In an elegant ballroom, lobbyists and oil executives rub shoulders speaking Spanish, French and Italian. But the surprising thing is that this is not the ZaZa boutique hotel in Houston, the favorite of the world’s energy bigwigs. It is the Cayenne Hotel in Caracas. Attracted by promises of privatization and more autonomy to take advantage of the world’s largest crude reserves, the big oil executives are meeting with the Nicolás Maduro regime and the state-owned PDVSA to take the ‘pole’ for when the door opens again to business.
Larger producers such as Chevron, France’s Total and Italy’s Eni would likely wait until US sanctions are lifted, but smaller players could start when a series of new rules come into force that will open up the industry to private enterprise. “I want to tell investors from the US and from around the world that the doors of Venezuela are open for the oil industry,” Maduro said in a recent televised speech.
a unique moment
It is a defining moment for , which is running out of fuel to transport food and cash to pay for imports of basic necessities. It is not yet clear if Maduro will succeed in attracting any investment. But one thing is clear: oil companies have never had so much power to negotiate access to a part of the country’s more than 300 billion barrels of crude.
“There is easy potential to quickly ramp up production if the US lifts some sanctions,” said Francisco Monaldi, a Venezuelan-American energy economics expert at Rice University’s Baker Institute for Public Policy, and an expert on Venezuela’s oil industry. “But once the fruit that is close at hand is picked, it will take significant investment to get back to previous levels.”
The successor to the late Hugo Chávez, who seized the assets of Exxon Mobil and ConocoPhillips, vows to pass a law that will officially end the oil monopoly held by the dilapidated PDVSA, which has been on the brink of bankruptcy for years. Executives representing foreign oil companies are holding meetings to discuss what the terms of the new legislation would be, according to people with knowledge of the talks.
Chevron, for its part, is even contacting its contractors to assess how quickly they could help the Californian company restart operations in Venezuela. “Chevron will continue to comply with applicable laws and regulations in relation to the activities it is authorized to carry out in Venezuela,” a company spokesperson said. “We remain committed to the integrity of our joint venture assets, the safety and well-being of our employees and their families, and the company’s social and humanitarian programs during these challenging times.”
The Maduro government says its new energy law alone will allow oil companies to get back on track when they take control of Venezuelan assets. The key is that the US only prohibits doing business with PDVSA, the regime and those who help it. Multinational oil companies, in theory, would have a free hand to develop the country’s huge crude reserves.
The major oil companies will probably wait for the sanctions to be lifted anyway, but the medium and small ones could jump in as soon as they can demonstrate to the US Treasury Department that they operate independently of PDVSA and the Maduro regime and therefore They are not subject to sanctions.
Restoring Venezuela’s oil industry to pre-Chávez levels would likely require tens of billions of dollars.
There are people close to the government “eager to get some oil fields; I would expect there to be some privatization,” Monaldi said. “They will try to invest in the wells that are easiest to connect.”
Restoring Venezuela’s oil industry to pre-Chávez levels would likely require tens of billions of dollars. With the current climate situation, and the drive towards decarbonization, it seems unlikely that the full potential of the Venezuelan subsoil will be extracted, but any increase in production would help the country, which has gone from pumping 3 million barrels per month to less of 500,000.
Oil Minister Tareck El Aissami recently promised to increase production to 1.5 million barrels this year, which would be hard to achieve without help. Monaldi estimates that more than 100,000 million dollars in investment and a decade of work would be needed to obtain a production of more than 2 million barrels per day. “This means you need tons of private investment,” Monaldi added.
An increase in oil production would not only boost the economy, but would also allow the state to raise capital to pay off creditors holding roughly $60 billion in defaulted bonds. With this reasoning, executives from the oil industry and capital markets have been speaking with members of the Administration in Washington. His message: if the door is going to open for everyone, it is better to enter first.
Biden has not yet found time to rethink the strategy set by former President Donald Trump
“The big question is whether the oil companies have enough political influence to ease the sanctions,” said Raúl Gallegos, director of Control Risks, an international consultancy based in Bogotá. “They are interested in the flexibility that Maduro offers.”
With more important problems to address, from the coronavirus to the tension with Russia and the trade conflict with China, the Joe Biden government has not yet found time to rethink the strategy that former President Donald Trump set on Venezuela. The US government as interim president of Venezuela until there are free and fair elections.
If Washington at least moves to allow companies to resume trading diesel for Venezuelan crude, that would help the country avoid collapse. Fuel is needed for trucks to carry imported food, medicine and other goods from ports to cities, as well as to transport goods from farms and factories. However, the big problem remains the same: the Venezuelan energy infrastructure is falling apart with each passing day due to lack of investment. And Maduro cannot do anything about it without foreign help.
Facebook Comments
Disqus