Venezuela’s oil industry will likely continue to deteriorate in 2021, with the country’s roughly 300 billion barrels of crude in reserves left largely untapped even if oil prices move higher, according to industry sources.
Venezuelan President Nicolas Maduro expanded his power after his political allies won a majority of the National Assembly in a Dec. 6 election. The election has made regime change less likely, and has been condemned by several countries, most notably the U.S., which has imposed harsh sanctions against Venezuela, contributing to a near-crippling of its oil industry.
Fuel and electricity supply chains have broken down, while a scarcity of cash, parts and expertise has prevented Venezuela’s deteriorating refinery infrastructure from recovering.
Venezuela’s crude output during December averaged around 420,000 b/d. That was down from an average of 1.9 million b/d in 2017, when U.S. President Donald Trump took office, and down from over 3 million b/d in 2000.
S&P Global Platts Analytics sees Venezuela’s production averaging below 300,000 b/d in 2021, before rebounding the following year.
If the incoming Joe Biden administration removes sanctions on PDVSA, production could recover by 300,000 b/d to 500,000 b/d within months, according to Platts Analytics. But additional output recovery would require “regime change, foreign investment and debt relief,” said Platts Analytics analyst Nareeka Ahir.
Other analysts agree there are no signs indicating a near term increase in Venezuela’s production. Rather, they see a continued deterioration in the offing.
“No changes in output or exports are foreseen that are any different from 2020,” said analyst Einstein Millan, who is based in Caracas.
“For neglect or post-electoral problems, there has been a noticeable relaxation of US sanctions that has permitted some breathing space for the import of light crude and refined products since October,” Millan said.
“However PDVSA is far from any substantial improvement. On one hand, there is not the required activity level in oil fields, given that the number of active drill rigs in October and November still remained at zero. On the other hand, infrastructure is abandoned and for the time being PDVSA does not possess the financial resources sufficient to recover it,” Millan added.
Luring foreign capital
Venezuela’s government, under pressure from declining oil revenues, is attempting to lure foreign capital to boost production.
“This year (2020) revenue from oil exports has fallen to $477 million from $2.5 billion in 2019 and from $4.826 billion in 2018,” Maduro said in a Dec. 3 speech.
For Millan, PDVSA will have a greater need for oil revenue in 2021 due to the country’s worsening scarcity of currency, the oil industry’s growing operating expenses and the deepening deterioration of energy assets.
For 2021, the Maduro government is hoping that its new “Anti-blockade Law” will attract enough foreign capital to develop 70 oil fields, the majority of which have been inactive for lack of investment. The…