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Francisco Monaldi Visiting Professor of Energy Policy and Roy Family Fellow at the Belfer Center, Harvard Kennedy School
Adjunct Professor of International Energy Policy, The Fletcher School, Tufts University Non-Resident Scholar, James Baker III Institute for Public Policy, Rice University Director, International Center on Energy and the Environment, IESA, Venezuela
Duke University, December 2013
source: BP Statistical Review of World Energy 2013
Oil Reserves
3
Proven Oil Reserves (billion barrels)
1992 2002 2012 %
Argentina 2.0 2.8 2.5 >1% Brazil 5.0 9.8 15.3 4.5% Colombia 3.2 1.6 2.2 >1% Ecuador 3.2 5.1 8.2 2% Mexico 51.2 17.2 11.4 3.3% Peru 0.8 1.0 1.2 0% Venezuela 63.3 77.3 297.6 88% Total 128.7 114.8 338.4 100%
Source: BP Statistical Review of Energy, 2012
Oil: Net exporters and importers
Source: BP Statistical Review of Energy
0
500
1000
1500
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3000
3500
4000
4500
Thou
sam
ds b
arre
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aily
Venezuela Vs. South America
Venezuela
Brasil
Mexico
Oil: Net exporters and importers
Source: BP Statistical Review of Energy
-1500
-1000
-500
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500
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3500
Thou
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Oil Net Exports (+) Net Imports (-)
Venezuela
Brazil
Mexico
High prices Huge reserves 5 million bpd production potential in 10 years Investment projects on join-ventures for more than 120 billion
dollars
… although there are significant risks
6
Venezuelan Basket Average 2013 (until Nov. 15): US$100.36 October 2013: $98, November 2013: $94 US$103.46 in 2012, US$101 in 2011, and US$ 71.56 in 2010.
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0
20
40
60
80
100
120
140
Jan-
99
Jun-
99
Nov
-99
Apr-
00
Sep-
00
Feb-
01
Jul-0
1
Dec-
01
May
-02
Oct
-02
Mar
-03
Aug-
03
Jan-
04
Jun-
04
Nov
-04
Apr-
05
Sep-
05
Feb-
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Jul-0
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Dec-
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May
-07
Oct
-07
Mar
-08
Aug-
08
Jan-
09
Jun-
09
Nov
-09
Apr-
10
Sep-
10
Feb-
11
Jul-1
1
Dec-
11
May
-12
Oct
-12
Mar
-13
Aug-
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Venezuela will continue to produce oil… until the world demands it
Sources: PODE hasta 2008, (*) Informe Operacional y Financiero de Pdvsa (2009), (**) Informe de Gestión PDVSA 2010 e (***) Informe de Gestión PDVSA 2011.
Venezuela’s official proven oil reserves are 297 billion barrels (using a 20% recovery rate on the Orinoco Belt, for 257 billion barrels). The USGS estimates that 510 billion barrels would be ultimately recoverable in the Orinoco Belt (using a 45% recovery rate). Even using a 10% recovery rate Venezuela would have the second largest reserves after Saudi Arabia, at around 190 billion barrels
297 TOTAL
257 0 – 9.9 X Heavy
17.6 10 – 21.9 Heavy
10.4 22 – 29.9 Medium
10.3 30 – 38.9 Light
2.0 >39 Condensates
Reserves Grav, API Type
Orinoco
H = 4
XH = 255
Venezuela: Proven Reserves (billion barrels)
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Venezuelan crude oil proven reserves: a comparative look (billion barrels)
Comparison of Venezuelan crude oil reserves: 21.215% of Colombia (1.5) 2.285% of Brasil (13) 386% of Rusia (77) 258% of Iraq (115) 217% of Iran (137)
170% of Canada (175)* 112% of Saudi Arabia (265) 92% of South America 89% of Latin America 75% of America 26% of OPEC 20% of the World
* The oil sands are included only here. Source: BP Statistical Review of World Energy 2012
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0 50 100 150 200 250 300
E.E.U.U.
Rusia
No-OPEP
Nigeria
Arabia Saudí
OPEP
EAU
Iran
Kuwait
Venezuela
Años
Source: BP SRWE
Extraction rate: Production/Reserves
Source: BP Statistical Review of World Energy 2013
Venezuela would produce, at the extraction rate of: • Iran -> 6.9 MMBD • Saudi Arabia -> 12.8 MMBD • Russia -> 36.2 MMBD
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0.3% 1.5%
4.4%
0.8% 0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Venezuela Saudi Arabia Russia Iran
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34%
5%
1%
18%
11% 11%
Carabobo 2: MOU with Rosneft (Russia)
2
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• Bonuses ($1.5 bn.) • Loans to PDVSA ($2.1 bn.)
• Early production 260 MBD for 84 months. Revenue $5-6 bn.
• Investments ~$15 – 20 bn. ~50-60% in upgrader.
Fuente: PDVSA
Serious problems developing the necessary infrastructure will continue. The new
upgraders planned location might be uneconomical.
Depending on the assumptions, only about 100 - 200 MBD of lighter crude are available as diluent, the first join-ventures to start production would have an advantage.
For the IOCs, it is a game of maximizing the early production stage without making the upgrader investments.
Fiscal framework is uncertain, in particular the windfall tax. The government has promised that for new projects this tax would only be activated after investments have been recovered, but the details and credibility are important. A temporary royalty reduction to 20% is also on the table. On January 2013 the windfall tax was reduced.
International firms say they are willing to invest if the fiscal framework is clarified, the infrastructure and project construction frameworks are well defined, operational control is effective, and the financing of PDVSA’s share is settled.
15
Declining production Low investment levels Increasing debt Increasing costs Credibility issues with investment partners Local capacities have declined
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17
Source: OPEC 18
0
500
1000
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3500
Jan-
01
Jul-
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Jan-
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Jul-
02
Jan-
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Jul-
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Jul-
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Jan-
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Jul-
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Jan-
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Thou
sand
bar
rels
dai
ly
Source: Baker Hughes International Rig Count. 19
Active Oil Riggs: 2001-2013
0
10
20
30
40
50
60
70
80
90
100
Jan-
01
Jul-
01
Jan-
02
Jul-
02
Jan-
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Jul-
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Jan-
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Oil
Rigg
s
20
21
0.00
0.50
1.00
1.50
2.00
2.5019
98
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Canadá Brasil ColombiaVenezuela (PDVSA) Iraq OPEP (exc. Venezuela)Rusia
Source: BP Statistical Review
PDVSA’s Debt (US$ Millions)
Source: PDVSA 22
• PDVSA’s current external debt at ~US$45 billion • ~ US$10-12 billion in accounts payable • ~ US$5-8 billion in probable arbitration settlements. • ~ VEB Bs.250 billion (about US$40 billion) debt with Central Bank.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2006 2007 2008 2009 2010 2011 2012
MM
US$
23 Source: PDVSA
*Planned
24
Source: BP Statistical Review of World Energy 2013.
0
500
1000
1500
2000
2500
3000
350019
88
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Thou
sand
Bar
rels
Dai
ly
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Not paid (MBD) Cuba 100 Others Petrocaribe 50 Petroamerica 10 Domestic market 700-750 China funds loans 430 ($50) Total ~ 1.1 MMBD Actual production in cash flow 1.7 MMBD
Source: PDVSA
0 200 400 600 800 1000 1200 1400 1600 1800
Others
Africa
South America
Europe
Asia
Central America & The Caribbean
North America (St. Croix included)
2012 2011 2010 2009 2008 2007 2006
26
Gasoline price: $0.07 per gallon ($0.01 at black market exchange rate) Domestic subsidies: $16-24 billion
Texas 5 Qatar 33 United Arab Emirates 39 Colombia 48 (índice 32) Alberta 51 Trinidad and Tobago 58 Brazil (Off shore presalt area profit sharing contracts) 66 Alaska 83 Angola 118 Nigeria 124 (índice 79) Algeria 126 Russia 127 Libya 128 Iraq 129 (índice 84) Kazakhstan 132 Iran 133 Bolivia 134 Ecuador 135 Venezuela 136 (maximum index100/100)
27
Credibility problems: Obstacles to investment
Source: PDVSA
29 Source: PODE
Bls/employee
30
2005 2012 2012 Variación (meta) (observado) (observada)
Producción (MBD) 3.269 5.837 2.910 -11%Refinación (MBD) 3.142 4.050 2.822 -10%Exportaciones (MDB) 2.993 4.700 2.568 -14%Gas natural (MMPCD) 6.885 9.780 7.327 +6.4%
Source: PDVSA
PDVSA’s production from own effort has declined even more dramatically (from 3.2 MMBD in late nineties to about 1.8 MMBD today).
Excessive bureaucracy: more than 100 thousand employees and 20 thousand contractual (from about 40 thousand employees and 20 contractual pre-strike).
Arbitrations. Conoco, Exxon, and others. Claims above $40 bn. Probable ~$5-8 bn. The ICC arbitration was the result of contractual compensation cap, rather than book
value.
The nationalization of the service companies has had a negative impact. Debt has increased exponentially during boom times, still manageable, but on an
unsustainable path.
PDVSA and the government are increasingly dependent on the price of oil.
PDVSA and the government require average oil prices above $90 to avoid significant stress.
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IOCs Renewed pragmatism?
32
When the government’s fiscal situation is critical. (To some extent true today).
When the local NOC is in bad shape. (Yes) When production is declining. (Yes) When they need to initiate large and risky investments in
exploration and new frontier developments. (True in Orinoco, off-shore, and exploration)
When they need technology that only some IOCs control. (To some extent, to increase recovery rate).
When the price of oil is low. (Not the case now). This key driver is not in place.
33
34
Orinoco
Offshore
Conventional ME
Source: Nolan (2009)
35
Plan Siembra Petrolera 05-12
Ambición Actual
Realidad
36 Source: IEA
More pragmatism. Windfall tax reduction, Chevron loan to Petroboscan and more to follow.
Reduction in Petrocaribe subsidies? Domestic subsidies? In 2013 production level will remain stagnant or slightly decline. Projects will continue to fall behind schedule and only one or two of the Orinoco
projects would go ahead. Production increase in extra-heavy of ~200 MBD for mixing. US product imports likely
to rise. One upgrader eventually built, probably with the Chinese. Production slowly increases back, reaching 3.1 MMBD in about 6-8 years (0.5
MMBD increase). Investment in E & P at the Orinoco Belt around US$3-5 billion a year Could get worse in case oil prices fall, but then pragmatism would prevail and
eventually some investments will be made. Risks are stepper decline in the Maracaibo basin or in northern Monagas
IOCs most likely to invest: Chinese NOCs. Some private IOC investment for mixing.
37
1. Chavez popularity was largely the result of the oil boom and
increased expenditures.
2. Chavez was actually an underperformer in terms of both popularity and socio-economic results, compared to the region and Venezuela’s past.
3. Chavez was much more radical than the median voter. Still, he could win elections as a result of the oil driven expenditures and transfers to the poor.
Oil and politics The Chavez legacy
39
Source: IMF
304%
90%
190%
17%
185%
48%
117%
95% 85%
0%
50%
100%
150%
200%
250%
300%
350%
Venezuela Argentina Bolivia Brasil Chile Colombia Ecuador Paraguay Perú
Resource windfalls in 2003-2012 (% GDP)
0.00
0.50
1.00
1.50
2.00
2.50
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Inde
x (1
950
= 1)
GDP per capita
Source: Venezuelan Central Bank.
Recent History: an electoral budget cycle on steroids...
The public sector deficit in the year to the election at historical high of close to 17% of GDP, with total public expenditures also at a historical high of around 50% of GDP. This when the price of oil is also at a historical peak.
Source: BCV and Barclays
1. The terrible economic legacy left by Chavez will have a lasting effect in terms of political and social instability.
2. For the first time since 2004 the opposition is becoming a structural majority.
3. The price of oil continues to be the key variable.
4. The political economy of Venezuela in the near future will be highly dependent on the timing between a full blown economic collapse and the political transition.
Thanks for your attention!
francisco_monaldi@hks.harvard.edu Twitter: @fmonaldi
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