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.

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#LatAmNRG

Ecuador, Peru In Talks To Explore Oil And Gas Blocks: Energy Minister

(Reuters, Alexandra Valencia, 11.Oct.2018) — Ecuador has begun talks with neighboring Peru to jointly explore two oilfields at the border and allow state-run Petroamazonas to operate natural gas areas in Peru, Ecuadorian Energy Minister Carlos Perez said on Thursday.

Ecuador, which earlier this year awarded foreign and domestic energy firms exploration and production rights for four oil blocks in the Andean country, plans to continue offering areas through an onshore auction later this year and another in 2019 for natural gas blocks off its Pacific shore.

“We could form a joint venture between (state-run oil firms) Petroamazonas and Petroperu plus a private company to bring in capital,” Perez told Reuters in an interview.

The crude to be jointly produced along the border would feed Peru’s 65,000-barrel-per-day Talara refinery through an existing pipeline, while natural gas to be produced in Peruvian territory would be exported to Ecuador to ease a shortage there.

Ecuador President Lenin Moreno’s government is moving fast to attract foreign investment in the country’s energy industry to reverse a slow decline in crude output.

Other countries in the region, including Brazil, Mexico, Colombia and Argentina, also are competing for oil capital.

Oil contracts in Ecuador have been changed to allow operators to export independently and over a dozen crude and gas blocks are planned to be offered to foreign companies through production agreements and service contracts.

After completing the Intracampos 2 onshore oil tender in the last quarter of 2018, Ecuador will next year auction exploration and production rights for gas blocks off the Esmeraldas, Manabi and Guayas shores, which have been studied but reserves have not been confirmed.

The country’s largest gas field, Amistad, is also being offered for private investment.

“We want to bring large companies (to the gas auction) because bigger investment is required there,” Perez said.

Ecuador, which plans to boost oil output to 590,000 barrels per day (bpd) in 2019 from 520,000 bpd this year, supports a crude production increase at the December OPEC meeting, he said.

“Due to national interest, Ecuador wants to have the option of being able to increase production. That will be our point of view (in the upcoming OPEC meeting),” Perez said.

The current crude price of between $70 and $80 per barrel is “reasonable”, Perez said, adding that “we must find a balance” in the market.

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Energy Analytics Institute (EAI): #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.

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Energy Analytics Institute (EAI): #LatAmNRG

IEA Urges Opec to Open Taps as Oil Markets Enter ‘Red Zone’

(Bloomberg, Javier Blas, Grant Smith & Francine Lacqua, 9.Oct.2018) — Oil prices have rallied to a four-year-high due to US sanctions on Iran and the Venezuelan crisis, even as Saudi Arabia moved slow on filling any shortfall.

The International Energy Agency (IEA) made a direct appeal to Organization of the Petroleum Exporting Countries (Opec) and other major oil producers to boost output, warning that high prices are inflicting damage on the global economy.

“We should all see the risky situation, the oil markets are entering the red zone,” IEA executive director Fatih Birol said in an interview on Tuesday. “Expensive energy is back at a bad time, when the global economy is losing momentum. We really need more oil.”

Oil prices rallied to a four-year high above $85 a barrel in London earlier this month on concern that US sanctions on Iranian crude, along with chronic supply losses in Venezuela, could lead to a shortage. Traders are also worried that Saudi Arabia, the biggest member of the Opec, isn’t acting quickly enough—or may lack the capacity—to fill any shortfall.

Prices were boosted further on Tuesday by storm Michael, which shut some oil fields in the Gulf of Mexico and threatened to hit the Florida panhandle as a major hurricane. West Texas Intermediate futures advanced 0.6% to $74.71 a barrel on the New York Mercantile exchange at 8:34am local time.

Hurting demand

Emerging economies, most notably India, are bearing the brunt of the increase in energy prices, which comes when they’re already contending with currency depreciation and the fall-out from trade disputes, Birol said. With the drop in the rupee, Indian consumers are effectively paying as if oil were $100 a barrel.

“If there are no major moves from the key producers, the fourth quarter of this year is very, very challenging,” Birol said. “Demand is still very strong and we’ve been losing oil from Venezuela in big amounts, and also Iran is going down.”

Venezuela’s oil production is in “free-fall” as an economic crisis takes its toll on infrastructure and workers, and could slump below 1 million barrels a day “very soon,” Birol said. The Paris-based IEA advises most major economies on energy policy.

Iran’s exports have dropped faster than most in the industry expected, with many major buyers halting purchases even before US sanctions are enforced in November. To fill that gap and cool the price rally, Saudi Arabia has bolstered production to near record levels, pumping 10.7 million barrels of crude a day.

While the kingdom has repeatedly said it will do whatever is necessary to avert a shortage, at an Opec meeting last month it signalled it would only open the taps once it’s clear more crude is needed. As Saudi output nears unprecedented levels, it’s uncertain how much more supply the country can deliver.

The Saudis are able to increase further and reach 11 million a day, Birol said, adding that he’s fully confident the kingdom will act responsibly. The IEA isn’t currently considering the use of its emergency oil reserves, he added.

“We should try to comfort the markets all together,” Birol said. “It may be bad news for the consumers, importers today, but I believe it may well be bad news for the producers tomorrow.”

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Ecuador Signs Oil Investment Contracts to Increase Output

(Xinhua, 5.Oct.2018) — Ecuadorian authorities signed investment contracts worth about 1.6 billion U.S. dollars with private companies to develop six oil fields in the country’s northeastern provinces, local newspaper El Comercio reported.

Ecuadorian President Lenin Moreno was present at the signing ceremony held in the coastal city of Guayaquil.

With four other contracts signed in February, the country has “picked up investments of more than 2.3 billion U.S. dollars in the petroleum sector” this year, Moreno said.

According to the president, the country produces some 500,000 barrels of crude oil daily and with the new investment, the output will increase by about 6 percent in the next 15 years.

Ecuador is one of the smallest producers in the Organization of the Petroleum Exporting Countries. Oil is the main source of its export earnings.

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Ecuador, UN to Audit 5 Oil Projects Promoted Under Correa

(Energy Analytics Institute, Jared Yamin, 2.Oct.2018) — Ecuador, with the assistance of the United Nations Organization (UN), is auditing five major oil projects promoted by former President Rafael Correa during his decade of government (2007-2017).

The total value of the projects amounts to an estimated $5.042 billion, according to an article by AFP published in Ecuador’s daily newspaper El Comercio.

“The United Nations and the Ecuadorian State are already carrying out cooperation to review the five major oil projects in the country,” said Presidency Private Secretary Juan Sebastián Roldán.

A civic commission estimates corruption under the administration of Correa’s government at about $24.742 billion, the article reported.

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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.

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Venezuela Faces Fresh Blow With Ship-Fuel Rules Threatening Exports

(Bloomberg, 27.Sep.2018) — New rules forcing ships to use cleaner marine fuels may deal yet another blow to cash-strapped Petroleos de Venezuela SA, an exporter of high-sulfur fuel oil.

From Jan. 1, 2020, vessels will have to switch to less-polluting bunker fuel or be fitted with equipment to curb emissions, under new International Maritime Organization rules. That’s expected to weaken demand for the high-sulfur residual fuel oil produced by PDVSA, pushing prices lower at the same time that the cost of importing clean fuels rises, said Mel Larson, a consultant at KBC Advanced Technologies Inc.

As refiners prepare to produce IMO-compliant fuels that rely on low-sulfur crude oils, sour crude produced by Venezuela and Mexico may be sold at deeper discounts. Meanwhile, demand for lighter distillates, including diesel, is expected to increase. That ultimately will take a toll on the economies of Venezuela, Mexico and Ecuador that rely on imported diesel and gasoline.

“IMO 2020 has the potential to hurt GDP growth in most Latin American economies, especially the ones that subsidize fuel prices,” Larson said by email. “As the cost of imported fuels rise, subsidizing gasoline and diesel will only serve to expand a country’s or company’s debt load.”

Most refiners in Latin America haven’t invested in units that can remove sulfur or crack residuals into more valuable molecules. That puts them at a disadvantage ahead of the rule, which is expected to slash global demand for high-sulfur bunker fuel to as low as 1 million barrels daily from 4 million barrels currently.

By this measure, Petroleos Mexicanos and PDVSA, respectively Latin America’s largest and second-largest exporters of fuel oil, are the ones who have most to lose.

Petroleo Brasileiro SA, on the other hand, is set to take advantage of the fuel shift, according to Guilherme Franca, executive manager of commercialization. Petrobras already exports IMO-compliant fuels and is exploring the re-opening of fuel oil storage tanks in Singapore to better supply bunker fuel markets in Asia.

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PetroMonagas, PetroVictoria Rumored to Have Changed President

(Energy Analytics Institute, Ian Silverman, 26.Sep.2018) — The president of the two Venezuelan joint venture companies is rumored to have been changed, according to reports in the daily Noticias Venezuela.

The executive, Edgar Sifontes, is said to have left his position at the helms of both companies, reported the daily, citing Tweets from supposed workers at the companies.

Neither officials at PetroMonagas nor PetroVictoria returned calls seeking to confirm the reports.

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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.”

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

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

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

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

Global Crisis

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

Shale Boom

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

Price War

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

Alliance with Russia

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

U-Turn

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

What Next?

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

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

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

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

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

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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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ecuador

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

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

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

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

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

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

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

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

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

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Venezuela Constituent Assembly Seeks to Woo Private Oil Investment

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

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

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

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

Assembly colleague Hermann Escarra echoed Paravisini.

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

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

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

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

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

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

PDVSA did not immediately reply to a request for comment.

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

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

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

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

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Ecuador Holds Open Licensing Round for Eight Onshore Blocks

(World Oil, 12.Sep.2018) — Carlos Pérez Garcia, Minister of Energy and Non-renewable Resources in Ecuador has announced an open licensing round for eight blocks onshore Ecuador, in Sucumbíos Province.

These comprise: Araza Este, Changue, Iguana, Perico, Espejo, Pañayacu Norte, Charapa and Sahino. The blocks offered are all onshore, conventional opportunities, most with prospective sandstone reservoirs (one with a carbonate reservoir). All are low-risk exploratory blocks and are located close to established fields.

Ecuador is an under-explored country with high oil potential. Existing infrastructure and well-developed oil services industry presents an attractive opportunity to take hydrocarbons to market. The Ministry is offering a Participation Contract, that is equitable and competitive and allows companies to share production and book reserves.

The Intracampos round is an exciting new opportunity to increase investment in the country, as Ecuador offers opportunities for short medium and long-term investment, with future rounds planned.

The licensing round will be launched in Quito at the JW Marriott to invited parties only, on Sept. 11, and the latest date for submission of proposals will be January 2019.

Presentations and data rooms will also take place in Houston on Sept. 25-27, at the St Regis Hotel, Houston.

Data available for viewing includes 3D and 2D seismic, correlation wells (LAS, ASCII or Images) and production data from analog fields.

On the morning of Sept. 25, there will be an opportunity to hear presentations on the exploration opportunities, the contractual and fiscal terms, and the legal framework for upstream petroleum activities in Ecuador. Private data or meeting rooms will be available for two further days, with slots available to book.

***

Venezuela Oil Production Continues to Collapse

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

Summary details from the research note follow:

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

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

“The decline is consistent and constant.”

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

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

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

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

Drilling Rigs Fall

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

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

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

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

Maduro Goes to China

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

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

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

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

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

***

Venezuela’s Oil Output Continues Fall, Ecuador’s Rises in Aug. 2018

(Energy Analytics Institute, Piero Stewart, 12.Sep.2018) — Crude oil production in August 2018 in South America’s lone OPEC member countries, Venezuela and Ecuador, continued along usual trends, according to data published in the organization’s September 2018 Monthly Oil Market Report

Crude oil production in Venezuela, the country with the world’s largest oil reserves, fell to 1,235 thousand barrels per day (Mb/d) in August 2018 compared to 1,272 Mb/d in July 2018, according to OPEC data from secondary sources.

On the other hand, Ecuador’s crude oil production rose to 529 Mb/d in August 2018 compared to 525 Mb/d in July 2018, according to OPEC

***

#LatAmNRG

Chevron Wins Ecuador Rainforest ‘Oil Dumping’ Case

(BBC, 8.Sep.2018) — An international tribunal in The Hague has ruled in favour of the US oil company, Chevron, in an environmental dispute with the government of Ecuador.

Chevron had been ordered to pay $9.5bn (£7.4bn) compensation to thousands of residents in Ecuador’s Amazon region.

They accused the company of dumping toxic waste in local lakes and rivers of the Lago Agrio region for decades.

The court said that the 2011 Ecuador Supreme Court ruling had been obtained through fraud, bribery and corruption.

The oil giant now stands to be awarded hundreds of millions of dollars in costs by The Hague’s Permanent Court of Arbitration.

Chevron maintained that it never owned any assets in Ecuador.

The alleged environmental damage was done by Texaco between 1964 and 1992. Texaco was later acquired by Chevron.

Chevron has argued that Texaco spent $40m ($31m) cleaning up the area during the 1990s, and signed an agreement with Ecuador in 1998 absolving it of any further responsibility.

Birth defects

Some 30,000 local residents, including five different Amazonian tribes, began the lawsuit against Texaco in 1993.

The plaintiffs say that the oil company knowingly dumped 18bn gallons (68bn litres) of toxic waste water and spilled 17m gallons of crude oil into the rainforest during its operations in north-east Ecuador.

They say the affected area covers 4,400 sq km (1,700 sq miles) on the border with Colombia.

Local residents believe the pollution has led to health problems such as cancer and birth defects.

In 2011, an Ecuadorean judge ordered Chevron to pay $18.2bn (£14.1bn) for “extensively polluting” the Lago Agrio region.

Ecuador’s highest court last year upheld the verdict against Chevron a year later, but reduced the amount of compensation to $9.5bn.

‘Unpunished forever’

Chevron argued that it only lost the case because the legal team representing the villagers paid nearly $300,000 (£232,000) in bribes in Ecuador.

In 2014, US district judge Lewis Kaplan in New York ruled that “corrupt means” were used by Ecuador’s legal team to win the 2011 case.

After the latest ruling in the Hague, a lawyer for the indigenous communities criticised the Ecuadorean government for accepting taking the case to an arbitration court.

“That is playing Chevron’s game and leaving the crime unpunished forever,” said Pablo Fajardo.

He said he was considering all legal avenues.

***

#LatAmNRG

Venezuela Wants To Overhaul State Oil Firm PDVSA

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

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

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

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

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

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

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

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

***

Venezuela Creates Commission to Reorganize PDVSA: Document

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

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

Reporting by Caracas newsroom; Editing by Chizu Nomiyama

***

Venezuela Oil Sales to US Fell in August

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

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

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

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

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

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

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

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

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

(Reporting by Marianna Parraga; Editing by Richard Chang)

***

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

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

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

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

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

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

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

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

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

***

Venezuela Aims To Boost Oil Output By 640 Mb/d

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

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

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

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

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

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

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

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

***

Venezuela Takes Action To Stabilize Currency

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

***

Magnitude 7.3 Quake in Venezuela Felt in Guyana

U.S. Geological Survey (USGS)

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

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

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

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

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

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

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

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

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

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

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

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

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

***

Four Cos. to Invest $727 Mln in Ecuador

(Energy Analytics Institute, Jared Yamin, 18.Aug.2018) – Ecuador announced four companies would invest $727.85 million to boost production in a number of fields.

The companies – Triboilgas Cía. Ltda, Vinccler C.A, Arotekh C.A. and Avanzia – plan the investments in the Cuyabeno/Sansahuari, Oso, Yuralpa and Blanca/Vinita fields located in provinces of Orellana, Sucumbíos and Napo, reported the daily newspaper El Universo.

The process for the participation of companies began last March. It is anticipated that by September contracts will be signed with the companies, which are from the Latin American countries of Ecuador, Venezuela and Mexico, reported the daily.

***

Cure for Venezuela’s Mercantilism, Rentism Disease

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

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

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

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

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

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

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

The following graphs illustrate this.

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

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

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

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

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

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

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

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

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

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

***

Guyana to Become 5th Largest Oil Producer in LAC Region

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

Source: Trading Economics

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

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

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

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

***

 

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.

***

OPEC MOMR Shows Further Oil Declines in Venezuela

(Energy Analytics Institute, Piero Stewart, 14.Aug.2018) – Venezuela’s crude oil production declines seem unstoppable.

OPEC’s August 2018 MOMR.

Venezuela’s crude oil production fell to 1.278 million barrels per day (MMb/d) in July 2018 compared to 1.325 MMb/d in June 2018 based on secondary sources, reported OPEC in its August Monthly Oil Market Report (MOMR).

This compares to 1.911 MMb/d in 2017 and 2.154 MMb/d in 2016, according to OPEC’s data.

“According to secondary sources, total OPEC-15 crude oil production averaged 32.32 mb/d in July, an increase of 41 tb/d over the previous month. Crude oil output increased mostly in Kuwait, Nigeria, UAE and Iraq, while production showed declines in Libya, I.R. Iran, Saudi Arabia and Venezuela,” according to OPEC’s August MOMR.

Editor’s note: OPEC uses the abbreviation mb/d to stand for million barrels per day, while many oil analyst and companies frequently use the abbreviation MMb/d to stand for the same.

***

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.

***

World Bank Says Oil To Average $65 in 2019

(Energy Analytics Institute, Jared Yamin, 12.Aug2018) – The World Bank expects the price of oil to average $65 per barrel in 2019.

“Oil prices are expected to average $65 per barrel in 2019. While projections indicate that prices will fall from their April 2018 level, they should be supported by a continuing restriction of production by member producer countries and non-members of the Organization of Petroleum Exporting Countries (OPEC) and firm demand,” reported the daily El Diario, citing Shantayanan Devarajan, director of Development Economics and interim chief economist at the World Bank.

“The acceleration of global growth and the increase in demand are important factors that explain the widespread increases in the price of most commodities and the forecasts of higher increases in the price of these products in the future,” announced Devarajan.

***

 

PDVSA President Says Venezuela Production Stabilized

(Energy Analytics Institute, Piero Stewart, 10.Aug.2018) – PDVSA President Manuel Quevedo assured that Venezuelan crude oil production had stabilized.

Quevedo, who also serves as Venezuela’s Petroleum Minister, said last week that “our production is approximately 1.5 million barrels a day for the first half of 2018.” Those remarks were made during a meeting in Caracas, and published in an official statement released by PDVSA, as the state oil entity is known.

Venezuelan oil production. Source: Trading Economics

Venezuela  – reeling in political, economic and humanitarian crises and suffering from the world’s highest inflation – has seen its production of crude oil fall off a cliff amid a near complete collapse in support from foreign partners and an inability by PDVSA to generate sufficient cash flow and/or financing to engage in activities to stop further production declines.

To this end, Quevedo commented: Venezuela plans to implement plans to “reactivate dormant oil wells, mature fields and fields entered into a non-scheduled delayed production due to foreign logistics sabotage.”

***

PDVSA Cut Debt to Rosneft $400 Mln in Q2

(Neftegaz.RU, 10.Aug.2018) – According to Platts, Venezuela’s state oil and gas company PDVSA cut its debt to Russia’s top crude producer Rosneft by $400 million in the 2nd quarter to $3.6 billion as of the end of June, Rosneft’s 2nd-quarter results presentation showed this week.

Rosneft agreed prepayment deals for crude and products deliveries with Venezuela between 2014 and 2016, the last of which is due to expire at the end of 2020. The company gave Venezuela a total of $6.5 billion in pre-payments, a Rosneft official said earlier this year.

Venezuela’s debt to the Russian major thus shrank by $1 billion in the 6 months since the end-2017 figure, according to the presentation.

Rosneft reported in May that Venezuela had paid off $600 million of debt in the Q1. The Russian company also said it reduced crude purchases from the Latin American country in the first 3 months of the year.

With the Venezuelan economy moving downhill and its oil industry crumbling in recent years, PDVSA told customers earlier this year it was not able to fully meet its supply requirements. Due to provide Rosneft with 222,000 b/d of diluted crude oil, or DCO, PDVSA only had 116,000 b/d available in June, a PDVSA source said earlier.

With economic hardship, Russia and Rosneft have provided extensive economic support to Venezuela and PDVSA in recent years. Late last year, Russia’s finance ministry agreed to refinance Venezuela’s $3.15 billion loan, extending the payment period to 2026 and introducing more favorable conditions on servicing the loan.

Rosneft also has stakes in upstream projects in Venezuela, including 5 oil projects: Petromonagas, Petrovictoria, Petroperija, Boqueron and Petromiranda, which together account for around 4% of Venezuela’s overall production, according to the Russian company.

Crude reserves at the projects are estimated at over 20.5 billion mt. Late last year, Rosneft also agreed to develop 2 offshore gas licenses in the country.

***

ShaleWolf Capital Sees Oil Prices Above $110 by 2019

(ShaleWolf Capital, 9.Aug.2018) – On June 22nd, 2018 President Donald Trump asked OPEC to increase its daily oil output by 1 million barrels. Industry experts would agree that OPEC is at or near its full production capacity. OPEC can’t just increase production. As demand continues to grow the world is set to outpace oil production by more than 500,000 barrels by 2020. When you consider the current situation in several oil contributing countries like Venezuela, Africa and Iran it becomes a perfect storm for oil prices potentially above $110 per barrel. Based on the data, its not a matter of if we see $110 prices but when. ShaleWolf Capital analysts believe that now is a perfect opportunity to acquire oil and gas assets as part of its overall strategy.

ShaleWolf Capital agrees to partner with NCE on the developmental drilling of its Cotton Valley reserves located in Harrison County, Texas. This formation is considered a long term income asset by the likes of British Petroleum (BP), Samson, Chesapeake Energy and XTO Energy. Based on 3rd party reserve evaluations the upside potential could equal over 684,000 BOE and 55BCFG in oil and natural gas reserves. There is also a strong potential of condensate reserves being on target with oil reserve estimates. In this area it would not be outrageous to potentially see condensate prices match current WTI oil prices. SWC has carefully reviewed surrounding fields in conjunction with Cotton Valley reserves and production. In more than 76 wells drilled into the Cotton Valley Sands in this area there are ZERO dry holes. This is prolific and could prove to be similar to formations like those found in the Permian Basin, Eagleford Shale, Austin Chalk and other blanket formations.

ShaleWolf Capital executives also anticipate acquiring 3-4 additional acreage positions in areas that include the Permian Basin, Austin Chalk, Bone Springs and Eagleford Shale oil and gas reserves in 2018. No capital contributions will be required from current partners to complete said acquisitions. This purchase is anticipated to close in Q3 or Q4 of 2018 utilizing cash reserves on hand. Due to strong demand driven by current potential partners ShaleWolf Capital has elected to restrict new partners from acreage participation in the foreseeable future.

***

PdV, Joint Ventures Miss Oil Targets

(Argus, 9.Aug.2018) – Venezuela’s state-owned PdV and its joint ventures fell short of officially targeted crude production by more than 125,000 b/d in July, according to an internal PdV upstream report obtained by Argus.

The steepest shortfalls were registered in the Orinoco heavy oil belt — long touted by the Opec country as the driver of ambitious growth plans — and PdV’s western division around Lake Maracaibo.

The monthly report indicates that July production averaged 1,526,600 b/d, compared with a target of 1,651,700 b/d, with operations by PdV and its joint ventures both explicitly missing their targets.

The report data does not include annual or monthly comparisons. Venezuela’s official June production, according to Opec’s latest Monthly Oil Market Report, was 1.531mn b/d. The average of secondary sources, including Argus, was 1.340mn b/d.

PdV officials tell Argus that the production data in the monthly internal report are systematically inflated, mainly by the company’s eastern and western divisions. “They play with the storage tanks and what they report is not reality,” one senior executive says. Actual July national production was around 1.25mn b/d, the officials say.

Despite its shortcomings, the report sheds light on field-by-field and divisional performance trends, acknowledging that neither PdV nor its joint ventures with foreign companies has been able to check Venezuela’s precipitous decline in output. Among the factors fueling the trend are scant maintenance, reservoir mismanagement, skilled labor flight and a lack of critical naphtha and light crude for transport and blending.

The Orinoco oil belt produced 843,200 b/d of crude in July, compared with a targeted 908,200 b/d, the report indicates. Of the belt’s four producing blocks, Carabobo accounted for 375,000 b/d, 23,500 b/d short of its target. PetroMonagas, a PdV joint venture with Russia’s state-controlled Rosneft, accounted for 119,700 b/d or 32pc of the block’s total reported output. That’s followed by Sinovensa, a PdV joint venture with China’s state-owned CNPC, with 91,800 b/d or 24pc.

In the Orinoco’s Junin block, July output averaged 191,800 b/d, off target by 16,500 b/d. The top producer with 71,600 b/d was PetroCedeno, in which France´s Total and Norway´s Equinor are PdV´s minority partners. The joint venture´s production missed its target by 12,200 b/d, well in excess of any other project in the block, the report indicates. PetroCedeno has an official capacity in excess of 200,000 b/d.

Other Junin block projects, including PetroMiranda with Rosneft and PetroJunin with Italy´s Eni, also missed their July goals. PetroUrica and PetroMacareo, PdV nominal joint ventures with CNPC and PetroVietnam, respectively, showed zero real and targeted output.

In the Ayacucho block, PdV´s PetroPiar joint venture with Chevron produced 123,300 b/d, off target by 12,400 b/d, the report says. The project has official capacity of 190,000 b/d.

In PdV´s eastern division, which hosts the legacy Furrial complex, July production averaged 326,300 b/d, just 9,500 b/d short of its target.

The western division, in contrast, produced 319,200 b/d, missing its target by 44,600 b/d. The shortfall came mainly from shallow-water operations in Lake Maracaibo and on its eastern coast.

The report indicates that 1,191 wells stopped producing in July, accounting for 333,200 b/d of lost output. The western division accounted for more than two-thirds of the number of deactivated wells, but the Orinoco accounted for some 80pc of the lost output, reflecting its higher well productivity.

The western division also accounted for 70pc of 1,114 well reactivations in July. These added a total of 183,300 b/d of production, mostly from the Orinoco.

PdV is reactivating the western division wells on its own and with small contractors, unrelated to the company’s vaunted plan to reactivate more than 23,000 wells nationwide, a PdV official says.

***

Venezuela, Saudi Arabia Discuss Partnerships

Venezuela’s Manuel Quevedo and Saudi Arabia’s Ambassador to Venezuela Saad Bin Abdullah al Saad in Caracas. Source: PDVSA

(Energy Analytics Institute, Ian Silverman, 8.Aug.2018) — Officials from both OPEC countries discussed existing energy partnerships during their meeting in Caracas.

Venezuela was represented by its Petroleum Minister Manuel Quevedo, while Saudi Arabia was represented by its Ambassador to Venezuela Saad Bin Abdullah al Saad, reported PDVSA in an official statement.

The officials discussed issues related to the petroleum markets as well as immediate work actions related to petroleum projects of joint interest between both countries.

***

Venezuela Dodges Oil Asset Seizures

(Reuters, Marianna Parraga, Mircely Guanipa, 7.Aug.2018) – Reuters) – Venezuela’s state-run oil company PDVSA has limited the damage from an unprecedented slump in crude exports by transferring oil between tankers at sea and loading vessels in neighboring Cuba to avoid asset seizures.

But the OPEC member nation is still fulfilling less than 60 percent of its obligations under supply deals with customers.

Venezuela has been pumping oil this year at the lowest rate in three decades after years of underinvestment and a mass exodus of workers. The state-run firm’s collapse has left the country short of cash to fund its embattled socialist government and triggered an economic crisis.

PDVSA’s problems were compounded in May when U.S. oil firm ConocoPhillips began seizing PDVSA assets in the Caribbean as payment for a $2 billion arbitration award. An arbitration panel at the International Chamber of Commerce (ICC) ordered PDVSA to pay the cash to compensate Conoco for expropriating the firm’s Venezuelan assets in 2007.

The seizures left PDVSA without access to facilities such as Isla refinery in Curacao and BOPEC terminal in Bonaire that accounted for almost a quarter of the company’s oil exports.

Conoco’s actions also forced PDVSA to stop shipping oil on its own vessels to terminals in the Caribbean, and then onto refineries worldwide, to avoid the risk the cargoes would be seized in international waters or foreign ports.

Instead, PDVSA asked customers to charter tankers to Venezuelan waters and load from the company’s own terminals or from anchored PDVSA vessels acting as floating storage units.

The state-run company told some clients in early June it might impose force majeure, a temporary suspension of export contracts, unless they agreed to such ship-to-ship transfers.

PDVSA also requested the customers stop sending vessels to its terminals until it could load those that were already clogging Venezuela’s coastline.

Initially, customers were reluctant to undertake the transfers because of costs, safety concerns and the need for specialist equipment and experienced crew.

But PDVSA has managed to export about 1.3 million barrels per day (bpd) of oil since early July, up from just 765,000 bpd in the first half of June, according to Thomson Reuters data and internal PDVSA shipping data seen by Reuters.

That was still 59 percent of the country’s 2.19 million bpd in contractual obligations to customers for that period, and some vessels are still waiting for weeks in Venezuelan waters to load oil.

There were about two dozen tankers waiting this week to load over 22 million barrels of crude and refined products at the country’s largest ports, according to Reuters data.

“We are not tied to one option or a single loading terminal,” PDVSA President Manuel Quevedo said on Tuesday of the company’s exports. “We have several (terminals) in our country and we have some in the Caribbean, which of course facilitate crude shipping to fulfill our supply contracts.”

CUBAN CONNECTION

PDVSA has also used a route through Cuba to ease the impact of the Conoco seizures. That route is for fuel rather than crude.

The Venezuelan company has used a terminal at the port of Matanzas as a conduit mostly for exporting fuel oil, according to two people familiar with the operations and Thomson Reuters shipping data. Venezuela’s fuel oil is burned in some countries to generate electricity.

Two tankers set sail from the Matanzas terminal for Singapore between mid-May and early July, Reuters data showed. Each ship carried around 500,000 barrels of Venezuelan fuel, Reuters data shows.

In recent months, Venezuela has been shipping fuel to Matanzas in small batches, according to the data.

PDVSA and Cuba’s state-run oil firm Cupet have used Matanzas to store Venezuelan crude and fuel in the past but exports from the terminal to Asian destinations are rare.

That is in part because vessels that use Cuban ports cannot subsequently dock in the United States due to the U.S. commercial embargo on Cuba.

Cupet did not respond to requests for comment.

PDVSA has also used ship-to-ship transfers to fulfill an unusual supply contract it has with Cuba’s Cienfuegos refinery.

The refinery dates from the 1980s – when Cuba was a close ally of the Soviet Union during the Cold War – and the facility was built to process Russian crude.

PDVSA typically uses its own or leased tankers to bring Russian crude from storage in the nearby Dutch Caribbean island of Curacao to Cienfuegos. But it is now discharging the imported Russian oil at sea in Cayman Islands’ waters via these seaborne transfers.

ConocoPhillips last month ratcheted up its collection efforts by moving to depose officials from Citgo Petroleum, PDVSA’s U.S. refining arm, arguing it had improperly claimed ownership of some PDVSA cargoes.

Citgo declined to comment.

ConocoPhillips is also preparing new legal actions to get Caribbean courts to recognize its International Chamber of Commerce arbitration award. If it succeeds in those efforts, it would be able to sell the assets to help satisfy the ruling.

Reporting by Marianna Parraga in Houston and Mircely Guanipa in Punto Fijo, Venezuela; additional reporting by Marc Frank in Havana; Editing by Simon Webb and Brian Thevenot

***

Venezuela Is Oil Market’s Bizarro World

(S&P Global Platts, Nastassia Astrasheuskaya, 7.Aug.2018) – Venezuela’s state oil and gas company PDVSA cut its debt to Russia’s top crude producer Rosneft by $400 million in the second quarter to $3.6 billion as of the end of June, Rosneft’s second-quarter results presentation showed Tuesday.

Rosneft agreed prepayment deals for crude and products deliveries with Venezuela between 2014 and 2016, the last of which is due to expire at the end of 2020. The company gave Venezuela a total of $6.5 billion in pre-payments, a Rosneft official said earlier this year.

Venezuela’s debt to the Russian major thus shrank by $1 billion in the six months since the end-2017 figure, according to the presentation.

Rosneft reported in May that Venezuela had paid off $600 million of debt in the first quarter. The Russian company also said it reduced crude purchases from the Latin American country in the first three months of the year.

With the Venezuelan economy moving downhill and its oil industry crumbling in recent years, PDVSA told customers earlier this year it was not able to fully meet its supply requirements. Due to provide Rosneft with 222,000 b/d of diluted crude oil, or DCO, PDVSA only had 116,000 b/d available in June, a PDVSA source said earlier.

In the face of crushing debt, crumbling infrastructure, worker unrest, hyperinflation and US sanctions, Venezuelan oil output dropped by 670,000 b/d in a year to 1.24 million b/d in July, according to S&P Global Platts OPEC survey. This is the lowest level in the 30-year history of the Platts OPEC survey, except a debilitating worker strike in late 2002 and early 2003.

With economic hardship, Russia and Rosneft have provided extensive economic support to Venezuela and PDVSA in recent years.

Late last year, Russia’s finance ministry agreed to refinance Venezuela’s $3.15 billion loan, extending the payment period to 2026 and introducing more favorable conditions on servicing the loan.

Rosneft also has stakes in upstream projects in Venezuela, including five oil projects: Petromonagas, Petrovictoria, Petroperija, Boqueron and Petromiranda, which together account for around 4% of Venezuela’s overall production, according to the Russian company.

Crude reserves at the projects are estimated at over 20.5 billion mt. Late last year, Rosneft also agreed to develop two offshore gas licenses in the country.

***

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 Venezuela Gets Plundered

Refinery in Venezuela. Source: DW

(DW.com, Andreas Knobloch, 6.Aug.2018) – A money-laundering scandal involving Venezuela’s state oil company PDVSA could turn into a problem for a Swiss bank. A German banker recently affiliated with the lender has been arrested in Miami.

When it comes to the causes behind the severe economic and supply crisis in oil-rich Venezuela, government policies along with corruption and capital outflows worth billions of dollars play an important role.

In recent days, the US Department of Justice has opened up publicly about a huge money-laundering scandal surrounding Venezuela’s state oil company Petroleos de Venezuela (PDVSA).

A group of Venezuelan ex-officials with the assistance of foreign businesses are reported to have laundered $1.2 billion (€1 billion) of PDVSA funds in Florida. The case is a prime example of how the Venezuelan state is being methodically plundered.

The international “money-laundering plot” began about four years ago, according to American authorities. Through bribery and fraud, around $600 million in PDVSA funds were siphoned off. Later that estimate was doubled — the millions were systematically taken out of the country and laundered through property purchases in Miami with the help of European and US banks.

Hydrocarbon field in Venezuela. Source: DW

100 million for 10 million

The whole scam was only possible because of the contradictory and confusing exchange rate regime of Venezuela. For example, the state allows certain officials to exchange dollars at a preferential rate set by the government, above that amount there is a fixed exchange rate and a black market rate.

The US investigators point out that the difference between the black market and the official rate in 2014 was around 10 to 1. “Essentially, in two transactions, someone could buy $100 million for $10 million.”

At the heart of the allegations is Derwick Associates, a Venezuelan company specializing in the construction of power plants. Venezuelan Attorney General Tarek William Saab mentioned Derwick Associates last year in connection with corruption investigations into contracting in the Orinoco Delta.

Two investment firms, Global Security Advisors and Global Strategic Investments, are accused of using fictional investment funds and real estate purchases in Miami — the final phase in the laundering scam.

A German in Panama

The investigation began two years ago, when one of the participants in the money-laundering plan made himself available to the US authorities as an informant. There were two arrests in the past week related to the case; arrest warrants were issued by US authorities for a further four Venezuelans, a man from Portugal and one from Uruguay.

Some of these are former Venezuelan government officials or employees of PDVSA. They are referred to by the US judiciary as “Bolibourgeoisie,” members of the Venezuelan elite who have enriched themselves through political or business ties to Chavism, which refers to the political ideology of former Venezuelan President Hugo Chavez, who died in 2013 and combined elements of socialism, feminism and patriotism.

On July 24, the US authorities in Miami arrested Matthias Krull, who formerly held a leadership position at Swiss private bank Julius Bär in Panama. He is accused of being involved in the case. Sabine Jaenecke, a spokeswoman for Julius Bär, told DW that they had taken note of the allegations against him. “Mr. Krull no longer works for Julius Bär. We are fully cooperating with the authorities, but cannot comment on ongoing investigations.”

Born in Germany, 44-year-old Krull, previously worked at Credit Suisse and UBS and lived for a long time in Caracas, where he had excellent relationships with the very highest levels, including many politically exposed persons or “PEPs.”

Not the first scandal for Julius Bär

Later, for security reasons Krull moved to Panama but he was still able to continue serving Venezuelan clients and ensured high cash flows at Julius Bär. But recently, Krull left the bank and was due to move to Gonet & Cie’s branch in the Bahamas later this year.

According to Pascal Pupet, head of human resources and corporate communications for the Geneva-based private bank, “given the facts that are a priori proven, this is no longer relevant,” adding in a statement that Gonet has nothing to do with the PDVSA case.

But at Julius Bär, the Swiss Financial Market Supervisory Authority, Finma, opened an enforcement probe earlier this year. Such a procedure is opened in case of abnormalities or indications of breaches of supervisory laws. In regard to the PDVSA affair, the bank is accused of not exercising due diligence while taking on and supervising clients.

The Zurich-based bank is now linked to several corruption cases and possible money-laundering matters — from football association FIFA to Brazilian companies Petrobras and Odebrecht, and now PDVSA. If the allegations against Krull are confirmed, it could be a serious problem for the Swiss financial institution.

***

Venezuela the Clear Leader in Oil Reserves

(UPI, Daniel J. Graeber, 31.Jul.2018) – An annual review of energy trends from Italian energy company Eni found the United States is a “game changer,” though its Venezuela with the largest reserves.

In a report running nearly 90 pages, the Italian company’s 17th annual review found total oil reserves declined 0.2 percent last year in part because of declines in some members of the Organization of Petroleum Exporting Countries.

Total production last year was relatively unchanged from 2016, though the United States and Canada were among the largest producers outside of OPEC. Last year marked the start of an OPEC policy to balance the market with coordinated production control measures.

“On the supply side, the United States continues to be the main game-changer,” Eni’s CEO Claudio Descalzi stated in the report. “While world production remains nearly flat with respect to last year, the United States delivered one of the biggest increased in non-OPEC area production and confirms its leadership among producers.”

The four-week moving average for total U.S. production for the week ending July 20 was 10.95 million barrels per day, a 16.6 percent increase from the same period last year. That beats Saudi Arabia by about a half million barrels per day, based on the kingdom’s June average.

For total reserves, however, the United States was not in the top 10. Those honors went to Venezuela, Saudi Arabia and Canada, respectively. While the United States was the top producer last year, its total reserves represented about 10 percent of Venezuela’s 302 billion barrels of oil.

Venezuela is facing growing isolation following the May election victory for Venezuelan President Nicolas Maduro. The International Monetary Fund in an outlook on Latin America said the country’s economy is in a “profound” crisis and inflation is on pace to surge to 1 million percent by the end of the year.

Real gross domestic product for Venezuela is on pace to drop 18 percent this year, the third year in a row for a double-digit decline. For the rest of Latin America, the IMF said it expected GDP to grow by 1.6 percent this year and then accelerate to 2.6 percent in 2019.

For the United States, the economy expanded at 4 percent in the second quarter, one of its fastest rates in years, though much of that gain was supported by temporary factors.

For demand, Eni found relatively low crude oil prices in 2017 contributed to a 1.7 gain globally, beating the five-year average of 1.5 percent for the period ending in 2016.

***

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.

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Venezuela Gasoline Price Likely to Rise

(Energy Analytics Institute, Piero Stewart, 27.Jul.2018) – The price of gasoline in Venezuela is likely to increase.

For some services such as gasoline, there will be a relative increase in price, reported the daily newspaper El National, citing Ecoanalítica Director Asdrúbal Oliveros.

“It’s as if they were decreeing an unannounced increase in many of the services, and that has a significant impact not only on daily life, but also on inflation that will be generated,” said Oliveros.

Venezuela has long subsidized the price of the country’s gasoline and diesel, which has allowing its citizens to enjoy the world’s cheapest fuel prices. In 1989, increases in foodstuffs and fuel prices provoked nationwide protests, which eventually led to rise of the late President Hugo Chavez.

“The increase in gasoline will push up demand for cash since a rise in gasoline prices will force citizens to seek out more paper money,” he warned.

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Hiking Gasoline Won’t Fix Venezuela’s Fiscal Problem

(Energy Analytics Institute, Piero Stewart, 27.Jul.2018) – Hiking the price of gasoline in Venezuela won’t fix the OPEC country’s fiscal problem.

That’s according to recent statements from an opposition leader.

“Although the price of fuel has to be raised, it will not be enough to solve the [country’s] fiscal problem,” reported the daily newspaper El Nacional, citing deputy and economist Angel Alvarado.

Venezuela needs worldwide financial assistance, including help from the International Monetary Fund (IMF), said Alvarado.

“That’s why the National Assembly Constituent, which is illegal, must be dissolved to recognize the National Assembly and call for free elections,” he affirmed.

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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.

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EIA Beta Interactive Data Analysis

(Energy Analytics Institute, Ian Silverman, 26.Jul.2018) – Beta data from the EIA provide users with an interactive way to analyze multiple petroleum data.

According to the most recent beta crude oil reserve data provided by the US-based Energy Information Administration, two countries in the Latin American region make the list and rank among the top 15 countries worldwide in terms of these reserves. To no surprise, Venezuela tops the list and Brazil ranks 15th, according to the data.

In terms of natural gas reserves, again Venezuela tops the list among the top 15 countries worldwide, but this time the South American country ranks 8th, according to the data.

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