Can Venezuela Meet Its 2023 Oil Production Targets?

Can Venezuela Meet Its 2023 Oil Production Targets?

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Q. Venezuela is planning on oil to finance 63 percent of its budget for 2023, a figure slightly higher than this year’s, Reuters reported Dec. 5. The stronger reliance on oil comes as the U.S. government reviews its sanctions on the South American country’s state-owned oil company, PDVSA, first imposed in 2019. The easing of sanctions would allow exports to the United States, boosting oil sales. 

By Oil Price

Dec 26, 2022

Revenues from PDVSA are expected to bring in $9.34 billion to the government’s budget, up from this year’s $8.2 billion contribution. How likely is Venezuela to meet its oil revenue goal? How will the country’s national budget be affected if the figure is not met, and which sectors will be most affected?





A. Michael C. Lynch, president of Strategic Energy & Economic Research and distinguished fellow at EPRINC: “The recent moves by the U.S. government to allow Chevron to resume some operations in Venezuela are small steps toward a revival of that nation’s oil industry, but not necessarily a lasting one. The Biden administration has allowed the company to resume sales for six months, contingent on negotiations between the Maduro regime and the opposition. Many fear that the talks will prove inconclusive and the export agreement will not be renewed, but at least in the meantime, the company seems likely to undertake needed maintenance that will allow for increased production in the future. Unfortunately, this is a bandage on the disaster that is the Venezuelan economy and oil industry. While estimates that tens of billions of dollars in maintenance and repair are needed to restore production to 2002 levels are likely exaggerated, nonetheless the task is daunting and needs much more action. Most especially, the Maduro regime needs to create an environment that will encourage private and/or foreign investment in the oil fields as well as allow for the return of personnel who fled the country over the last two decades. Changing their ruling philoso¬phy to that degree will be quite difficult, and convincing outsiders that they are trust¬worthy even more so. Still, the industry has often returned to countries and leaders that mistreated them, as long as there was oil to be produced and profits to be made. Still, this step represents the first down a very long road, and significant results will be slow to appear.”

A. Gustavo Roosen, president of IESA in Caracas: “The year 2022 started with a severe energy crunch that quickly turned into a full-fledged crisis upon the Russian invasion of Ukraine, and oil prices went through the roof to the point that Brent crude oil at the close of the year will average close to $100 per barrel (bbl). Venezuelan crude, in this high price scenario, although heavily discounted relative to Brent crude, had a comparatively good year in terms of the price; the mostly heavy crude fetched around $49 per bbl in the Asian market. However, not all the exported crude is being sold com¬mercially. Crude sent to Cuba or swapped for diluent with Iran does not enrich the coffers of the Venezuelan regime. Consequently, cash flow from hydrocarbon sales amount¬ed to $8 billion. On Nov. 26, the Office of Foreign Assets Control issued Chevron a license, allowing the company to perform maintenance and service work at the joint ventures in which Chevron participates, and market the crude produced in the U.S. market. It is expected that if negotiations proceed as set forth, the license will be expanded to allow investment in these fields and therefore increase the production po¬tential. The reduction of deferred production will amount to some 40 million more barrels per day (mbpd) reaching the U.S. market and introducing investment from May 2023, another 50 mbpd will be placed in the United States. Assuming the current price fore¬casts, the 2023 revenues–if the license and the negotiations will allow progress–will be similar to 2022 revenues. However, only $7 billion will reach the central bank as the rest will be used for operational expenditures, capital expenditures and lone amortization. Assuming that the budget presented to the National Assembly corresponds to $14.6 billion, the oil industry will only be able to finance about 48 percent of the national bud¬get instead of the 63 percent that the regime had announced a few days ago. Given the last few years of experience, the deficit will most likely reduce the health, education and infrastructure budgets.”

A. Víctor M. Mijares, associate professor at the Universidad de Los Andes in Colombia: “We must keep in mind that the contraction of the Venezuelan economy has been the worst in over 150 years. It went from exporting some $95 billion in the first year of Maduro’s government, in 2013, to about $3.5 billion in 2022. Before the sanctions, the oil industry succumbed to the effects of politicization and disinvestment. The Ukraine war led the U.S. government to reconsider the importance of Venezuelan oil as an energy security factor, making it contemplate lifting sanctions. But PDVSA’s structural conditions are uncertain and require large investments to move forward. Those would have to come from foreign companies, limiting Chavismo’s oil sover¬eignty discourse and forcing Maduro to retain parts of his dogmatic message while pragmatically accepting foreign capitals to be reinstated in his country, including Western ones. Finally, the global oil market conditions for 2023 are misty. It seems a given that desired advances in decarboniza¬tion are on hold, considering the ravages of the pandemic and war. This could incentivize the Venezuelan petro-state, since OPEC has not imposed limits on its exports. But the global economy could slow down. While oil will remain vital to its recovery, not everyone will be able to buy it at a high cost, which could depress prices and hurt expectations from Maduro. Before condemning its failure, however, let’s not forget that we live in an uncertain international system with more black swans than we, as analysts, are used to anticipating.”

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