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President Donald Trump\u2019s plan to take control of Venezuela\u2019s oil industry and ask American companies to revitalize it after\u00a0capturing President Nicol\u00e1s Maduro in a raid\u00a0isn\u2019t likely to have a significant immediate impact on oil prices.<\/p>\n
Venezuela\u2019s oil industry is in disrepair after years of neglect and international sanctions, so it could take years and major investments before production can increase dramatically. But some analysts are optimistic that Venezuela could double or triple its current output of about 1.1 million barrels of oil a day to return to historic levels fairly quickly.<\/p>\n
\u201cWhile many are reporting Venezuela\u2019s oil infrastructure was unharmed by U.S. military actions, it has been decaying for many many years and will take time to rebuild,\u201d said Patrick De Haan, who is the lead petroleum analyst at gasoline price tracker GasBuddy.<\/p>\n
American oil companies will want a stable regime in the country before they are willing to invest heavily, and the\u00a0political picture remained uncertain\u00a0Saturday with Trump saying that the United States is in charge \u2014 while the current Venezuelan vice president argued, before Venezuela\u2019s high court ordered her to assume the role of interim president, that Maduro should be restored to power.<\/p>\n
\u201cBut if it seems like the U.S. is successful in running the country for the next 24 hours, I would say there would be a lot of optimism that U.S. energy companies could come in and revitalize the Venezuelan oil industry fairly quickly,\u201d said Phil Flynn, a senior market analyst at the Price Futures Group.<\/p>\n
And if Venezuela can grow into an oil production powerhouse, Flynn said \u201cthat could cement lower prices for the longer term\u201d and put more\u00a0pressure on Russia.<\/p>\n
Oil isn\u2019t traded over the weekend, so there wasn\u2019t an immediate impact on prices. But a major shift in prices isn\u2019t expected when the market does reopen. Venezuela is a member of OPEC so its production is already accounted for there. And there is currently a surplus of oil on the global market.<\/p>\n
Venezuela is known to have the world\u2019s largest proven crude oil reserves of approximately 303 billion barrels, according to the U.S. Energy Information Administration. That accounts for roughly 17% of all global oil reserves.<\/p>\n
So international oil companies have reason to be interested in Venezuela. Exxon Mobil didn\u2019t immediately respond to a request for comment Saturday. ConocoPhillips spokesperson Dennis Nuss said by email that the company \u201cis monitoring developments in Venezuela and their potential implications for global energy supply and stability. It would be premature to speculate on any future business activities or investments.\u201d<\/p>\n
Chevron\u00a0is the only one with significant operations in Venezuela, where it produces about 250,000 barrels a day. Chevron, which first invested in Venezuela in the 1920s, does business in the country through joint ventures with the state-owned company Petr\u00f3leos de Venezuela S.A., commonly known as PDVSA.<\/p>\n
\u201cChevron remains focused on the safety and wellbeing of our employees, as well as the integrity of our assets. We continue to operate in full compliance with all relevant laws and regulations,\u201d Chevron spokesman Bill Turenne said.<\/p>\n
But even with those massive reserves, Venezuela has been producing less than 1% of the world\u2019s crude oil supply. Corruption, mismanagement and U.S. economic sanctions saw production steadily decline from the 3.5 million barrels per day pumped in 1999 to today\u2019s levels.<\/p>\n
The problem isn\u2019t finding the oil. It\u2019s a question of the political environment and whether companies can count on the government to live up to their contracts. Back in 2007, then President\u00a0Hugo Ch\u00e1vez nationalized much of the oil production and forced major players like ExxonMobil and ConocoPhillips out.<\/p>\n
\u201cThe issue is not just that the infrastructure is in bad shape, but it\u2019s mostly about how do you get foreign companies to start pouring money in before they have a clear perspective on the political stability, the contract situation and the like,\u201d said Francisco Monaldi, who is the director of the Latin American energy program at Rice University.<\/p>\n
But the infrastructure does need significant investment.<\/p>\n
\u201cThe estimate is that in order for Venezuela to increase from one million barrels per day \u2014 that is what it produces today \u2014 to four million barrels, it will take about a decade and about a hundred billion dollars of investment,\u201d Monaldi said.<\/p>\n
Venezuela produces the kind of heavy crude oil that\u2019s needed for diesel fuel, asphalt and other fuels for heavy equipment. Diesel is in short supply around the world because of the sanctions on oil from Venezuela and Russia and because America\u2019s lighter crude oil can\u2019t easily replace it.<\/p>\n
Years ago, American refineries on the Gulf Coast were optimized to handle that kind of heavy crude at a time when U.S. oil production was falling and Venezuelan and Mexican crude was plentiful. So refineries would love to have more access to Venezuela\u2019s crude because it would help them operate more efficiently, and it tends to be a little cheaper.<\/p>\n
Boosting Venezuelan production could also make it easier to put pressure on Russia because Europe and the rest of the world could get more of the diesel and heavy oil they need from Venezuela and stop buying from Russia.<\/p>\n
\u201cThere\u2019s been a big benefit for Russia to see Venezuela\u2019s oil industry collapse. And the reason is because they were a competitor on the global stage for that oil market,\u201d Flynn said.<\/p>\n
But Matthew Waxman, a Columbia University law professor who was a national security official in the George W. Bush administration, said seizing control of Venezuela\u2019s resources opens up\u00a0additional legal issues.<\/p>\n
\u201cFor example, a big issue will be who really owns Venezuela\u2019s oil?\u201d Waxman wrote in an email. \u201cAn occupying military power can\u2019t enrich itself by taking another state\u2019s resources, but the Trump administration will probably claim that the Venezuelan government never rightfully held them.\u201d<\/p>\n
But Waxman, who served in the State and Defense departments and on the National Security Council under Bush, noted that \u201cwe\u2019ve seen the administration talk very dismissively about international law when it comes to Venezuela.\u201d<\/p>\n<\/div>\n
#Venezuelan #oil #revival #cement #prices #long #term #pressure #Russia #analyst<\/p>\n","protected":false},"excerpt":{"rendered":"
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