cycle in which government revenue fell and then oil production did, too, as the country placed priority on debt payments over the heavy reinvestment oil fields need to stay healthy.

Since the end of 2017, Venezuela has defaulted on more than $6 billion in debt payments, according to Fitch Ratings, while its crude-oil industry has been reduced close to ruins by neglect and the departure of experienced engineers.

Oil production has fallen to 1.2 million barrels a day from 3.2 million daily in 2006, according to the Organization of the Petroleum Exporting Countries. A country with vast reserves now produces roughly as much oil as the U.S. state of North Dakota. As output has declined, and thus revenue, the country’s economic crisis has worsened.

With supermarket shelves nearly bare and prices soaring, two-thirds of Venezuelans reported losing 25 pounds of weight in 2017, according to a survey. Violence is rampant, including atrocities by police and soldiers. Hospitals lack medicine and clean water, yet the government rejects most humanitarian aid as a Trojan horse for foreign intervention. More than three million Venezuelans have fled, leaving those who remain to face crushing rates of murder, malnutrition and hyperinflation.

Venezuela’s energy enterprises are under pressure from expanding corruption probes in the U.S. and Europe. A U.S. investigation, centering on allegations that PdVSA officials solicited vendors for bribes, has netted 15 guilty pleas, including from a number of PdVSA honchos.

An investigation in the tiny European nation of Andorra has led to money-laundering charges against 28 people, including former Venezuelan deputy ministers, who allegedly took $2 billion through kickbacks-for-contracts schemes from 2007 through 2012.

Zair Mundaray, a former Venezuelan prosecutor now in exile, said his team uncovered an alleged scheme at the Petropiar joint venture in which PdVSA executives skipped formal contract bidding and handpicked the vendors of a wide range of supplies, from oil equipment to cafeteria coffee, at exorbitant prices. The profits were distributed among certain Petropiar managers, PdVSA higher-ups and the suppliers, the charging documents said.

PdVSA and Venezuela’s Information Ministry didn’t respond to calls and detailed emails seeking comment.

Venezuelan charging documents and purchasing invoices reviewed by The Wall Street Journal allege that contractors pilfered more than $200 million in two years from the joint venture through markups such as $156,000 for printer/copiers and $9,000 for ink-jet cartridges.

Among the accused was Manuel Sosa, a former soap-opera actor who once dated a daughter of Mr. Chávez, whose company supplied the costly printer/copiers. Mr. Sosa pleaded guilty in December and was sentenced to four years’ house arrest in return for his cooperation. He couldn’t be reached for comment.

“Where were the checks? Where was the accounting?” asked Mr. Mundaray. “There’s absolutely no way that [Chevron] did not know what was happening.” He said he has given the evidence he collected to the U.S. Justice Department, which declined to comment.

Pedro Burelli, a former PdVSA board member and a Maduro critic, said Chevron “turned a blind eye to what was going on.”

“When you’ve agreed to work with a majority partner that is derelict, you’re just setting yourself up for a huge risk. You get deeper and deeper, when you should be hitting the red button, to get yourself out,” said Mr. Burelli.

Chevron said it complies with all applicable laws wherever it operates and expects its partners to do so as well. It said it doesn’t control the procurement process in the joint venture, in which Chevron has a 30% nonoperating stake. In oil and gas joint ventures, the operator typically has primary authority over costs, though minority partners are generally consulted and sign off on certain expenses. Chevron said nothing in documents it was shown suggested any wrongdoing by the U.S. company.

Oversight of the investigation changed hands just as it was picking up steam. Mr. Mundaray and his team left Venezuela in August 2017 after their boss, former Attorney General Luisa Ortega, criticized Mr. Maduro for alleged human-rights abuses. The president called the prosecutors traitors.

A new attorney general, Tarek William Saab, provided a list of people accused that lacked some names on Mr. Mundaray’s list.

One missing name was that of former Petropiar chief Francisco Velasquez, who the former prosecutors said splurged on a pink Ferrari and a villa at the exclusive Casa de Campo resort in the Dominican Republic while the oil project suffered backlogs and delays. He couldn’t be reached for comment. Mr. Saab didn’t respond to comment requests.

In April, two Chevron employees working at the Petropiar joint venture were jailed by Venezuelan military intelligence when they refused to sign a contract for oil-processing equipment priced at what they considered well above market value. The employees were released after six weeks of tense negotiations, but not before a thinly veiled threat from Chevron: free them or we will leave, people familiar with the confrontation say.

Chevron confirmed two employees were arrested in April and released in June but said, “We have no further information to share on this matter.”

A dwindling number of foreign companies are still doing business with the Maduro administration, which is facing threats of tougher sanctions by Washington. The U.S. has sanctioned dozens of Venezuelans, including Mr. Maduro, for allegations varying from corruption to human-rights abuses to drug trafficking. The sanctions bar American citizens and companies from doing business with them.

Mr. Maduro has said he wants foreign oil partners to use a cryptocurrency called the petro his government designed to evade U.S. sanctions on Venezuelan debt. The U.S. in March barred Americans from using the petro.

By staying in Venezuela, Chevron risks exposing itself to legal penalties under U.S. anti-corruption laws, some analysts say. Chevron said it “abides by a strict code of business ethics under which the company complies with all applicable international, U.S. and Venezuelan laws.”

Its managers’ meetings with government and PdVSA officials “comply with all applicable laws and regulations, including the U.S. sanctions directed towards Venezuela,” Chevron said.

About 700,000 daily barrels of the country’s oil production comes from joint ventures between PdVSA and foreign companies, consultants say. That includes about 200,000 to 250,000 barrels a day from Chevron ventures.

Joint-venture output has generated far more cash for the government in recent years than oil pumped by PdVSA alone, because the state company’s production has gone to repay debts to allies such as China and Russia or to be processed into gasoline the government provides almost free. That means a Chevron withdrawal would take a big bite out of government’s revenue.

Another foreign company, Royal Dutch Shell PLC, is weighing an exit from most of its remaining operations in Venezuela through a sale of its stake in a joint venture, according to people familiar with its plans. A spokeswoman for Shell said such a deal wouldn’t amount to a total exit, as the company is working to develop Venezuelan gas assets offshore that would supply nearby Trinidad and Tobago.

Some analysts believe other Western companies operating in Venezuela, such as France’s Total or Norway’s Equinor, might feel pressure to follow a departure or partial exit by either Shell or Chevron. At the same time, according to GlobalData, those that stay might be able to gain access to new fields or renegotiate contracts for better terms. Chinese or Russian companies such as PAO Rosneftcould be beneficiaries of any such departures in the long run, analysts say.

Total, Equinor and Rosneft officials either declined to comment or didn’t respond to questions.

Signs of a troubled relationship between Chevron and the Venezuelan government emerged a year ago when Mr. Moshiri’s successor as head of Chevron’s Latin American and African operations, Mr. Neff, sat down for a meeting with Mr. Maduro and other Venezuelan officials.

Venezuelan officials snapped a photo without Chevron’s consent and publicized it. At Chevron headquarters in San Ramon, Calif., concerns grew that the company was being duped into making an appearance in Venezuelan propaganda, people familiar with the matter said.

While such photo ops had occurred before, the country’s worsening economic collapse, plus U.S. sanctions, are making them harder to tolerate, the people said. Chevron declined to discuss the Caracas meeting.

The company’s closeness with the government is generating rancor among PdVSA’s workers, who have been quitting in droves amid hyperinflation that has pummeled their salaries to the equivalent of less than $10 a month.

Jose Bodas, a union leader in eastern Venezuela where Petropiar is located, said photos of sports cars and European vacations posted on social media by managers angers workers who sometimes lack boots and hardhats.

“I’m not opposed to people having Ferraris and mansions, but this is all corruption,” Mr. Bodas said. “I don’t mind saying it—if you’re a multinational working with this government, you’re an accomplice to what’s going on.”

—Ginette Gonzalez and Samuel Rubenfeld contributed to this article.

Write to Kejal Vyas at kejal.vyas@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

Appeared in the November 9, 2018, print edition as ‘Venezuela Tests Chevron Staying Power.’

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Ex-Venezuela Oil Official Pleads Guilty In Graft Probe

(AP, 2.Nov.2018) The former finance chief of Venezuela’s state oil company pleaded guilty on Wednesday to participating in an alleged US$1.2-billion embezzlement scheme, a major breakthrough for US prosecutors targeting corruption by people close to President Nicolas Maduro, including his stepsons.

Appearing in a Miami federal court, Abraham Ortega promised to fully cooperate with prosecutors, making him the highest-ranking Venezuelan official ever to do so.

As part of his plea, Ortega admitted that in his position with PDVSA, he accepted US$5 million in bribes to give priority loan status to a French company and a Russian bank, which were both minority shareholders in joint ventures with the oil company.

He also said he accepted US$12 million in bribes for his role in an embezzlement scheme that involved cooking up fake loans to PDVSA and repaying them at a preferential, government-set exchange rate, turning huge profits for alleged co-conspirators among the “boliburgues” elites that amassed fortunes under the Bolivarian Revolution started by the late Hugo Chávez.

Ortega’s guilty plea came just two days after a former Swiss banker, also involved in the conspiracy, was sentenced to 10 years in prison.

A third man, Colombian national Gustavo Hernandez, has been detained in Italy pending extradition. Ortega said Hernandez helped him launder his cut through a sophisticated network of brokerage firms, banks and real estate investment firms in the United States and elsewhere.

Ortega, 51, arrived at court looking calm, telling Judge Kathleen Williams that he drank a beer at lunch.

“Guilty” he said in Spanish with a strong voice, upon entering his plea to one count of conspiracy to commit money laundering.

He also agreed to forfeit US$12 million held in banks in New Jersey, The Bahamas and Switzerland. Sentencing was scheduled for January 9.

Ortega held a number of senior finance roles at PDVSA between 2004 and 2016, including the last two years as the company’s chief financial officer.

His lawyer, Lilly Ann Sanchez, said he had been living outside Venezuela the past year, but decided to come to the United States and voluntarily cooperate with authorities once charges against him and others were announced over the summer.

“The US government has amassed a tremendous amount of evidence and witnesses wherein Mr Ortega really had no choice but to come and face those charges,” Sanchez said.

Two US officials familiar with the probe have said the Swiss banker sentenced earlier this week, Matthias Krull, told prosecutors that the money-laundering plot included Maduro’s three stepsons – identified in court papers as “The Kids” – and the owner of Venezuela’s largest private TV network, businessman Raul Gorrin.

The two officials agreed to give those details only if granted anonymity, because they were not authorised to discuss the case publicly.

None of them have been charged and they are not named in the complaint. A 10-page factual statement, entered as part of the plea, also refers to the same men but does not provide additional details about their alleged involvement in the conspiracy.

The US Justice Department said authorities in Italy, Spain, Britain and Malta assisted in the investigation.

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Ex-Venezuelan Oil Exec Admits Bribes In $1.2 Bln Money-Laundering Scheme

(El Nuevo Herald, Jay Weaver And Antonio Maria Delgado, 31.Oct.2018) — A former top official of Venezuela’s state-owned oil company pleaded guilty Wednesday in Miami federal court to playing a pivotal role in a $1.2 billion money-laundering racket that U.S. authorities say was run by some of the country’s wealthiest people with close ties to the Venezuelan president.

Abraham Edgardo Ortega, the former executive director of financial planning at Petroleos de Venezuela, S.A. (PDVSA), admitted he accepted millions of dollars in bribes that were secretly wired to U.S. and other financial institutions, according to court records.

In exchange, Ortega allowed the ring’s members to embezzle hundreds of millions of dollars from the national oil company through loan- and currency-exchange schemes that ended up in European, Caribbean and U.S. banks as well as luxury South Florida real estate and other investments. Ortega, who worked at PDVSA for more than a decade, admitted he used his official role to give “priority” status to Venezuelan companies that did business with the government so they could tap into its vast oil income to make overnight fortunes.

Ortega, who surrendered to U.S. authorities in September after being charged this summer with eight other defendants, remains free on a $1 million bond as he assists the U.S. attorney’s office in the complex money-laundering case. He faces up to 10 years in prison at his sentencing Jan. 9 before U.S. District Judge Kathleen Williams and must forfeit at least $12 million stolen from the Venezuelan government’s oil company that was laundered to the U.S. and elsewhere.

His defense attorneys, Lilly Ann Sanchez and Luis Delgado, said they are hopeful that Ortega receives a substantial reduction in his sentence based on his assistance providing valuable information about the other defendants and suspects in the sprawling Homeland Security Investigations case.

Ortega, who served as PDVSA’s top financial officer from 2014 to 2016, admitted in a statement filed with his plea agreement that he conspired with the leader of the money-laundering ring, Venezuelan billionaire Francisco Convit Guruceaga, who has not been arrested, and a Miami-based investment broker, Gustavo Adolfo Hernandez Frieri, who was detained in Italy and awaits extradition to the United States. Others also collaborated with Ortega, including a money manager who operated between South America and Miami and who became a confidential source for Homeland Security agents two years ago.

Ortega’s guilty plea to the conspiracy charge follows Monday’s sentencing of Swiss banker Matthias Krull to 10 years in prison for the same offense. Krull was based in Panama and provided private banking services to Venezuela’s elite, including his most prominent client, media mogul Raul Gorrín. Gorrín has not been charged in the Miami federal case, but multiple sources have confirmed he is one of numerous unnamed co-conspirators in a criminal affidavit filed by Homeland Security Investigations.

Krull, who was arrested in July and became the first defendant to cooperate with the U.S. Attorney’s Office, remains free on a $5 million bond and is staying in a Brickell area condo. He pleaded guilty in August in a deal struck between his defense attorney, Oscar S. Rodriguez, and prosecutor Michael Nadler.

As required in his plea agreement, Krull started providing evidence about the Venezuela-based money laundering network — including inside information about Gorrín, owner of the Globovisión network in Caracas, according to multiple sources familiar with the investigation.

Gorrín is suspected of steering $600 million from the country’s state-owned oil company to a European bank to enrich himself, the three stepsons of President Nicolás Maduro and other members of Venezuela’s politically connected elite, according to court records and multiple sources.

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Venezuela Poses Clear Threat – Comments Could Refuel Trump Military Action Talks

(Express, Ciaran McGrath, 30.Oct.2018) — Venezuela represents a “clear threat to regional stability” and a “direct challenge” to the United States, a senior US Government official has said, as the possibility of Donald Trump taking military action resurfaced after widespread speculation in the summer.

The oil-rich South American country’s economy has sunk into crisis under President Nicolas Maduro, as many as 1.9 million Venezuelans have emigrated since 2015, according to the United Nations.

Some 90 percent of recent departures, the United Nations says, remain in South America.

Latin American governments including those of Argentina, Brazil, Chile, Colombia, Mexico and Peru are due to meet tomorrow to coordinate their response.

Speaking prior to the talks, Marshall Billingslea, assistant secretary for terrorist financing at the Treasury Department, told an audience in Washington: “Venezuela poses a clear threat to regional stability and security.

“This is a hemispheric issue and the implosion of the regime there is a direct challenge for us.”

Mr Trump, who would like to see Mr Maduro removed from power, broached the idea of military action last summer, saying: “We’re all over the world and we have troops all over the world in places that are very, very far away.”

“Venezuela is not very far away and the people are suffering and dying.
“We have many options for Venezuela, including a possible military option, if necessary.”

US Secretary of State Rex Tillerson and national security adviser HR McMaster, both of whom have since left Mr Trump’s administration, are believed to have been instrumental in persuading him of the folly of the idea, according to reports in July.

A senior administration official relayed details of the conversation, suggesting aides including Mr Tillerson and Mr McMaster had take turns explaining the risks to Mr Trump.

In September, on the sidelines of the United Nations General Assembly, Mr Trump returned to the subject during a private dinner with leaders from four Latin American allies.

The US official said Mr Trump did so despite being advised not to raise the matter.

He reported Mr Trump as having said: “My staff told me not to say this” before asking each of the leaders present if they were sure they did not want a military solution.

All of them assured him they were.

At least 6,000 Venezuelans were lined up at Peru’s northern border on Tuesday in hopes of entering the country before a deadline for acquiring residency.

Another 4,000 were due to arrive in the next two days, Peru’s ombudsman’s office said.

Peru was one of the first countries to offer temporary residency cards for Venezuelans who have been fleeing their homeland and crossing Colombia and Ecuador to reach Peru.

As the number of Venezuelans in Peru has surged to nearly half a million, the government moved the deadline from the end of the year to the end of October.

The exodus has stressed social services and sparked concerns about crime and jobs in host countries, and many migrants are facing restrictive immigration laws and discrimination.

Peruvian President Martin Vizcarra said Monday that Peru could not give residency to Venezuelans indefinitely.

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Venezuela: Oil Producer’s Slump Reflects Nation’s Decline

(Ft.com, Gideon Long, John Paul Rathbone, 28.Oct.2018) — Gideon Long in Caracas and John Paul Rathbone in Washington October 28, 2018 Print this page 95 In the lobby of the building where Iván Freites works, a photograph of an oil rig covers one wall. Emblazoned across it is the Venezuelan flag and a quote from former president Hugo Chávez. “We want Venezuelan oil to bring peace and love,” it reads.

Mr Freites, a union leader at PDVSA, the state oil company, would like that too. But having seen the Chávez government and subsequent regime of Nicolás Maduro plunder the oil producer, strip it of investment, sack experienced managers and replace them with military officers, he no longer thinks that outcome is possible, at least not for now.

“I’ve worked at PDVSA for 35 years and I’ve never seen anything like this,” he says. “What we need above all is to get our democracy back.”

The parlous state of PDVSA, which oversees the world’s largest energy reserves according to the US Energy Information Administration, helps to explain the depth of Venezuela’s collapse and why it finds itself in the eye of a political storm.

Corruption and mismanagement have seen Venezuelan oil output, which accounts for 90 per cent of legal export revenues, plummet to its lowest level in three quarters of a century. The economy has halved in five years, a contraction worse than those in the Great Depression or Spanish civil war. Rates of hyperinflation, meanwhile, are similar to those in Germany in 1923.

The brutal recession has sparked an exodus comparable with the flight of Syrian refugees. More than 2m of Venezuela’s 30m population have fled since 2015. With the UN estimating 5,000 departures each day, another 2m could have left by the end of 2019.

It has turned the country into a major source of regional instability. Latin American neighbours, especially Colombia, are struggling to cope. As the oil industry implodes and exacerbates the plight of Venezuelans, the international community increasingly believes something must be done. The burning question is: what?

From the start of his presidency, Donald Trump made Venezuela a US foreign policy priority, alongside North Korea and Iran. “President Trump started on day one — literally on day one — asking about Venezuela,” says Fernando Cutz, a former Trump White House adviser, at a recent seminar at the Wilson Center in Washington. “It was a priority of his from the very start.”

The US, alongside Canada and Europe, has since levied sanctions on officials accused of corruption and human rights abuses. Last month, Mr Trump hinted again at the possibility of invasion. “All options are on the table,” he said. “The strong ones, and the less than strong ones. Every option — and you know what I mean by strong.”

Regional leaders and diplomats are usually the last to support such belligerence. But Luis Almagro, head of the Organisation of American States, believes no option should be discarded. “The entire premise of ideas such as ‘responsibility to protect’ is that we must act before we are counting the dead,” he has said.

Amnesty International has called Venezuela’s human rights crisis “unprecedented” and five Latin American countries, alongside Canada and France, have asked the International Criminal Court to investigate Mr Maduro for crimes against humanity.

All the while, Mr Maduro repeats his mantra that the US is subjecting Venezuela to “economic war”, and wants to get its hands on the nation’s oil. Few believe him. And given PDVSA’S shrinkage, there is currently not much of an oil industry to seize.

“Leave Maduro be for the next year and you’ll see where that level of production goes to. The US really doesn’t have to do much,” says Raul Gallegos, a Venezuela analyst at Control Risks.

Ever since it was discovered in Lake Maracaibo in the 1920s, oil — or “the devil’s shit” as one energy minister called it — has dominated the country’s economy. Venezuela was a founding member of Opec and when President Carlos Andrés Pérez nationalised the industry and founded PDVSA in 1976, it pumped over 3m barrels a day.

Today, the figures speak for themselves. Production has halved in six years and dropped by a third in the past year alone. Rig counts, an indicator of future production, are at historic lows, pointing to further declines. In September, Venezuela pumped just 1.2m b/d, its lowest output since the 1940s. Although most analysts consider 1m b/d to be a floor given its joint ventures with foreign producers, some believe output could drop as low as 700,000 b/d by the end of 2019.

“It is one of the worst collapses in history,” says Francisco Monaldi, a fellow in Latin American energy policy at the Baker Institute.

PDVSA’s demise has rippled through the country. The biggest refinery, Amuay, is running at 20 per cent capacity, Mr Freites says. The smaller Cardón, El Palito and Puerto La Cruz refineries barely function as PDVSA struggles to deliver mixing chemicals and crude to these sites.

With less oil being refined, blackouts are common. “There are towns and villages that go five or six days without electricity,” Mr Freites says. Gasoline is also in short supply. “I’ve just been to fill up my car and I waited in line for an hour,” he says. “That’s quite normal.”

PDVSA itself is on the brink of financial collapse. It has defaulted on all its bonds except a 2020 issue because, if it fails to pay that, PDVSA risks losing Citgo, its US refining asset, which has been pledged as collateral.

The scale of the theft and mismanagement that lie behind PDVSA’s collapse has been prodigious.

In 2015, Jorge Giordani, a former planning minister, estimated that of the $1tn that Venezuela received from the windfall of the commodities boom, two-thirds was spent on social programmes. The rest, around $300bn, was stolen or misappropriated.

In one recent case, a judge in Andorra charged 29 people, including two Venezuelan former deputy energy ministers, with a scheme to launder $2.3bn allegedly stolen as kickbacks from company contracts with PDVSA.

This August, US investigators revealed another scheme to launder $1.2bn of PDVSA funds. According to court documents seen by the FT, the plan involved companies in Spain and Malta, money launderers from Portugal and Uruguay, a German financier, unnamed US and British banks, fake mutual funds, Miami real estate, Russia’s state-owned Gazprombank and a shell company in Hong Kong.

Some elements of the swindle, recorded by a whistleblower wearing a wiretap, read like a Quentin Tarantino movie. On one occasion, a Venezuelan businessman opened proceedings in Caracas by placing his handgun on the table and pointing to a German Shepherd dog at his feet with an electronic “shock collar” around its neck. The businessman held the remote control.

The effects on the broader economy of such thuggery have been disastrous. As oil exports have collapsed, imports have crashed 80 per cent in six years to $11.1bn from $66bn in 2012, levels not seen since the 1940s. Scarcities of basic goods have prompted anger, spontaneous demonstrations and flows of refugees in ever greater numbers.

On the face of it, the situation cannot continue. Economic reforms announced by Mr Maduro in August have done nothing to tame hyperinflation, still running at nearly 500,000 per cent a year. The International Monetary Fund forecasts that gross domestic product will shrink by 18 per cent this year, 5 per cent next, and continue to shrink steadily after that.

Allies such as China, which has loaned Venezuela $60bn in return for oil over the past decade, seem reluctant to lend more. When Mr Maduro travelled to Beijing in September, his finance minister claimed China had agreed to lend a further $5bn. But Beijing has never mentioned the loan.

Nonetheless Mr Maduro, who survived an assassination attempt in August, faces no immediate political crisis at home. With the help of Cuban advisers, he appears to control the military and is set to win what will certainly be rigged municipal elections in December. The following month he will formally begin another presidential term — the consequence of a sham election victory in May.

There is increasing talk in Europe and around the Americas that any eventual solution to Venezuela’s quagmire lies with Havana — long the main counsel to Caracas. But diplomatic attempts to pry Cuba away from Venezuela have failed so far. Spain has also suggested re-opening dialogue between the government and the opposition. But the prospect of fresh talks having any success are dim.

That puts more drastic options on the table.

One US plan involves ending its purchases of Venezuelan oil. Such a ban would push up US pump prices — something Mr Trump will want to avoid before midterm elections on November 6, although Mr Cutz says the White House estimates it would add just 5-7 cents to the gallon.

Yet the impact on Venezuela would be devastating. That is because after it has sent oil to China and Russia to pay debts, shipped oil to Cuba and fed its domestic fuel market, the country earns cash on only about 450,000 b/d of its exports, a third of production. As much of 80 per cent of those sales are to the US.

PDVSA’s collapse has since made such action moot. “The guy who’s doing the best job at sanctioning himself is Maduro. He’s essentially destroyed the oil sector,” says Mr Gallegos.

That leaves the even more extreme idea of invasion. As Francisco Rodríguez, a Venezuelan economist at New York-based Torino Capital, says: “The idea of a military intervention has gained support . . . evolving from its previous status as a fringe position.”

But China and Russia would oppose any attempt by the UN Security Council to authorise intervention. Nor does the idea cut much ice in the region, which has opposed it.

Moreover, Venezuela is not Panama, which the US invaded in 1989 aided by US troops stationed in a local army base. Venezuela is twice the size of Iraq and has 100,000 civilians organised into heavily-armed local pro-government militias. The Pentagon opposes the idea.

“Intervention faces legal challenges in the UN and elsewhere, but more importantly it is unrealistic given the scope and scale that would be necessary,” says Shannon O’Neil, a senior fellow at the Council on Foreign Relations.

The key question in Venezuela comes back to: what can be done now to pre-empt an even worse situation later?

Diplomacy is not entirely dead. Bob Corker, chairman of the US Senate Foreign Relations Committee, met Mr Maduro in Caracas in October. “One option is to keep doing exactly what we’re doing,” he suggested on his return. “And there maybe is another option or two,” he added, without elaborating.

But the diplomatic track requires patience. In the interim, hopelessness leads more Venezuelans to flee, and more still to indulge the fantasy of a Trump-led invasion.

“The world has plenty of time to wait for a peaceful and democratic solution,” says Ramón Muchacho, an exiled opposition leader. “The people who do not have that time are Venezuelans . . . especially those who are dying.”

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Trump Talks Tough On Venezuela, But Imports Ever More Venezuelan Oil

(Miami Herald, Andres Oppenheimer, 17.Oct.2018) — There is a major inconsistency in President Trump’s stand on Venezuela: He talks tough — and even makes veiled threats of a military intervention in that country. But at the same time, he steadfastly refuses to cut U.S. imports of Venezuelan oil, which are the main source of income of Venezuela’s dictatorship.

In fact, the United States has been increasing purchases of Venezuelan oil recently. While U.S. oil imports from Venezuela had decreased in recent years, they have been rising since February and increased by 28 percent in September, according to the Refinitiv Eikon data firm.

What the United States buys accounts for up to 80 percent of Venezuela’s oil income. If the Trump administration drastically cut its oil imports, President Nicolas Maduro’s dictatorship —which already faces a 1 million percent annual inflation rate and widespread food and medicine shortages —would have a hard time surviving, some critics of the Maduro regime say.

So why doesn’t Trump reduce Venezuelan oil imports?

First, because U.S. refiners in the Gulf Coast oppose it, saying that it would drive up domestic gas prices and affect pro-Trump constituencies in Louisiana, Texas, Alabama and Mississippi. Trump would lose more votes in those states than he would gain among Venezuelan Americans in Florida, some advisers are telling him.

Second, Trump’s National Security Adviser John Bolton and Secretary of State Mike Pompeo are focused on crippling Iran’s oil exports. Many in the White House think that causing a simultaneous collapse of both Iranian and Venezuelan oil exports would drive up world oil prices and hurt U.S. consumers, oil experts say.

Third, and perhaps most interesting, while Trump likes to talk tough on Venezuela to gain votes in Florida, he may fear producing a worse humanitarian crisis that would almost commit him to a military intervention there.

“If you break it, you buy it,” George David Banks, a former international energy and environment adviser to Trump, told the S&P Global Platts website. “The White House doesn’t want to own this crisis.”

Trump has stepped up Obama administration’s individual sanctions against top officials of the Maduro regime, and imposed sanctions on purchases of Venezuela’s debt. But “the Trump administration is more hesitant than ever” to impose oil sanctions, says the Platts report.

Supporters of reducing U.S. imports of Venezuelan oil reject the idea that such a move would aggravate the country’s humanitarian crisis without necessarily bringing down the Maduro regime. Accelerating the country’s collapse to force a regime change is the best option available, they argue.

And a cutback of Venezuelan oil imports would not necessarily give Maduro a propaganda victory by allowing him to play the victim of U.S. “imperialism.” Trump could simply reduce Venezuelan oil purchases, without declaring an oil embargo or saying a word about it, they say.

But perhaps the strongest argument for a gradual U.S. cutback of oil purchases is that it would lead other countries to take the Trump administration seriously when it asks for international sanctions against Venezuela.

Many foreign officials ask: How can the Trump administration ask others to impose economic sanctions when the United States is Venezuela’s biggest trading partner, in effect, bankrolling the Maduro regime?

When I asked Argentina’s President Mauricio Macri in an interview last year what the international community should do to help restore democracy in Venezuela, he responded that the first step should be taken by the United States.

“If the United States really took a measure such as suspending oil purchases from Venezuela, the Maduro regime would have a serious financing problem,” Macri told me. He added that by cutting Venezuelan oil imports, “The United States could change things (in Venezuela) definitively.”

I’m not sure that drastically cutting U.S. oil purchases from Venezuela would be the best idea; it likely would come at a huge humanitarian cost. But this much is clear: If Trump wants other countries to step up sanctions against Venezuela, he, himself, should consider a gradual slowdown in U.S. purchases of Venezuelan oil, instead of sending more cash to the Maduro regime.

***

#LatAmNRG

U.S. Eyes More Venezuelan Sanctions, But Oil On Backburner: U.S. Official

(Reuters, Roberta Rampton, 17.Oct.2018) — The United States plans to turn up sanctions pressure on Venezuela but sees less need to immediately target its energy sector, given sagging production from the OPEC member’s state-run oil company, a senior U.S. administration official said on Wednesday.

The U.S. government has imposed several rounds of sanctions on Venezuelan military and political figures close to socialist President Nicolas Maduro, who it blames for trampling on human rights and triggering the country’s economic collapse.

Earlier this year, the Trump administration had weighed escalating sanctions by targeting a Venezuelan military-run oil services company or restricting insurance coverage for oil shipments.

The actions would have built upon last year’s ban for U.S. banks from any new debt deals with Venezuelan authorities or state-run oil giant PDVSA.

Asked by reporters whether the U.S. government had slowed down on its push for sectoral sanctions, the senior official described them as some of the many “tools” it is keeping in reserve. “With regards to Venezuela, all options are on the table,” said the official, who spoke on condition of anonymity.

“The fact is that the greatest sanction on Venezuelan oil and oil production is called Nicolas Maduro, and PDVSA’s inefficiencies,” the official said.

Venezuela’s crude oil production hit a 28-year low in 2017, a slump blamed on poor management and corruption.

“At the end of the day, Nicolas Maduro has taken care of really running PDVSA to the ground, and essentially more and more making it a non-factor,” he said.

Almost 2 million Venezuelans have fled since 2015, driven out by food and medicine shortages, hyperinflation, and violent crime. The exodus has overwhelmed neighboring countries.

Maduro, who denies limiting political freedoms, has said he is the victim of an “economic war” led by U.S.-backed adversaries.

The Trump administration also plans to ramp up economic pressure on Cuba’s military and intelligence services, the official said.

In his speech last month to the United Nations, President Donald Trump linked Venezuela’s crises to “its Cuban sponsors.”

“That is a message that we will continue to put out, but frankly its a message that the region needs to talk about,” the official said, noting John Bolton, Trump’s national security adviser, is expected to elaborate on the issue publicly soon.

“The issue of Cuban involvement in Venezuela is a fact. It’s not a theory, it’s not a story,” the official said.

***

#LatAmNRG

Venezuela Sets New Wages For Oil Workers As Protests Simmer

(Reuters, Alexandra Ulmer, 10.Oct.2018) — Venezuela on Wednesday increased wages for workers at state energy company PDVSA after employees staged small protests to decry meager salaries amid the OPEC nation’s economic meltdown.

Socialist President Nicolas Maduro in August unexpectedly ordered a 60-fold increase in the minimum wage to compensate for around 500,000 percent annual inflation and a 96 percent devaluation of the bolivar currency.

But workers at PDVSA said their wages had not been bumped up accordingly, and that the cash-starved company had instead been paying one-off bonuses.

Vice-President Delcy Rodriguez, flanked by pro-government union leaders, on Wednesday announced new wages but did not provide specific figures, instead praising PDVSA’s attitude in the face of U.S. sanctions.

“To the PDVSA workers, our gratitude, because they have been a fundamental pillar in the defense of the oil industry against attacks from imperialist centers of power,” said Rodriguez, a key Maduro ally.

A PDVSA worker and two former employees said the new wages remained inadequate and would not halt a brain drain that has the company desperate for engineers and chemists just as its production sinks to its lowest in decades.

According to an unofficial summary of the new salaries circulated by PDVSA workers, the lowest monthly salary is now 1,800 bolivars – the official minimum wage – or just $13.70 a month. The highest salary, for executives, was put at 6,400 bolivars, a whisker above $49 a month.

PDVSA did not respond to a request for information about the salaries.

Thousands of oil workers are fleeing the state-run firm under the watch of its new military management, which has quickly alienated the firm’s embattled upper echelon and its rank-and-file, sources have told Reuters.

Those who remain are increasingly unmotivated, irate over low wages, and fearful of work accidents as PDVSA’s installations deteriorate due to years of underinvestment and mismanagement.

“There is a lot of anger, and at the same time motivation, because workers have woken up and are not putting up with this anymore,” one refinery worker said this week.

Still, fears of dismissal and heavy military presence at PDVSA have kept protests in check in Venezuela, home to the world’s biggest crude reserves.

***

Energy Analytics Institute (EAI): #LatAmNRG

Venezuela’s Oil Exports Are Falling Even Faster Than Expected

(OilPrice.com, Irina Slav, 3.Oct.2018) — A delay in port repairs following a tanker collision is putting additional pressure on already pressured Venezuelan crude oil exports, Reuters quoted anonymous sources close to PDVSA as saying this week. It seems that Venezuela’s woes are only multiplying as time goes by, although news from official Caracas sources seems more upbeat. Oil, however, appears at the forefront of Venezuela’s plight.

A dock at Venezuela’s biggest oil port, Jose, was closed in late August after a tanker collided with it. At the time, Reuters reported that the repairs would delay the delivery of 5 million barrels of crude, destined for Rosneft, which, according to the news outlet, could put a strain on relations between the Russian company and PDVSA, which have a money-for-oil agreement. This is only the latest in PDVSA’s troubles with its oil exports.

Besides a steady decline in production, Venezuela’s state-run oil company earlier this year ran into problems with its storage capacity and export terminals in the Caribbean as U.S.-based ConocoPhillips took an aggressive approach to enforcing a court ruling that awarded it US$2 billion in compensation for the forced nationalization of two projects in Venezuela. The company this summer seized several of PDVSA’s assets on Caribbean islands, which made it difficult for the Venezuelan state company to meet its export obligations. Having few options, PDVSA eventually caved, settling with Conoco.

Dock repairs are further complicating matters. PDVSA is supposed to deliver to Rosneft some 4 million bpd of crude under the latest bilateral agreement signed this April. On top of that, it normally exports crude for U.S. Valero Energy and Chevron from the same dock, the South dock of the Jose port, which is responsible for processing processes as much as 70 percent of the country’s crude oil exports.

Not to anyone’s surprise, the delay in resuming shipments is largely a result of insufficient funds, partially thanks to U.S. sanctions, which have essentially closed nearly completely the door to foreign funding. China, not bound by these restrictions, recently agreed to a US$5-billion lifeline for the Venezuelan government and its oil industry, but these billions will take time to become available. Given the multitude of problems that PDVSA is having, it would be a tough job to allocate these funds so that there is enough for everything.

Caracas is still not giving up. Just this week the government announced the official launch of the petro on international markets in hopes of offsetting the effects of U.S. sanctions by using this oil-and gold-backed cryptocurrency. President Nicolas Maduro said at the launch that the petro would be legal tender for everything in Venezuela, including as a substitute for the dollar.

“All Venezuelans will have access to the Petro and through it to make international purchases,” Maduro said.

Venezuela also plans to boost its oil exports to China as part of plans to transform its economy and get back on its feet. To this end, it will work with Chinese oil companies to improve production. Maduro said in July that PDVSA would boost oil production by 1 million bpd from June levels by the end of the year, although he admitted that this goal would be difficult to achieve. Venezuela pumped 1.45 million bpd in August, and the year-to-date average stands at 1.544 million bpd. This is a far cry from the figure from five years ago, when its daily average was 2.9 million bpd. It’s a matter of a short time to see if the petro and Chinese money will be enough to reverse the decline in production and exports.

***

Cut Venezuela’s Oil Exports, and Cut its Tyrant Down to Size

(Washington Examiner, 1.Oct.2018) — Meeting with the president of Chile at the White House on Friday, President Trump pledged to continue confronting humanitarian suffering in Venezuela.

The president deserves credit for his sustained leadership on this issue, but the time has come for more dramatic action. Specifically, the U.S. should orchestrate a global boycott of Venezuelan oil exports. Only such a boycott will exert the necessary pressure on Venezuelan President Nicolas Maduro’s despotic government to force it to change course.

Major change of some kind must come to the Latin American nation. Child starvation is skyrocketing, and prostitution is increasingly the only option for women who want to feed themselves and their children. Along Venezuela’s borders with Colombia and Peru, tens of thousands of refugees are lining up begging for relief.

For those remaining in Hugo Chavez’s dystopian socialist paradise, medicine has disappeared and store shelves are empty. But the most damning indictment of the Maduro-Chavez socialist experiment is the fact that today, in the nation with the world’s largest oil reserves, the lucky few must lug vast bundles of worthless cash and spend hours in lines outside stores to buy their basic needs. The unlucky many waste away on the streets and in the slums of Maduro’s narco-state.

This is happening as Maduro, the great revolutionary, echoes Che Guevara, the Marxist thug of old, by smoking expensive cigars and dining at the world’s finest steakhouses.

This is a regime that must go. But how?

An American military intervention would be a grave error, as would instigating a coup. The lessons of Iraq and Libya are clear on this score.

We also recognize that many Latin American nations which support tougher action against Maduro nevertheless oppose military intervention. But nations such as Argentina, Chile, Colombia, Paraguay, and Peru might support a strategy of economic pressure on Venezuela if engaged with honesty.

Maduro remains in power only because of the wealth he pockets by plundering his nation’s oil and exporting it. That’s why Washington has already restricted Maduro’s oil exports to America. That’s a good but insufficient step. President Trump could and should do far more.

Oil is a commodity sold in a global marketplace. Unilateral sanctions cannot work.

Trump should therefore replicate our policy towards Iran and announce that on a certain date in the next few months, the U.S. will introduce sanctions on foreign governments and businesses that buy Venezuelan oil or invest in the Venezuelan oil industry.

Given that China and India are Venezuela’s main oil export customers, the U.S. would have ample opportunity to drain Maduro’s wallet. After all, the U.S. is already engaged in a major trade conflict with China. By sanctioning its imports of Venezuelan oil, Trump wouldn’t simply put more pressure on Beijing, he would draw the world’s attention to the nature of President Xi Jinping’s regime, to the reality it cares nothing for the suffering of others or for international norms.

Referring to recent U.S. actions to earn favor in New Delhi, Trump could ask Indian Prime Minister Narendra Modi to wean the Indian economy off Maduro’s black gold. If necessary, Trump could offer India special access to American oil exports to offset losses. Many other Venezuelan oil export destinations are located in western Europe. Nations here make up a relatively small fraction of Venezuela’s total oil export base, but Trump should nevertheless press European governments to match their human rights rhetoric with action.

Oil export restrictions will impose extra suffering temporarily on Venezuelans. But look at the country now. Only Maduro and his cronies are benefitting from the exports.

Without oil wealth to pay off supporters, Maduro’s power is nonexistent. As the Miami Herald notes, much of Maduro’s ability to constrain his people centers on oil-bought support of the Cuban government and its highly capable intelligence services. If that oil support disappears, Cuba may find less reason to sustain Maduro’s rule.

Nevertheless, Maduro’s government is persecuting the Venezuelan people. Unless dramatic action is taken, their suffering will only increase. We can stop it, and we should do so now.

***

Venezuela to Continue in Defense of Oil Market Equilibrium

(Energy Analytics Institute, Piero Stewart, 29.Sep.2018) — Venezuela’s Oil Minister Manuel Quevedo announced the South American country would continue to seek equilibrium in the petroleum market.

“Under the leadership of President Nicolás Maduro, we will continue to defend a policy of equilibrium and stabilization in the world oil market, having as a fundamental basis a sustained cooperation with OPEC producing countries for the benefit of consumers, producers and investors,” reported PDVSA in an official statement, citing Quevedo.

***

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.”

***

Venezuela’s Retrogressing Economy — Exhibit 1, PDVSA

(Steve Hanke, Contributor to Forbes, 19.Sep.2018) — Two hallmarks characterize capitalist economies. Firstly, property is predominately in private hands. Consequently, goods and services are allocated via market mechanisms in which prices provide signals for businesses, workers, and consumers. Secondly, capitalist economies are highly capitalized. Indeed, the stocks of physical and human capital are relatively large in relation to the capitalist economies’ income flows.

On those two counts, Venezuela is retrogressing. With Chavismo, which commenced when Hugo Chavez took power in 1999, Venezuela has beaten a hasty retreat from anything that would qualify as “capitalist.” Today, it is clearly in the throes of a socialist-interventionist system.

With the transition to a socialist system, capital consumption becomes pronounced. Socialism consumes capital (read: eats seed corn). It fails to accumulate productive capital. And, this is why socialist systems retrogress into states of poverty. After all, capital consumption means that too much is consumed in the present at the expense of the future.

In his 1945 book The Economics of Peace, my professor, the great Ken Boulding, first presented his simple, but powerful, “Bathtub Theorem.” It is actually nothing more than a simple truism. The rate of accumulation is equal to the rate of production, less the rate of consumption. As Boulding put it, “Production may be likened to the flow of water from a faucet, consumption to the flow down to the drain. The difference between these two flows is the rate at which the water in the bathtub—the total stockpile of all goods—is accumulating.”

War, of course, drains the economic bathtub, as capital is destroyed (read: consumed). A transition to socialism also results in capital consumption—a lower level of water in the capital stock bathtub.

In Venezuela, the most important part of the economy is the state-owned enterprise PDVSA, the oil giant. Since Chavismo was ushered in, capital consumption has been the order of the day. Physical capital has been consumed at a rapid rate. In short, capital expenditures have been much lower than depreciation, plus amortization (properly measured). PDVSA hasn’t even been investing enough to maintain its capital stock, let alone add to it. Accordingly, the level of water in PDVSA’s bathtub has been falling. If that wasn’t enough, the quality of PDVSA’s remaining capital stock has also been reduced due to poor maintenance practices.

On top of the reduced PDVSA capital stock and its deteriorating quality, PDVSA has witnessed a dramatic drop in the stock and quality of its human capital. After the 2002 coup attempt on President Chavez, he purged thousands of “non-loyalists” from PDVSA and replaced them with political hacks. The purges have continued under President Maduro. In consequence, the stock of quality PDVSA management and workers has been depleted.

Not surprisingly, PDVSA’s production has fallen (see the chart below). Capital consumption has reduced its ability to produce. At present, production is at levels not seen since 1947. Even though it has the world’s largest reserves, Venezuela is producing less oil than the U.S. state of North Dakota, and the rate at which PDVSA is depleting its vast reserves is so slow as to render them worthless. In contrast to the major oil companies that extract a “median barrel” of oil from their reserves in 8-10 years, PDVSA takes 200 years to extract a median barrel.

The collapse in PDVSA’s production is a stunning indictment of the world’s worst oil company and of Venezuela’s socialist system. The bathtub is nearly empty.

Steve H. Hanke | Professor | Economist | Author | Currency Expert | White House Alum. Steve Hanke is a professor of applied economics at The Johns Hopkins University and senior fellow at the Cato Institute. Over four decades Hanke has advised dozens of world leaders from R…

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

***

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.

***

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.

***

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

***

How Will Guyana Deal With Its Oil Windfall?

(CNNMoney, Talib Visram, 4.Sep.2018) — The South American country with the smallest GDP is about to burst with oil.

ExxonMobil found oil off Guyana’s coast in 2015, and believes the reserves are big. Conservative estimates project to about 4 billion barrels. Some experts think there’s more to be found in the country’s 6.6 million-acre Stabroek Block.

But how Guyana prepares for the windfall from a newly discovered fossil fuel repository will have big ramifications for its future.

For a country with a population of fewer than 800,000 and a GDP of slightly more than $6 billion, the discovery is life changing.

“There’s a realistic chance of this transforming the economy,” said Pavel Molchanov, senior vice president and equity research associate at Raymond James. “It’s particularly impactful for a small country like Guyana.”

When the first oil starts to flow, which ExxonMobil hopes will be in 2020, Guyana could reap billions almost immediately.

By 2025, ExxonMobil wants to produce 750,000 barrels of oil per day.

History contains numerous cautionary tales about countries that have squandered a sudden surge of riches.

Venezuela struck oil centuries ago, but in 1998 the government of Hugo Chávez installed political loyalists into top jobs in the nationalized oil industry and began diverting the revenues into social programs. The country failed to reinvest into its oil infrastructure and when oil prices crashed, so did Venezuela’s economy. Now, even basic goods like food and medicine have to be imported. Hyperinflation is soaring and the IMF predicts it’ll hit a rate of 1,000,000% by the end of 2018.

Equatorial Guinea’s also squandered its oil windfall, but through wanton corruption. Between 2000 and 2013, the small West African nation brought in $45 billion of oil revenue. But it remained one of the poorest countries because the dictatorial government went on indulgent spending sprees in France.

Corruption, infrastructure and unexpected market forces could present challenges for Guyana, too.

The democratic republic comprises two political parties made up of descendants of African slaves on one side and descendants of Indian indentured servants on the other.

The fear is that the government in power could unfairly favor its ethnic constituents.

At the moment, the Afro-Guyanese party, the PNC, is running the government. But there’s an election in 2020, which could decide who controls the purse strings.

“I wouldn’t discount civil unrest, even for such a small country,” said Eileen Gavin, senior politics analyst at Verisk Maplecroft.

Guyana should also be aware of “Dutch disease,” a phenomenon in which existing industries are forgotten in favor of a new one. Guyana currently makes most of its revenue from exporting gold, bauxite, sugar and rice.

Some countries have handled windfalls well, and not spent everything at once. Notably, Norway set up an “oil fund” for investing surplus revenues to benefit future generations.

Most experts agree that Exxon’s contract with Guyana is favorable toward the oil giant. The IMF recently advised the Guyanese government to revise the contract for future deals, stating that its tax laws are “well below what is observed internationally.”

But some say that a contract in Exxon’s favor at this point is to be expected, given Guyana’s lack of experience and infrastructure for the extraction.

“Nothing had ever been found in Guyana before,” said Ruaraidh Montgomery, senior analyst at Wood Mackenzie. “So, it’s high risk in a frontier area. They needed to offer appealing fiscal terms to attract investors.”

And as the oil is tapped and more is found — and the investment risks disappear — Montgomery said Guyana, a “world-class hydrocarbon basin,” would probably tighten its future contracts.

For now, Guyana is doing everything right on paper in preparation, said Gavin. It’s due to establish a sovereign wealth fund this year, and has joined the EITI, an organization that helps countries “manage hydrocarbon reserves in a fiscally responsible manner.”

But it’s still too early to tell. “The proof of the pudding will be in 2020, when the revenue starts to flow,” Gavin said.

***

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.

***

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:

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.

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.

PM says details ‘confidential’

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

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.

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.

***

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.

#EnVivo 📹 | Palacio de Miraflores | Firma de acuerdos en materia energética entre la República Bolivariana de Venezuela y la República de Trinidad y Tobago, para el desarrollo común y el bienestar de nuestros pueblos. https://t.co/CwJ2jpJjEm

— Nicolás Maduro (@NicolasMaduro) August 25, 2018

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.

***

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.

Venezuela's President Nicolas Maduro ordered a 96% 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 pic.twitter.com/3ty0DVgpQT

— TRT World (@trtworld) August 20, 2018

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.

***

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

***

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

***

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.

***

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.

***

Venezuela Petrol To Rise to Int’l Levels

(Energy Analytics Institute, Ian Silverman, 13.Aug.2018) — The price of Venezuela’s subsidized petrol, long one of the cheapest in world, is set to rise.

Effective August 20, 2018, the price of Venezuela’s petrol will cost the same as in international markets, reported PDVSA in an official statement, citing comments from Venezuela’s President Nicolás Maduro.

The decision to raise the price of petrol comes as Venezuela tries to reduce annual loses estimated at $18 billion due to the contraband of the product to neighboring countries from Aruba to Colombia, among others.

***

Is Venezuelan Oil Output Falling Faster Than Expected?

(OilPrice.com, Nick Cunningham, 12.Aug.2018) – The bad news from Venezuela continues.

In July, Venezuela’s oil production came in lower than PDVSA had targeted, according to Argus Media. While PDVSA had hoped that it, along with its joint venture partners, would produce as much as 1.65 million barrels per day (mb/d) in July, actual production came in at about 1.526 mb/d.

Argus says that production in the Orinoco heavy oil belt, where vast oil reserves are located, was a particular disappointment. The problem for Venezuela is that the Orinoco belt was supposed to hold up better than conventional oil production from elsewhere. The declines are a grave problem for the South American OPEC nation, and they pose an existential threat to the regime of President Nicolas Maduro, who avoided an apparent assassination attempt days ago.

But the production figure that Argus got its hands on, which came from an internal report from PDVSA, seem optimistic, even though they do point to shortfalls. After all, the June OPEC report suggested that output stood at just 1.34 mb/d – data that came from secondary sources, which includes Argus.

Against that backdrop, the 1.526 mb/d figure doesn’t seem credible. Indeed, sources from within PDVSA told Argus that officials from the company’s eastern and western divisions “systematically inflated” the data. “They play with the storage tanks and what they report is not reality,” a senior executive told Argus. In reality, production could have been as low as 1.25 mb/d.

The report is not entirely useless, however, as it does offer some clues into the company’s demise. Argus says that “scant maintenance, reservoir management, skilled labor flight and a lack of critical naptha and light crude for transport and blending” are all contributing to the steep decline in production. An estimated 1,191 wells stopped producing in July.

In a separate report from Argus, it appears that the island of Curacao is “scrambling for a lifeline to resuscitate” the century-old Isla refinery that PDVSA “has nearly abandoned,” due to the fact that ConocoPhillips moved in to seize the facility following an international arbitration decision earlier this year. Curacao says it has the capability to operate the refinery on its own, but it doesn’t have the capital nor the supply of crude oil needed as a feedstock. The refinery can theoretically produce up to 335,000 barrels per day (bpd), but in reality it can probably only produce two-thirds of that amount. For now, it is barely operational with PDVSA no longer supplying the refinery with crude oil.

From PDVSA’s standpoint, the loss of the refinery has only compounded the problems back in Venezuela since the facility was critical to blending and preparing oil for export.

The problems in Venezuela are so bad that even the Trump administration, no stranger to conflict, has decided that it does not want to kick the country while it is down. After having been on the verge of implementing sweeping sanctions – possibility targeted at Venezuela’s oil exports, or perhaps the export of diluent from the U.S. to Venezuela – the Trump administration has scrapped those plans.

In fact, the problems in Venezuela are so acute, that the attempted assassination of President Maduro barely moved the oil market, as the WSJ pointed out. That bears emphasis: There was an attempted coup in a country with the largest oil reserves in the world, a founding OPEC member and still a major oil producer, and the markets basically shrugged it off. And that is not because the oil market is oversupplied – there is a reasonable case to be made that the market could be short on supply at some point this year.

But Venezuela’s oil sector is in shambles, so oil traders are apparently already of the mind that it cannot possibly get any worse. A coup even leaves open the very remote possibility of a rebound, although, as Francisco Monaldi details, growing production by, say, 200,000 bpd per year would require a sustained effort, including investments of around $20 billion per year for a decade. Not to mention a radical change in the political context and a macroeconomic stabilization program. Needless to say, none of that appears to be in the cards anytime soon.

In any event, the coup did not succeed, so the losses are destined to continue. “The permanence of Maduro and his radical circle of collaborators is short-, medium- and long-term bullish for oil prices because the regime will fail to take the steps needed to turn production around,” Raúl Gallegos, a political analysts at Control Risks, and author of Crude Nation, told the Wall Street Journal.

Expect PDVSA to continue to miss its production targets.

***

PDVSA Appeals Ruling Regarding Citgo Seizure

(AFP, 10.Aug.2018) – Venezuela’s state oil company PDVSA on Friday appealed a US court ruling that would allow a Canadian mining company to seize shares of PDVSA’s US-subsidiary Citgo in payment of a $1.2 billion debt.

The case dates from 2011, when the Venezuelan government seized a mine Crystallex had been awarded and despite a settlement through an arbitration panel Caracas failed to repay the company.

US District Court Judge Leonard Stark ruled Thursday the mining firm could seize Citgo shares from PDVSA, although the order will not be issued until final details are worked out.

He rejected PDVSA’s argument that it is separate from the government in Caracas and should not be held liable, favoring the assertion that the company is an “alter ego” of the government.

It is another blow to the embattled government of President Nicolas Maduro, who has overseen the collapse of the nation’s once-thriving oil-based economy, which is now in default.

Thousands of Venezuelans flee the country daily, malnutrition is rife and the International Monetary Fund said inflation could reach one million percent this year.

PDVSA, once the jewel in the crown of the nation’s economy, has been hamstrung by debt and lack of investment that has shrunk output.

Losing Citgo would dry up one of the last remaining sources of foreign revenue. And even that is already at risk since a nearly 50 percent stake in Citgo was used as collateral for a $1.5 billion loan from Russia’s Rosneft.

PDVSA’s bonds represent 30 percent of Venezuela’s external debt — estimated to be around $150 billion.

***

Crystallex Can Go After Venezuela’s US Refineries

(Associated Press, 9.Aug.2018) – A Canadian gold mining company on Thursday won the right to go after Venezuela’s prized U.S.-based oil refineries and collect $1.4 billion it lost in a decade-old take-over by the late socialist President Hugo Chavez.

Chief Judge Leonard P. Stark of the U.S. Federal District Court in Delaware made the ruling in favor of Crystallex, striking a blow to crisis-wracked Venezuela, which stands to lose its most valuable asset outside of the country – Citgo.

Chavez took over the gold mining firm and many other international companies as part of his Bolivarian revolution that’s left the country spiraling into deepening economic and political turmoil.

Venezuelans struggle to afford scarce food and medicine as masses flee across the border. In a sign of rising political tensions, current President Nicolas Maduro threw an opposition lawmaker in jail this week, charged in a failed assassination plot using two drones loaded with explosives.

The latest order by the U.S. judge could set off a scramble by a long list of creditors owed $65 billion from bonds that cash-strapped Venezuela has stopped paying within the last year, said Russ Dallen, a Miami-based partner at the brokerage firm Caracas Capital Markets.

“This was the most vulnerable low hanging fruit for debtholders to go after,” Dallen said. “It looks like Crystallex is the lucky lottery winner because they got there first.”

Chavez in early 2009 announced Venezuela’s take-over of the Canadian mining operations in Bolivar state, a mineral rich region with one of the continent’s largest gold deposits. He accused mining companies of damaging the environment and violating workers’ rights.

Crystallex spent years trying to negotiate a deal with Venezuela before making its case in 2011 to a World Bank arbitration panel, which sided with the Canadian firm, despite Venezuela’s vigorous fight.

U.S.-based Citgo, part of the state-run oil company PDVSA, has three refineries in Louisiana, Texas and Illinois in addition to a network of pipelines. If the order is carried out, Crystallex won’t get all of Citgo – valued at $8 billion – but Venezuela could be forced to liquidate it to make good on the court order.

Today, the gold mining region once operated by Crystallex is largely lawless and dangerous, run by rogue miners who blast the earth with water and mercury to expose gold nuggets and sell them to government forces, often leading to deadly conflicts.

The judge’s ruling is unique, because government assets, like PDVSA, are normally protected from lawsuits against a sovereign nation. But the judge found that Crystallex can attach Citgo’s parent because Venezuela has erased the lines between the government and its oil firm, now run by a military general.

Upon issuing the order, the judge delayed enforcing it for a week, which Dallen said could be a move to give Crystallex and Venezuela time to reach an agreement, such as returning to payment terms of an earlier resolution, Dallen said.

“This gives Venezuela the chance to honor its settlement agreement,” Dallen said. “Or they’ll lose Citgo.”

***

US Abandons Sanctions to Avoid Owning Venezuela Collapse

(S&P Global Platts, Brian Shield, 7.Aug.2018) – Just more than a year ago, it was not a question of ‘if’, but ‘when.’

As Venezuela’s leftist leader Nicolas Maduro consolidated power in an election derided as a fraud by the international community, the Trump administration readied exacting sanctions on the South American nation’s oil sector.

“All options are on the table,” said a senior administration official during a July 2017 briefing with reporters, adding that sanctions could be imposed in a matter of days. “All options are being discussed and debated.”

Analysts widely expected sanctions on diluent the US was exporting to Venezuelan refineries first, followed by a prohibition, perhaps phased in over a matter of months, on imports of Venezuelan crude into the US. It was unclear if US refiners, who had long imported Venezuelan crude, would be allowed to continue under an interim “grandfathered” arrangement, but analysts mostly agreed that sanctions were coming.

At the time, the US was importing about 800,000 b/d of Venezuelan crude and the administration was mostly concerned about the impact an import embargo would have on US Gulf Coast refineries, which would need to look for new sources of heavy crude.

Oil sector sanctions from the US seemed so likely that then-US Secretary of State Rex Tillerson told reporters that the administration was looking at ways to soften the impact of the sanctions once they were imposed.

“We’re going to undertake a very quick study to see: Are there some things that the US could easily do with our rich energy endowment, with the infrastructure that we already have available – what could we do to perhaps soften any impact of that?” Tillerson, the former CEO of ExxonMobil, said.

A year later, the US is importing less crude from Venezuela (about 530,300 b/d in July, according to preliminary US Customs data), but Gulf Coast refiners, particularly Valero, continue to rely on these imports.

In fact, US refiners may be importing even more, if Venezuela’s oil sector was not seemingly in a death spiral. Roughly one if every five barrels of oil imported by US Gulf Coast refiners comes from Venezuela.

The EIA forecasts Venezuelan oil production to fall below 1 million b/d by the end of this year, down from 2.3 million b/d in January 2016 as joint ventures fall apart and PDVSA, the state-owned oil company, struggles to feed, let alone pay, its workers. PDVSA has notified international customers than it cannot fully meet crude supply commitments and the country’s active rig count has fallen below 30, according to Baker Hughes International Rig Counts.

By the end of 2019, Venezuelan crude oil output is expected to plummet to 700,000 b/d, making it likely that it will produce less than the US state of New Mexico.

“We’ve never seen an industry or a country collapse this fast and this hard,” said EIA analyst Lejla Villar in a recent interview with the S&P Global Platts Capitol Crude podcast. “We’ve never seen anything like this.”

Industry collapse

The downfall of Venezuela’s chief industry, coupled with International Monetary Fund predictions that inflation in the country will skyrocket to 1 million percent by the end of this year, have created an unusual scenario, in which Maduro may even welcome US sanctions on its oil sector. As Venezuela’s economy continues to unravel, leading to surging prices and rampant hunger, Maduro could try to pin the blame on sanctions.

“If you break it, you buy it,” said George David Banks, a former international energy and environment adviser to President Trump. “The White House doesn’t want to own this crisis.”

The US has sanctioned individuals in Venezuela, including Maduro; prohibited the purchase and sale of any Venezuelan government debt, including any bonds issued by PDVSA; and banned the use of the Venezuela-issued digital currency known as the petro. But oil sector sanctions are viewed as the most powerful penalty remaining and one the Trump administration is more hesitant than ever to use.

“There’s already a humanitarian crisis, but we don’t own that, the Maduro government owns that,” Banks said. “We don’t want to lose the people of Venezuela and you don’t want to pursue a policy that jeopardizes that.”

David Goldwyn, president of Goldwyn Global Strategies and a former special envoy and coordinator for international energy affairs at the US State Department, speculated that it would take extreme action, such as a military assault on a civilian rebellion, for the US to now impose oil sector sanctions. “The system is collapsing and this administration does not want to own the collapse,” Goldwyn said.

The path ahead for Venezuela’s oil sector has, likely, never been less certain. And it remains to be seen what a full collapse of an economy looks like. It is clear, however, that the US wants to avoid blame for accelerating that collapse and has abandoned, at least for now, consideration of oil sanctions.

When Venezuela’s oil sector hits rock bottom, the US does not want to be accused of dragging it there.

***

Venezuela Waiving All Taxes on Profits from PDVSA

(Energy Analytics Institute, Piero Stewart, 7.Aug2018) – Aside from wasting paper, more importantly, the recent Gaceta Oficial in Venezuela also has a decree from President Nicolas Maduro waiving all taxes on profits from state oil company PDVSA and the joint ventures for all of 2018.

Interestingly, the decree seeks to boost foreign investment in the oil sector and to “restore hydrocarbon production levels,” writes Caracas Capital Markets Managing Partner Russ Dallen in an emailed note to clients. This is not the first admission of failure to be revealed in the Gaceta Oficial you hold in your hands, he added.

“For those still entertaining thoughts that Venezuela was actually paying its debts and U.S. sanctions were holding the money up, we got this subdued understatement of Venezuela’s “decreased capacity to pay its international commitments” in the preambular material of the Constituent Assembly decree attempting to mind-meld the bolivar, petro and oil barrel price (relevant portion underlined in red),” wrote Dallen.

***

How Far Can Venezuela Go In Raising Gas Price?

(AFP, Esteban Rojas, 5.Aug.2018) – In Venezuela’s inflation-hit economy, a single US dollar can buy 3.5 million liters of gasoline — an absurdity that the government says it will tackle with a hike in the cost of state-subsidized fuel.

But just how far can President Nicolas Maduro go without getting his fingers burned?

Subsidized gas

Maduro announced on July 29 plans to adjust the price of gasoline and regulate sales based on the so-called “fatherland card,” an electronic card that provides access to subsidies. As a first step the government began a census of motor vehicles, set to end on Sunday.

A liter of 91-octane gasoline currently costs one bolivar, while 95-octane gas costs six. By contrast, a single egg in Venezuela’s hyperinflation ravaged economy — estimated by the IMF at one million percent in 2018 — costs 200,000 bolivars.

A dollar on the country’s black market is currently trading at 3.5 million bolivars.

Experts say the retail price of gasoline covers just between two and four percent of its cost of production.

Maduro has kept details of the fuel price adjustment under wraps, but he said that “we are paying to throw it away … we need to move to a rational usage.”

Yet talking openly about cutting the gasoline subsidy has been a taboo since the 1989 riots known as the “Caracazo,” which were triggered by a rise in fuel prices and left 300 people dead in Caracas and towns surrounding the capital.

Even though the iconic late leader Hugo Chavez questioned the rock-bottom prices of state-subsidized fuel during his term in office between 1999 and his death in 2013, even he never touched them.

In 2016, Maduro authorized the first price hike in 20 years, but only by between 1.328 percent and 6.566 percent, which made no impact on the derisory prices.

The new adjustment will come at a time of profound stagnation, in an economy that has not stopped shrinking since 2014.

Inflationary subsidies

Fuel subsidies have cost the Venezuelan government $10 billion a year since 2012, petroleum expert Luis Oliveros told AFP.

That has created a such a gaping hole in the budget that the government has tried to fill by printing more money, which in turn has created even higher inflation, Oliveros said.

“It is a lie that increasing the price of fuel is an inflationary measure,” he said. “The subsidies are hyperinflationary.”

The situation has only been made worsen by the drop off in oil production from 3.2 million barrels a day in 2008 to 1.5 million in 2018.

That is why the operating capacity of refineries has fallen and gasoline imports have risen.

In a perverse twist, there has been a decrease in the demand for fuel because 90 percent of Venezuela’s public transport vehicles are out of operation because there cannot buy spare parts to keep them on the road, according to unions.

Venezuela imports 33,600 barrels of gasoline and 36,000 barrels of diesel a day from the United States, according to the US Energy Information Agency.

Maduro has yet to explain what happens to consumers who do not have a state-issued “fatherland card.”

With wages ravaged by hyper-inflation, it is unlikely prices will get anywhere near international levels. If they did, however, filling a gas tank would cost a Venezuelan two years of their minimum-wage income.

“Prices are so far behind that no matter how big the increase in terms of percentage, they will still remain low,” said Henkel Garcia, director of the Econometrica consultancy group.

Social ‘blackmail’

Economist Luis Vicente Leon said the government will use greater subsidies in the “fatherland card” system to ensure that fuel is affordable for all cardholders.

According to the opposition, this card is designed for the Socialist government to broaden its support base, which has been weakened by the economic crisis and longstanding shortages of food, medicine and basic goods.

The 12 million Venezuelans with the cards — a third of the population — systematically receive food vouchers.

“If they are already using food and medicine as a form of blackmail, then why not gasoline?” said Oliveros.

***

Venezuelan Capital Hit by 80% Power Cut

(AFP, 3.Aug.2018) – A power failure cut electricity to 80 per cent of the Venezuelan capital Caracas Tuesday, provoking transport and communications chaos, authorities said.

Electricity Minister Luis Motta said the Government was “working on restoring the service”.

The power outage sparked traffic jams in the capital where both the metro and traffic lights were affected.

The Maiquetia airport serving Caracas was also impacted.

“We were stuck in immigration for around 40 minutes. There was no telephone signal or Internet,” Estefania Freire, who was waiting to take an international flight, told AFP.

Power cuts are a regular occurrence in crisis-hit Venezuela, in particular in the rural interior. In the western oil-rich region of Zulia, electricity is rationed with blackouts sometimes lasting up to 12 hours.

Venezuela has faced food and medicine shortages resulting from a prolonged economic and political crisis, as well as the breakdown of many public services, such as electricity, water and transport.

The Government of Nicolas Maduro blames the electricity problems on Opposition “sabotage”, claiming it’s a political tactic to try to stir public discontent.

Anti-Maduro protests have been widespread and the Government’s violent crackdown has prompted international condemnation. Last year, around 125 people were killed in clashes with security forces.

***

Power Outage Hits Most of Venezuela’s Capital

(AP, 31.Jul.2018) – Most of Venezuela’s capital is without power following a failure at an electrical plant. Energy Minister Luis Motta Dominguez said on Twitter that Tuesday’s outage has left 80 percent of Caracas without electricity, as well as parts of neighboring Miranda and Vargas states.

He offered no further details but said authorities were working to restore power.

Local news outlets report many Venezuelans are walking to work because the metro has been shut.

The outage comes a day after the power went off at a socialist party gathering as the deputy leader was live on television urging delegates to elect President Nicolas Maduro as leader of the country’s ruling political party.

Maduro later called the brief outage an act of “sabotage.”

***

Venezuela Inflation to Hit 1 Mln Percent. Thanks, Socialism.

Oil pumpjacks are seen in Venezuela in May. (Isaac Urrutia/Reuters)

(Washington Post, Megan McArdle, 27.Jul.2018) – According to the International Monetary Fund, by the end of the year, the annual inflation rate in Venezuela will reach 1 million percent.

A number like that is hard to grasp. Simply put, a candy bar that cost $1 today would cost $10,000 at the end of a year. Anyone in that position would understandably rush to spend the money right now, on anything that might possibly hold its value. Everyone else would too. The entire economy becomes a giant game of monetary “hot potato.” Saving or planning becomes a sucker’s game.

Venezuela is not exactly a struggling undeveloped country; it has the world’s largest proven oil reserves. How the heck did this happen?

There are two answers, one technical and one political.

The technical answer is that hyperinflations occur because the government wants to spend much more money than it is collecting in taxes — so much more that no one is willing to lend it the money to cover the deficit. Instead, the government uses the central bank to finance the deficit. That puts more money in the economy, but since it’s chasing the same number of goods and services, prices rise to soak up all the extra cash. Unless the government manages to close its budget deficit, it must print even more money to buy the same amount of stuff . . .

Rinse and repeat a few times, and the inflation rate starts running into many zeros. The end generally arrives in one of two unpleasant ways: The government decides to stop the madness and implement a strenuous reform program, or the currency becomes so utterly devalued that churning out more of it is pointless. By the end of its hyperinflation, Zimbabwe was printing bank notes that ran into the trillions.

But it’s not a secret that this is where hyperinflation ends. Why did Venezuela embark on the road to destruction? And why does the government stay on it while the citizenry slowly starves?

In a word, socialism. After his election as president in 1998, Hugo Chávez pursued an increasingly aggressive socialist agenda, one that continued under his 2013 successor, Nicolás Maduro. Chávez nationalized foreign oil fields, along with other significant portions of the economy, and diverted investment funds from PDVSA, the state-owned oil company, into vastly expanded social spending.

Unfortunately, Venezuela’s heavy, sour crude oil was unusually hard to get out of the ground. Continual investment was needed to keep it flowing. So was the expertise of the banished foreign owners and the PDVSA engineers Chávez had purged for opposing this scheme. Production plunged; the only thing that kept Venezuela from disaster was a decade-long oil boom that offset falling production with rising prices.

Then came the 2008 financial crisis that crushed global demand for oil, followed by the onrush of U.S. shale oil, driving prices down further. And no one would loan money to Venezuela that couldn’t be repaid in oil. Meanwhile, unwilling to admit that socialism had failed, Venezuela made a fateful turn to the central bank.

Now, one could say that this is not an indictment of socialism so much as the particular Venezuelan implementation of it. But it’s striking how the precarious economics of socialism, including hyperinflations, are tied to petroleum. Many of the notable hyperinflations in history were tied to the collapse of the Soviet Union. And the story of the Soviet collapse is also a story about oil.

Central planning had wrecked the Soviets’ grain production by the 1960s, and collectivized industry didn’t produce anything that the rest of the world wanted to buy, leaving the Soviets unable to obtain hard currency to import grain. Oil sales propped up the Soviets until the mid-1980s , when prices crashed as new sources of oil came online (sound familiar?). The Soviet leadership was forced to liberalize to rescue the economy. The U.S.S.R.’s collapse soon followed.

Socialism, in other words, often seems to end up curiously synonymous with “petrostate.” The new breed of socialists cites Norway as a model, but saying “we should be like Norway” is equivalent to saying “we should be a very small country on top of a very large oil field.”

Without brute commodity extraction, you need capitalist markets to generate a surplus to distribute, which is why Denmark’s and Sweden’s economies have more in common with the U.S. system than with the platform of the Democratic Socialists of America. And as both Venezuela and the Soviet Union show, even oil may not be enough to save socialism from itself.

***

Falling Oil Output Squeezes Maduro Government

(Energy Analytics Institute, Piero Stewart, 27.Jul.2018) – The continued decline in Venezuela’s oil production acts to squeeze the government of President Nicolas Maduro, says an Ecoanalitica executive.

“The fall in oil production puts more restriction on the government,” said Ecoanalitica Director Asdrubal Oliveros during an interview with Shirley Varnagy on her program ‘Shirley Radio.’

Venezuela, the country with the world’s largest oil reserves, continues to suffer self-inflicted economic, financial and humanitarian crises. Production of the country’s primary export, crude oil, fell to 1.340 million barrels per day in June 2018 compared to 1.911 million barrels per day in 2017, according to OPEC’s most recent Monthly Oil Market Report and based on secondary sources.

***

Former Cerro Negro Workers Still Seek Payment

(Energy Analytics Institute, Piero Stewart, 23.Jul.2018) – It has been 11 years and the 7,000 direct and indirect Venezuelan workers of US oil company Exxon Mobil still haven’t received their social benefits or other liquidations.

Those payment were assumed by the government of late Venezuelan President Hugo Chávez when his administration nationalized Exxon Mobil’s Cerro Negro heavy oil project located in the Hugh Chavez Orinoco Heavy Oil Belt, also known as the Faja.

“Several coworkers have died during this long time waiting while others have left the country, but we continue to demand our rights,” reported the daily newspaper El Nacional, citing Luis Vega, spokesman for those affected. In 2007, labor liabilities reached $5.2 billion, a figure that has increased due to accumulated interest, he said.

Many of the workers are from the Venezuelan states of Monagas, Sucre, Anzoátegui, Bolívar, Guárico and Delta Amacuro, said Vega.

About a month ago, Venezuela’s President Nicolás Maduro instructed PDVSA President Manuel Quevedo to solve the problem.

“PDVSA recognizes the debt, but doesn’t want to pay us alleging that [former PDVSA President] Rafael Ramírez stole the money,” added Vega.

***

Venezuela’s Inflation to Reach 1 Million Percent

(Bloomberg, Andrew Rosati, 23.Jul.2018) – Venezuela’s inflation will skyrocket to 1 million percent by the end of the year as the government continues to print money to cover a growing budget hole, the International Monetary Fund predicted on Monday.

The crisis is comparable to that of Germany in 1923 or Zimbabwe in the late 2000s, said Alejandro Werner, head of the IMF’s Western Hemisphere department. He forecast the economy to shrink 18 percent in 2018 — the third consecutive year of double-digit contractions — as oil production falls significantly.

“The collapse in economic activity, hyperinflation, and increasing deterioration in the provision of public goods as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries,” Werner wrote in a blog post.

Venezuela has been suffering a dramatic economic collapse since crude prices nosedived nearly four years ago and authorities have refused to enact economic adjustments. A number of price and exchange controls only added to the distortions.

While hundreds of thousands of Venezuelans flee hunger and surging prices, President Nicolas Maduro has maintained that the crisis is a result of an “economic war” waged by his political opponents at home and abroad. As the economy unraveled, authorities stopped regularly publishing economic indicators. Economists now rely on independent estimates provided by international organizations, banks and even Venezuela’s congress to track the country’s economic meltdown.

Bloomberg’s Cafe Con Leche Index, which tracks the price of a cup of coffee served at a bakery in eastern Caracas, estimates inflation topped 60,000 percent over the past year and is picking up speed now, posting an annualized rate of almost 300,000 percent in the past three months.

***

Venezuela’s Maduro Introduces Petro in Turkey

(Energy Analytics Institute, Piero Stewart, 14.Jul.2018) – Venezuela’s President Nicolás Maduro introduced ‘el petro’ during a presentation in Turkey.

Maduro reiterated that the Petro crypto-currency is based or backed by an entire block located in Hugo Chavez Orinoco Heavy Oil Belt, or the Faja, which contains more than five billion barrels of certified oil reserves, reported PDVSA in an official statement.

Its value is equivalent to the price of an oil barrel, he said.

Maduro added that Venezuela offered numerous opportunities to investors and invited businessmen to jointly work on oil, gas and mining projects in the South American country.

“I place it at your disposal to strengthen relations and accelerate investments between Venezuela and Turkey,” he added during meetings with representatives from Turkish private and public companies.
***

Venezuela, Turkey Discuss Oil Supply

(Energy Analytics Institute, Piero Stewart, 14.Jul.2018) – Venezuela’s President Nicolás Maduro announced the two countries could soon sign a new oil agreement.

“A new agreement thereon shall be signed pretty soon,” reported PDVSA in an official statement, citing Maduro.

No specifics were provided in the statement.

***

China to Invest $250 mln to Boost Venezuela’s Oil Sector

(Bloomberg, 4.Jul.2018) – Venezuela’s distressed oil sector may get some much needed financing from China, Finance Minister Simon Zerpa said after meetings with officials from China Development Bank and China National Petroleum Corporation.

China Development Bank will invest more than US$250 million to boost Venezuela oil production in the Orinoco Belt, Zerpa, who is currently in Beijing for bilateral talks, said in a ministry statement.

“We’ve received the authorisation for a direct investment of more than US$250 million from China Development Bank to increase PDVSA production, and we’re already putting together financing for a special loan that China’s government is granting Venezuela for US$5 billion for direct investments in production,” Zerpa said.

The two countries will sign an additional three or four financing deals in the coming weeks, he said.

Venezuela’s oil output averaged 2.9 million barrels a day in 2013, when President Nicolas Maduro was first elected.

In June, output dropped to around 1.36 million barrels per day, according to International Energy Agency data.

State oil company PDVSA has been struggling to send oil shipments to China after a legal order granted to ConocoPhillips froze its assets in Caribbean ports and terminals.

Maduro has vowed to boost production by 1 million additional barrels, while critics say output will plummet to 1 million barrels a day by the end of this year.

Venezuela and China officials will continue meetings on Wednesday, the ministry said in its statement. Zerpa, who has served in the post since October, was sanctioned by the US Treasury Department before his appointment.

***

Venezuela Says 23,319 Wells Have 1.4 MMb/d Recovery Potential

(Energy Analytics Institute, Piero Stewart, 5.Jun.2018) – Venezuela’s Oil Minister Manuel Quevedo says the state oil company has identified 23,319 wells which have potential to recover Venezuela’s oil production by 1.426 million barrels per day (MMb/d).

Quevedo, who also serves as the president of PDVSA, made the announcement in La Campiña in Caracas during a meeting with Venezuela’s President Nicolás Maduro, announced PDVSA in an official statement.

In the western region of Zulia state alone some 13,435 category two and three oil wells have been identified with potential to recover production of 655 thousand barrels per day (Mb/d). In the eastern region of Venezuela another 9,500 wells have been identified with potential to recover production 700 Mb/d. In total, Quevedo said 23,139 wells have been identified with potential to recover 1.426 MMb/d.

The official didn’t explain where the additional 389 wells were located, which have potential to recover another 71 Mb/d.

Photo source: PDVSA

***

PDVSA’s Del Pino Backs Constituent

(Energy Analytics Institute, Ian Silverman, 23.May.2017) – PDVSA President Eulogio Del Pino announced that he fully backs Venezuelan President Nicolás Maduro in the Constituent Assembly process to defeat what he described as violence brought about by the right-wing political groups, reported PDVSA, citing the president of the state oil company.

“They send paramilitaries to attack our distribution units and services stations to later say there is no fuel and generate false opinions about supply,” said Del Pino.

***

Venezuelan Oil Workers March With Maduro

(Energy Analytics Institute, Ian Silverman, 23.May.2017) – Venezuelan petroleum sector workers accompanied Venezuelan President Nicolás Maduro during a march for peace to the headquarters of the National Electoral Council (CNE by its Spanish acronym) in Caracas where he revealed details related to the upcoming Constituent Assembly, a process to rewrite the OPEC country’s Constitution.

“The petroleum workers are here defending the Bolivarian Revolution and giving their all for dialogue,” said PDVSA External Director Ricardo León, referring to the ongoing protests nationwide against the government of Maduro.

***

Venezuela Eyes 2018 Presidential Elections

(Energy Analytics Institute, Aaron Simonsky, 13.May.2017) – Venezuelan President Nicolas Maduro said during a speech televised on national TV that “rain, thunder or lightning, in Venezuela there would be presidential elections in 2018 because the revolution governed.”

***

Venezuela to End Oil Rentier Model

(Energy Analytics Institute, Piero Stewart, 26.Mar.2017) – Venezuela’s President Nicolas Maduro announced that this year the South American country would change its oil rentier model for an economic model whereby the private sector would work with his revolutionary government.

***

Venezuela Not Selling Gasoline in Pesos

(Energy Analytics Institute, Aaron Simonsky, 15.May.2017) – Venezuela expects to receive between $120,000 and $150,000 per day from the sale of its gasoline along the Colombian border, reported the daily El Nacional citing Economist Aldo Contreras. However, since initiating the process on January 2, 2017 to commercialize its gasoline along the border in Colombian pesos, the Venezuelan government has yet to register a sale in pesos.

The sale of Venezuelan gasoline along the Colombo-Venezuelan border was envisioned by the government of President Nicolas Maduro to cut down on contraband and boost foreign export revenues.

***

Venezuela, China Sign 8 Oil Deals

(Energy Analytics Institute, Piero Stewart, 17.Feb.2017) – Venezuela signed 22 agreements with China, including eight (8) related to heavy and extra heavy oil ventures in the OPEC-member country, with an estimated value of $2.7 billion, announced Venezuelan President Nicolas Maduro during a signing ceremony in Caracas.

***

Citgo Without CEO After Martinez Leaves

(Energy Analytics Institute, Piero Stewart, 17.Feb.2017) – Citgo Petroleum Corporation has yet to the report on a possible replacement to head the company after its CEO and President Nelson Martinez was appointed as Venezuela’s Oil Minister by the country’s President Nicolas Maduro.

The appointment leaves Citgo, the Houston-based refining arm of PDVSA, leaderless amid approval of the Keystone XL Pipeline which intends to send more Canadian oil to the U.S. Gulf Coast where Citgo has a large presence.

***

Venezuela Signs Eight Agreements with China

(PDVSA, 13.Feb.2017) – PDVSA ratified its cooperation with the People’s Republic of China with the signing of eight agreements at the 15th China-Venezuela High Level Joint Commission, which was held at the José Félix Ribas Hall of the Teresa Carreño Theater in Caracas.

The event was headed by Venezuela’s President Nicolás Maduro, and the Vice Chairman of the National Development and Reform Commission (CNDR) Ning Jizhe, with the participation of Vice President of Planning and External Director of PDVSA Ricardo Menéndez, Venezuela’s Oil Minister Nelson Martínez, PDVSA President Eulogio Del Pino, Economic Vice President Ramón Lobo, Communes Minister Aristóbulo Istúriz, Foreign Minister and Vice President of International Affairs of PDVSA Delcy Rodríguez, and others.

PDVSA signed a memorandum of understanding (MOU) to participate in the construction project of Nahai refinery in China; the engineering, procurement and facilities construction contract to increase extra heavy crude production at the facilities of Petrolera Sinovensa, S.A.; a MOU for the development of the Petrozumano JV; and financing by China Development Bank as part of the Special Fund for oil projects.

PDVSA also signed a MOU for a well exploitation pilot test work plan for the Petrourica JV; set up the mixed capital company Venezolana de Mantenimientos Especializados Remensa; set up a JV between PDVSA and Shandong to develop maintenance capacities for the delivery of specialized services; and a MOU between PDVSA and Shanghai for the corporate insurance and reinsurance program of PDVSA and its subsidiaries.

These agreements were signed by PDVSA President Eulogio Del Pino, PDVSA Vice President of Exploration and Production Nelson Ferrer Sánchez, the representative of PDVSA Servicios Petroleros Osmel Molina, and their Chinese counterparts.

President Maduro said these 22 agreements are for $2.7 billion.

“This makes 2017 the year of the economic recovery of our country, with the collaboration of a friendly nation like China, in a win-win relationship,” Maduro said.

Speaking about these financing projects for the people of Venezuela, he said: “Nothing and nobody will be able to stop them; it is the ultimate will of our government and the people to continue to expand the mechanisms that have proven their viability.”

He said he was satisfied with the results of the work of the Joint Commission, “which has been the ultimate expression of the success of China-Venezuela relations.”

***

PDVSA Exploration VP Tours Faja Ops

(PDVSA, 4.Feb.2017) – PDVSA Vice President of Exploration and Production Nelson Ferrer, led a tour of the facilities of the Orinoco Drill Operators Cooperative Association, which absorbed former Petrex Sudamérica workers, in the Hugo Chávez Orinoco Oil Belt.

He was able to see the progress of the new labor scheme promoted by the oil workers and spoke with those involved in this new way of protagonist participation of the workers. He listened to their experiences and learned how the hydrocarbons extraction process has been optimized.

He also visited drilling rigs LGV-103 and PDV-57, located 15 minutes from the Ayacucho Division, in southern Anzoátegui state. Both rigs are currently part of the restoration of 28 wells, which represent an associated production of 10,000 barrels per day (mb/d) since August 2016.

“We believe in the workers; with them we generate production and added value. The organized mass of workers, with commitment and loyalty to Chávez, President Nicolás Maduro and the homeland, can achieve excellent results,” said Mr. Ferrer.

The President of the Orinoco Drill Operators Cooperative Jesús Díaz, said the workers are proud that their work transcends the borders of the state of Anzoátegui all the way to Caracas.

“We are heads of households committed to the homeland, workers’ President Nicolás Maduro and the legacy of Hugo Chávez the Giant, who always shared the idea that the workers should take over their work places,” Díaz said.

PDVSA continues to promote actions for the transformation of the oil industry, deepening its socialist vision by meeting the objectives and following the guidelines of the Homeland Plan Act and the “Golpe de Timón” or “The Turnaround”, a legacy of Supreme Commander Hugo Chávez.

***

New PDVSA Board Preparing for Changes

(Energy Analytics Institute, Piero Stewart, 2.Feb.2017) – A newly appointed Board of Directors at PDVSA will be charged with taking actions to prepare the company for the eventually turn around in the crude oil export market.

Venezuela’s President Nicolas Maduro said during his weekly broadcast that the new board would work on recuperation of issues vital at PDVSA including but not limited to sustainability, growth and advance investments.

***

Maduro Ask Citizens to Reduce Consumption

(Energy Analytics Institute, Piero Stewart, 2.Feb.2017) – Venezuela’s President Nicolas Maduro called on the Venezuelan citizens to reduce their consumption of fuels so that they could be used for exports to international markets.

***

Maduro Names New Central Bank Head

(Energy Analytics Institute, Piero Stewart, 2.Feb.2017) – Venezuela’s President Nicolas Maduro named Ricardo Sanguino as the new President of the Venezuelan Central Bank (BCV).

Sanguino replaces Nelson Merentes, who resigned the post.

***

Maduro Announces Shakeup to PDVSA Board

(Energy Analytics Institute, Pietro D. Pitts, 29.Jan.2017) – Venezuela’s President Nicolas Maduro announced changes to the Board of Directors at PDVSA and said the members would be expected to assume the homework of deepening the transformation of the entity into a Socialist Corporation.

PDVSA’s President Eulogio Del Pino was restated to head the company and will preside over the board, reported PDVSA in an official statement, citing comments made by Maduro during his Sunday program that took place in the Ciudad Guayana in Bolivar state.

The board of PDVSA, as the Caracas-based company is known, is comprised of the following members: Maribel Parra, the new Executive Vice President; Nelson Ferrer, the new Exploration & Production Vice President; Guillermo Blanco Acosta, the new Refining Vice President; Simón Zerpa, the new Finance Vice President; Delcy Eloína Rodríguez, who maintains her post as Vice President of International Affairs; Ismel Serrano, the new Commerce and Supply Vice President; Marianni Gómez, the new head over Planning and Engineering; and César Triana, new Director of PDVSA Gas.

Maduro also announced new external directors Yurbis Gómez and Ricardo León would be the spokespersons for the oil sector workers and said that Rodolfo Marco Torres, Ricardo Menéndez and Wills Rangel would retain their existing posts.

***

Trump Nationalism Scares LAC Exporters

(Energy Analytics Institute, Pietro D. Pitts, 27.Jan.2017) – Taiwan’s president got the call, Mexico’s president will get a wall. At least, that’s what U.S. President Donald Trump is proclaiming.

From all accounts, Mexico’s President Enrique Peña Nieto has not been shown the same courtesy as Taiwan’s President Tsai Ing-wen. Witnessing the manner in which Trump has treated trade partner Mexico over the U.S.-Mexico border wall, it is safe to assume that other partners could be in for worse or harsher treatment less they offer something that is first in Americas’ interest. The visit by United Kingdom’s Primer Minister Theresa Mary May to Washington is a case in point regarding the latter.

Trump may be a successful and wealth businessman but much talent is missing and desired in his role as a statesman. The ruthless manner in which he is dealing with Mexico, a key trading partner under the North American Free Trade Agreement (NAFTA), in the name of nationalism, is alarming at most.

As a result, countries in the Latin American and Caribbean (LAC) region — and worldwide for that matter — that export products and services to the U.S. better brace themselves for what U.S. Speaker of the House of Representatives Paul Ryan recently called ‘an unconventional’ presidency.

LAC region countries that should be worried — if not already, they should and better be — about the ongoing bout between Trump vs. Peña Nieto include but are not limited to: Argentina (some exports to the U.S.: aluminum, wines), Brazil (mineral fuels, aircraft, iron, steel), Chile (copper, fish, seafood, wine), Colombia (mineral fuels, coffee, cut flowers), Ecuador (mineral fuels, seafood), Peru (precious metals, mineral fuels), and Nicolas Maduro’s Venezuela (crude oil). The list goes on.

Most of my concern is for the latter country since crude oil exports constitute 96 percent of its foreign export revenues, and due to the fact that this OPEC-member country is the lone one in the LAC region with basically one export product. Additionally, should Trump view the asset expropriations in the oil sector under late Venezuelan President Hugo Chávez as unfair (remember U.S.-based oil giants ConocoPhillips and ExxonMobil were pushed out or kicked out, depending on your view of what happened and how), the government of Maduro & Company could be in for a big surprise. Trump’s revival of the Keystone XL Pipeline project could easily displace some if not all of the crude oil that Venezuela currently exports to the U.S. Gulf Coast.

TOP OIL

On the flip side, Trump’s ‘America First’ nationalist message could someday be a good thing for importreliant Venezuela seeing that the country – which imports basically everything, is practically a war zone with homicide rates constantly around 30,000 each year, and which cannot devalue its already worthless currency to export itself out of its crisis – will need to rebuild nearly all its industries once the regime change occurs. How and when are the lingering questions regarding said change.

If there were ever a time to push for strengthening regional integration among the LAC region countries, it’s now. Existing initiatives that come to mind including Mercosur, Alba, and Celac, among others, should be revisited and improved. If Mexican products are indeed slapped with a 20 percent tax into the U.S., many will need to be redirected to other countries around the world. Why shouldn’t some of these products be redirected to LAC region countries?

Back to Venezuela. Since Maduro is unlikely to visit Washington and Trump less likely to visit Caracas, we’ll all have to wait for their political bout to play out on Twitter. It would be wise if LAC region officials started to have these regional trade discussions now and take a proactive, not reactive approach to Trumpism.

***

Maduro Names Citgo President as Venezuela’s Oil Minister

(Energy Analytics Institute, Aaron Simonsky, 20.Jan.2017) – Venezuela President Nicolas Maduro announced the appointment of Nelson Martínez, the actual president of Citgo Petroleum Corporation, as the country’s new petroleum minister. Martínez replaces outgoing Petroleum Minister Eulogio Del Pino.

“Our friend Eulogio Del Pino remains in front of PDVSA,” reported state oil company PDVSA in an official Twitter post, citing Maduro. PDVSA, as the Caracas-based company is known, also reported Maduro as saying they “we’re going to restructure the industry,” without providing details and referring to the troubled oil sector of the member country to the Organization of Petroleum Exporting Countries (OPEC).

Houston-based Citgo is capable of refining 749,000 barrels per day of crude at refineries in the United States of America located in Texas, Illinois and Louisiana. Citgo markets more than 600 different types of lubricants and sells motor fuels through more than 5,300 independently owned, branded retail outlets, according to data on the company’s website.

***

PDVSA Signs Agreements with Shell

(PDVSA, 5.Dec.2016) – PDVSA and Shell Venezuela signed two agreements at Miraflores Palace.

Both companies have stakes in the joint venture Petroregional del Lago, S.A. and plans to boost its production to 344 million barrels from 2017 to 2035, the first agreement provides for an investment of $2.8 billion ($400 million on a first phase and $100 million in early 2017). These are heavy crude reservoirs and they will use multilateral drilling technology.

The second agreement aims to reduce gas venting or burning in northern Monagas state.

Venezuela’s President Nicolás Maduro thanked PDVSA and Shell executives for all the work they do for the nation, and called on international companies to work embracing this vision.

“Venezuela is the country of investment opportunities in oil and gas. We have 15 powerful economic drivers that we are developing with a new strategic vision. We will work together, be good partners and seek out new paths”, Maduro said.

***

Maduro Holds Meeting with Citizens’ Joseph Kennedy

(Energy Analytics Institute, Piero Stewart, 2.Jul.2016) – Venezuela’s President Nicolas Maduro held a meeting with Citizens Energy Corporation founder Joseph Kennedy in Caracas to discuss matters related to the U.S.-based non-profit organization, reported Venezuela’s new agency AVN.

Citizens Energy is a non-profit company that receives and distributes Venezuela heating oil to U.S. citizens in need across various states in the U.S.A.

***

President Obama Insists Venezuela Respect Democratic Process

(Energy Analytics Institute, Jared Yamin, 25.Jun.2016) – U.S. President Barack Obama insists the Venezuelan government respect the democratic process regarding calls for a recall referendum against Venezuelan President Nicolas Maduro, reported the daily El Universal.

“Political prisoners should be freed,” said Obama during a speech in Ottawa, Canada.

***

Venezuela Needs to Learn to Live with $40-$45/Bbl Oil

(Energy Analytics Institute, Jared Yamin, 16.Jun.2016) – Venezuela has to learn to live with oil prices between $40 per barrel and $45 per barrel in order to stop its oil rentier model, announced Venezuela’s President Nicolas Maduro during a broadcast on national television from Miraflores Presidential Palace in Caracas.

Venezuela should learn to generate new sources of wealth via exports, said Maduro.

***

Venezuela, Trinidad Sign Energy-Related Deals

(Energy Analytics Institute, Pietro D. Pitts, 23.May.2016) – Venezuela’s President Nicolas Maduro and Trinidad and Tobago’s Prime Minister Keith Rowley were both present during an energy-related signing ceremony in Port of Spain between the two countries.

Trinidad’s Minister of Energy and Energy Industries Nicole Olivierre signed the agreements for her country while Venezuela’s Oil Minister Eulogio Del Pino signed on behalf of Venezuela, reported PDVSA in an official statement on its website.

The first agreement relates to a Functional and Governability Structure for the Loran-Manatee maritime gas field, including evaluation, development, exploitation, production and disposition of hydrocarbons.

The second agreement relates to a Memorandum of Understanding (MOU) between both countries revolved around technical and commercial studies related to the supply of Venezuelan natural gas located in the north and south eastern offshore platform regions of the OPEC member country to its Caribbean neighbor Trinidad and Tobago. The MOU also includes details related to the evaluation of a development feasibility study related to the interconnection of gas between Venezuela and Trinidad and Tobago.

During the meeting, Maduro also announced creation of a $50 million credit fund that would allow Venezuela to acquire foodstuff from Trinidad and Tobago.

Venezuela – the OPEC member country with the world’s largest crude oil and eighth largest natural gas reserves, according to the BP Statistical Review of World Energy – continues to reel in an economic crisis brought about by currency and price controls, widespread corruption and mismanagement of resources generated by its oil sector which produces 95 percent of the country’s dollar export earnings.

Besides bilateral issues, the countries also discussed matters related to drug and security issues, among others.

***

Venezuela, Saudi Arabia Joint Commission

(Energy Analytics Institute, Piero Stewart, 15.Sep.2015) – Venezuela’s Foreign Minister and Vice President of International Affairs at PDVSA, Delcy Rodríguez, accompanied by Minister of Commerce and Industry of Saudi Arabia Tawfiq bin Fouzan Alrabiah, opened the First High Level Joint Commission Venezuela-Saudi Arabia at the Antonio Jose de Sucre Casa Amarilla, the seat of the Venezuelan Foreign Ministry in Caracas, according to statements released by Venezuela’s Foreign Ministry.

“As President Nicolás Maduro said, our diplomacy is actively involved in the defense of energy resources,” said Foreign Minister Delcy Rodriguez during the ceremony.

The Joint Commission aims to strengthen relations between the two countries, covering a broad spectrum that includes petrochemical, industrial, agricultural, cultural, educational, diplomatic, and financial areas. These relations received a boost from Commander Chavez with his historic diplomatic tour of Arab countries in 2000. They have been relaunched by the Bolivarian government with the visit of President Nicolas Maduro to the Kingdom of Saudi Arabia earlier this year.

Venezuela and Saudi Arabia are founding members of the Organization of Petroleum Exporting Countries (OPEC), and maintain strategic bilateral agreements in the hydrocarbon sector, which is expected to strengthen through bilateral petrochemical cooperation.

“We hope to promote trade between the two countries, secure an effective environment for the development of the private market, and increase professional and technological cooperation,” said Minister Fouzan Alrabiah. “We have an export industry in the areas of food, plastics, fertilizer, and iron, among others.”

“The defense of crude oil market prices belongs to us,” said Rodriguez, echoing statements by President Maduro during OPEC’s 55th anniversary event.

Beyond oil, the future of bilateral cooperation is full of potential. Both nations share a policy for the integration and full sovereignty of the peoples.

“Saudi Arabia and Venezuela share the cause of the Palestinian people” said Rodriguez. “Venezuela is a nation of peace. We affirm our willingness and commitment to deepen bilateral relations. Feel at home! That is how we feel when we are in your country.”

***

Maduro Says Caribbean Must be Together

(Energy Analytics Institute, Piero Stewart, 6.Mar.2015) – Venezuela’s President Nicolas Maduro says the Caribbean region has to always be together.

“Petrocaribe is our road of respect, solidarity, brotherhood, the union to march together. The Caribbean has to always be together,” said Maduro during a broadcast on Venezuelan state television.

***

Ramirez Moving Forward with Energy Policy

(Energy Analytics Institute, Ian Silverman, 10.Oct.2013) – Venezuelan President Nicolas Maduro seems to be allowing Oil Minister Rafael Ramirez to take charge of moving forward with the country’s energy policy, which could be a good move since investor may have more confidence in Ramirez or it could be a bad move since it is still not clear what the nature of the relationship is between Maduro and Ramirez.

***

Rosneft, PDVSA Agree to Create PetroVictoria

(Energy Analytics Institute, Ian Silverman, 14.Aug.2013) – PDVSA and Russia’s Rosneft signed an agreement to create the JV company Petrovictoria, which will operate Carabobo Block 2 in Anzoategui and Monagas states as well as Carabobo Block 4 in Monagas state.

The agreement was signed by Venezuela’s Minister of Energy and Petroleum Rafael Ramirez and Rosneft President Igor Sechin at the installations of the Petromonagas upgrader located in the Jose Antonio Anzoategui (CIJAA) in Barcelona in the municipal of Bolivar in Anzoategui state.

Once the final bilateral agreement is signed, Venezuelan President Nicolas Maduro will sign a transfer decree to initiate the first preparatory phase which consists of development of a delineation program, as well as the design and basic engineering of the production and upgrading installations.

Early production of 120,000 b/d from Petrovictoria is expected by the YE:17, however production from the JV is expected to progressively reach 400,000 b/d.

Petrovictoria will extract oil of 8 degrees API and upgrade it into a 42 degree API syncrude with the use of Rosneft technology.

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Journalist Round Table with Rafael Ramirez

(Energy Analytics Institute, Piero Stewart, 31.Jul.2013) – PDVSA President Rafael Ramirez held a small round table with journalist in Caracas, Venezuela.

What follows are excerpts from the discussion.

Rafael Ramirez on the petroleum sector and the current government administration under Venezuelan President Nicolas Maduro:

Rafael Ramirez: We have firmly established our political strategy related to the oil sector.

We are currently entering a stage of production expansion and will concentrate all of our work and energies on reaching our goals and increasing production capacity in Venezuela.

If we look back, we received the petroleum sector (in late 1999) during a phase of privatization in the downstream, midstream, and upstream sectors, especially PDVSA.

But Venezuela has entered a new expansion stage of petroleum sector policies and PDVSA is entering into the Expansion Phase of the Faja development.

In terms of the sabotage that our oil industry has seen, we continue to feel the effects of these actions and damage mostly in Western Venezuela where we have experienced a drastic drop in production.

After the oil sector strike in 2002-2003, we established our petroleum sector plan. We oversaw the migration of operating contracts (of 33 companies with contracts we saw 31 of the companies migrate to the new contracts without problems, only ExxonMobil and ConocoPhillips decided to exit the migration process and eventually exit Venezuela altogether). We also oversaw changes and modifications to laws, fiscal changes such as reestablishing royalties and taxes.

The year 2010 marked the beginning of the new expansion stage for the Venezuelan oil sector. From 2004-2010 we worked on nationalization, migration process to new contracts, and PDVSA regaining control of the oil sector by increasing its participation from an average 49% in JVs to a minimum of 60%. We are now in the stage of increasing the production of oil.

In all, we spent ten years (2000-2010) recuperating PDVSA, under the watch of late-President Hugo Chavez Frias.

Ramirez: We are employing many engineers from public schools here in Venezuela for various jobs, including rig operations.

On the petroleum sector expansion process:

Ramirez: In 2013, we have been concentrating our efforts on recuperating production capacity of 4 MMb/d by year end 2014 and 6 MMb/d by year end 2019 (of which 4 MMb/d will come from the Faja). For this to happen, it is fundamental that we move two elements: development of the Faja and development of an industrial base. [See also information on industrial meetings with private sectors across the country].

We need to construct a production capacity of 3 MMb/d in the Faja. This runs parallel with work we have been conducting in the Faja related to the industrial meetings with the private sector.

The government is working hard with the private sector for the second phase of the Faja development. Hence the Six National Productive Meetings we had to gauge interest in the private sector to participate in projects with the government and PDVSA.

We are working with private (transnationals) companies as well as the Venezuelan Hydrocarbon Association or AVHI but I must reiterate: “The companies that do not want to help PDVSA increase its production capacity can simply leave the country.”

We have received positive feedback from CNPC and Chevron and we are awaiting response from other companies such as Repsol, among others, in terms of new financing deals related to petroleum sector projects.

We plan to create investment funds for all the Faja JVs whereby “the Venezuelan citizens” will participate.

The government will create four investment districts in the Faja. In Sep.2013 the government will announce plans and create development schemes, special fiscal schemes for the four districts that are located in each of the four Faja blocks.

Ciudad Bolivar will be the main city that Venezuela will use for the development of the Faja since it already has an airport and universities.

Development of the Faja will be the most important prospect for Venezuela in this Century.

The government is working with private companies regarding funding and the use of money solely to increase production.

The government realizes that a number of private companies that have converted to JVs have had problems increasing production (operating costs around $12/bbl, including G&A). Regardless, the government wants the companies to maintain operations in Venezuela and increase production. However, private companies that cannot maintain these operating costs should be operated by PDVSA. We are looking to drastically reduce overhead costs. Again, we don’t want small operators to leave, but we want them to merge their operations to reduce overhead so that they can focus on increasing production.

We are starting a push for reduction of costs and more efficiency in our production. In the Western region of the country we have had a lot of success implementing this strategy and we have stopped the production declines in the region.

The government wants companies in Zulia in Falcon state to be more efficient and is trying to help them reduce their overhead.

On the Faja reservoir spanning into Colombia:

Ramirez: The Faja does not extend to Colombia, only to Guarico state in Venezuela in its most western extension. There are individuals in Colombia that are trying to convince investors that Colombia shares the same geology as Venezuela, which is not true. Pacific Rubiales has sold a lot of stock selling this story to investors. The Faja formation in Venezuela is different than the one in Colombia.

On the Chinese Fund and other financing issues:

Ramirez: Close to 94% of foreign income that Venezuela generates comes from the petroleum sector.

Venezuela will sign a $5 bln funding (Fondo Chino or Chinese Fund) in Sep.2013 in the presence of President Nicolas Maduro in China.

The amount of barrels that are sent to China to repay loans varies each month due to changes in oil prices. When oil prices are high, the barrels that need to be sent to China decline, while any excesses are returned to PDVSA.

We sold $21.9 bln to the Venezuelan Central Bank or BCV during 2001-Jun.2013. In 2013, we plan to sell $47 bln to the BCV.

In 2012, PDVSA paid down debt by about $4 bln, this figure stood at $34.4 bln at YE:12

Money on our Balance Sheet as of June 30, 2013 ($12 bln) includes investments (commercial credit) from Rosneft, CNPC, Gazprom, Chevron. Money from new JVs could be used in the SICAD weekly auctions when the companies need access to Bolivars. This will also reduce the companies’ needs to participate in illegal activities to obtain Bolivars.

PDVSA will not issue more debt in USA dollars but instead in Bolivars as it is easier to pay back this debt in the local market than in dollars.

On Venezuelan windfall tax scheme:

Ramirez: The following table (See Table 1) lays out Venezuela’s windfall tax scheme.

Table 1: Venezuela windfall tax payment to Fonden

Price of oil ——- Payment % to FONDEN

$80/bbl ——— 20%

$80-$100/bbl —- 80% of the difference

$100-$110/bbl —- 90% of the difference

>$110/bbl ——– 95% of the difference

Source: PDVSA

FONDEN is a national development fund which is similar to a fund that is run by the Norwegians. “I don’t see anybody criticizing the Norwegians,” but this government is overly criticized.

On oil exports, shale developments worldwide and other issues:

Ramirez: PDVSA is an operational company. We are constantly balancing things out. We have debts but we have revenues. We have financing but we have capitalization.

Increases in interest rates under the Petrocaribe initiative were not called for by PDVSA. The conditions remain unchanged.

Venezuelan oil exports are down due to increased use of diesel in the domestic market to generate electricity.

Shale oil developments do not affect Venezuela. We are not worried about shale oil developments going on worldwide. However, most of the shale resources in Venezuela are located in Maracaibo Lake area where they amount to about 13,000-19,000 MMbbls.

We are evaluating to what depths we have shale in the Urdaneta field. Venezuela has shale resources in Lake Maracaibo which are four times as much as those claimed by Colombia. We need to drive to deeper horizons where there are larger concentrations of oil. Although we have shale resources in Falcon state we will continue to look for convention oil and gas. There is tremendous liquids potential offshore Falcon state.

A $100/bbl oil price does not permit the development of shale oil. So we need a good oil price and $100/bbl is a good price, not just for Venezuela.

Oil price sensitivity: For each $1/bbl decline/rise in oil prices, Venezuela losses/gains $700 mln per year in revenues.

As a result of the Perla 3x offshore gas discovery which also unveiled large condensate potential, we have decided to drill offshore Falcon state in search of additional condensate potential.

Oil production at the Sinovensa JV is around 140,000 b/d but we expect this production to reach 165,300 b/d by year end 2013 and ultimately 330,000 b/d.

During 1992-1999, Venezuela’s 4th Republic reported fiscal revenues of just $23.5 bln, while the Revolutionary Government (under former Venezuelan President Hugo Chavez and now President Nicolas Maduro) has reported fiscal revenues of $448.8 bln during 2000-Aug.2013 (as of 1.Aug.2013), of which $310.3 bln came from changes in new laws (i.e. increasing taxes and royalties and increasing PDVSA’s participation in oil projects).

Venezuela’s oil production declines on average 700,000 b/d a year or around 20-25% per year. However, Venezuela adds an average 700,000 b/d of production to make up for the short fall and maintain production around 3,000 Mb/d.

In the Faja the production declines are not as pronounced since it is a newly developed area, but in Zulia state in Lake Maracaibo the declines are more pronounced.

On gasoline issues:

Ramirez: The government is working to install an automatic chip system and even GPS systems in Tachira state as there are reported cases of cars in Colombia with Venezuelan license plates that are crossing the Colombian/Venezuelan border each day to buy cheap gasoline in Venezuela to later sell it in Colombia.

The government is looking to implement the export of Venezuelan gasoline to Colombia to reduce the demand for gasoline in Colombia.

On refineries:

Ramirez: El Palito refinery will receive heavy oil from the Faja in the future while the Puerto la Cruz refinery will also process oil from the Faja. We will continue to use light oils for mixtures or for export.

Changes/upgrades at existing refineries are being done to increase the heavy oil processing capacity.

Plans to build three new refineries in Venezuela have not changed.

The government has proposed that companies convert upgraders into refineries or upgrade the oils to 42 degrees API so that it can be exported or mixed with other oils and thus avoiding potential bottlenecks in Venezuela.

Our agreements with Eni are to build a refinery and not an upgrader. The majority of the finished products from this refinery will be diesel with specifications established for European markets. The 300,000 b/d capacity refinery with Eni is a move by the Italian company to pay lower taxes.

On Ecuador:

Ramirez: PDVSA has reduced its interest in Ecuador’s Pacific Coast Refinery to 19% from 49% to allow entrance of CNPC with a 30% interest. Petroecuador will continue to hold a 51% interest in the project. Nonetheless, PDVSA still plans to send 100,000 b/d to the refinery for processing.

On the USA and potential divestment of CITGO refineries:

Ramirez: The US market has a large processing capacity for heavy oils. In regards to divesting of our interest in CITGO; it is not viable to sell individual refineries in the USA. It would only be interesting if they (the CITGO refineries) could be sold as a packaged deal.

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Q&A with Tissot Associate’s Roger Tissot

(Energy Analytics Institute, Pietro D. Pitts, 19.Jul.2013) – Tissot Associates Consultant Roger Tissot spoke with Energy Analytics Institute in a brief interview from Canada.

What follows are excerpts from the brief interview.

Regarding the decision of Ecuador’s government to develop the ITT fields:

EAI: Ecuador has decided to move forward with development of the ITT fields: how do you view the decision?

Tissot: I am not surprised by President Rafael Correa’s decision of to drill the ITT Fields in the Yasuni National Park and for three reasons:

Credibility: Ecuador’s international reputation is not that good do to contradictions made by Correa in regard to not honoring oil contracts.
Timing: The recession in Europe came at a bad time for the ITT initiative as many of these countries no longer have the ability to make investments. The US’ green policies favored Ecuador but the biggest problem here has to do with the relationship Ecuador has with the U.S. which is not great.
Need: The need for dollar revenues/income was not been met as Correa originally planned, thus necessitating a change of policy by the government.

As such, in terms of problems with Ecuador’s plan to increase revenues and Exploit ITT fields, we need to consider the following: 1. How will the fields be developed? 2. Social challenges and/or protests to come from indigenous communities? 3. Will the government try to attract investors via bidding rounds or will it engage in direction negotiations with potential partners?

I think bidding rounds would be the best way to develop the ITT fields but what would the production plans entail?

EAI: Would Chinese companies make a good fit in Ecuador in terms of partnering with the government?

Tissot: Chinese companies would be logical partners for development of the ITT fields as well as other projects.

Regarding Petrocaribe and rumors that Venezuela is looking to increase interest rates under the initiative:

EAI: Should the member countries be surprised if Venezuela decides to increase interest rates?

Tissot: None of the Petrocaribe countries should be surprised by the Venezuelan government’s decision or potential decision to tighten the terms related to the initiative due to the excess spending by the Venezuelan government under late President Hugo Chavez that was obvious to everyone.

Frankly, many of the Petrocaribe countries are addicted to cheap Venezuelan oil which their governments could sell on the spot market to assist them raise revenues that could be used to assist them to cover other expenses.

In my view, Venezuela is facing a very bad fiscal situation and a not so good economic situation. President Nicolas Maduro does not have the ability or support to implement policies needed to address fiscal imbalances in Venezuela.

EAI: Is Petrocarible a good initiative and will it endure?

Tissot: Petrocaribe was a good social-economic tool for Chavez. I believe it will endure under Maduro as he tries to maintain “the legacy of Chavez” in the region.

Simply put, there are not many options for the Petrocaribe countries and they will most likely have to revert to their old ways of obtaining oil and derivatives, before the birth of Petrocaribe.

On the other hand, I do not see many companies willing to send oil and derivatives to the Caribbean or pick up the void that could be potentially left my PDVSA.

In my opinion, Petrocaribe is like giving foreign aid to a poor country to help them reduce debt and poverty levels. In other words, Petrocaribe was like a type of foreign aid with an ideological slant.

Editor’s Note:

The Petrocaribe initiative, the brain child of late Venezuelan President Hugo Chavez, was inspired by independence and sovereignty of peoples in an attempt to alleviate the hegemonic influence of the U.S. in Latin America and the Caribbean.

Measures by Venezuela to potentially increase interest rates under Petrocaribe, coupled with the recent 32% devaluation of the Bolivar, the Venezuelan currency, hints that the government is facing mounting economic and financial problems.

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