World View: Socialist Venezuela Oil Production in ‘Freefall’ as Infrastructure Collapses

In this Feb. 18, 2015 photo, storage tanks stand in a PDVSA state-run oil company crude oil complex near El Tigre, a town located within Venezuela's Hugo Chavez oil belt, formally known as the Orinoco Belt. U.S. petroleum exports to Venezuela, much of it fuel additives to dilute the country’s …
AP Photo/Fernando Llano

This morning’s key headlines from GenerationalDynamics.com

  • Socialist Venezuela oil production in ‘freefall’ as infrastructure collapses
  • Russia rebukes Venezuela for non-payment

Socialist Venezuela oil production in ‘freefall’ as infrastructure collapses

Oil tanker labeled 'PDVSA - Homeland, Socialism or Death' (PanamPost)
Oil tanker labeled ‘PDVSA – Homeland, Socialism or Death’ (PanamPost)

With over one million refugees from Venezuela having fled to other countries, with dozens of people dying violently in Venezuela every day, Venezuela’s dictator Nicolás Maduro’s Socialist policies seem to drive the country further into disaster every week.

In 2017, Venezuela was producing two million barrels of oil per day (bpd). But by September of this year, output had fallen to just 1.4 bpd. According to Fatih Birol, the executive director of the International Energy Agency, “Venezuela production is in a freefall and we expect that soon it may go to even below 1 million barrels per day.”

Venezuela has some of the largest oil reserves in the world and Petróleos de Venezuela S.A. (PDVSA) was once one of the biggest oil producers in the world. But socialist dictator Hugo Chávez nationalized ExxonMobil’s Venezuelan assets in 2007 and turned them over to his crooked cronies who did not know anything about running an oil company. Venezuela’s oil production has been steadily declining for years. Average oil production declined dramatically over the past two years, by 12 percent in 2016 and again by 13 percent in 2017. Production in December 2017 was 27 percent lower than a year earlier. And this year it has fallen even farther.

Late last year, Venezuela’s socialist president Nicolás Maduro appointed a military man, Major General Manuel Quevedo, head of PDVSA, with a mandate to increase production and rid the company of corruption. Quevedo treated the engineers and other professions contemptuously, even calling them “thieves and saboteurs.” Tens of thousands of employees left the company, and Quevedo replaced them with soldiers who knew nothing about the oil industry.

The result has been a collapse in infrastructure, as engineers who were needed to maintain the busted valves, ripped gaskets, cracked pipes, and so forth were forced to leave. Contractors who were experts in cleaning up oil spills have gone out of business because PDVSA was not paying them.

The means that oil production is decreasing and oil spills and leaks are increasing. PDVSA is unable to clean up spills after years of neglect, scant investment, and corruption scandals. Pools of oil are polluting waterways and farmland, causing a pungent odor.

Urban areas have been hit, too. Early this year, the contents of a ruptured transport line blackened the Guarapiche River in Monagas state. A water-purification plant on the river was compromised and the authorities shut it down for more than a month. Local schools canceled classes, and government offices reduced office hours because water was so scarce.

Socialist Venezuela is in a major economic collapse, following years of mismanagement and underinvestment in the oil industry, an enormous humanitarian crisis, and a leader who is addicted to socialist policies that enrich himself and his cronies, but destroy the population, with a hyperinflation rate expected to reach one million percent by the end of the year, according to the International Monetary Fund (IMF). Reuters and Bloomberg and Reuters and Bloomberg

Russia rebukes Venezuela for non-payment

Socialist Venezuela would have gone into full-blown default years ago if not for bailouts by Russia and China. Russia has been bailing out Venezuela for decades, and in recent years Russia and China have extended large loans to Venezuela, with the agreement that Venezuela can service the debt by making payments in shipments of oil.

One of the reasons for the fall in oil production has been that PDVSA has been forced to starve its own oil refineries of crude oil so that crude oil can be shipped to Russia and China as loan repayments. However, as PDVSA’s infrastructure collapses, it is becoming more difficult to make debt servicing payments even with oil.

It has now emerged that PDVSA has been unable to provide all the oil shipments that it has promised to Russia. Igor Sechin, a close adviser to Vladimir Putin and head of Russia’s state-owned oil company Rosneft, flew from Moscow to Caracas over the weekend to rebuke Venezuela’s socialist leader Nicolás Maduro for being behind schedule in oils-for-loans payments to Russia.

Possibly even more significant is that, according to reports, Sechin brought information (I would guess satellite tracking data) showing that Venezuela was meeting its obligations with China, but not with Russia.

The problems delaying payments include operational mishaps, such as refining outages and delayed cleaning of tanker hulls, and financial disputes with service providers owed money by PDVSA. Reuters and Reuters

Related articles:

KEYS: Generational Dynamics, Venezuela, Hugo Chávez, Nicolás Maduro, International Energy Agency, Fatih Birol, International Monetary Fund, IMF, Manuel Quevedo, Petróleos de Venezuela S.A., PDVSA, Russia, Rosneft, Igor Sechin, China
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