PDVSA After Chavez
Will Partnerships with the Private Sector and Chinese
Experts Boost Oil Production?
BY
THOMAS O’DONNELL
Americas Quarterly
Throughout 2012, and especially after President Hugo
Chávez’ death in early March 2013, Venezuela’s national oil firm, Petróleos de Venezuela S.A. (PDVSA), has taken measures
beyond anything done in the past decade to raise its lagging production. While
the likely impact merits cautious analysis, the drivers of the Bolivarian Republic’s
scramble for increased oil revenues are clear.
The Bolivarian state has run into a dollar crisis, on top
of a litany of other chronic ills. The state urgently needs to find a new
balance such as cutting outsized populist spending and increasing revenues.
Still, for the foreseeable future, Venezuela’s only possibility for significant
new revenues—barring a record oil price rise as Chávez enjoyed—is for PDVSA to
increase production. Post-Chávez chavismo
is acutely and nervously aware of this reality.
Focus on Mature Fields, Enlisting the Private
Sector
By all indications, PDVSA’s immediate focus for boosting
output is in applying enhanced oil production (EOP) methods to reinvigorate
mature fields. After decades of conventional exploitation, production has
fallen or been abandoned at thousands of wells. Although the game-changing
potential of Venezuela resides in the large-scale development of its
“extra-heavy” oil fields in the Faja Orinoco region, Venezuela has exploited
the “heavy” oil of Lake Maracaibo, Monagas and other regions for nearly 100
years.
A similar program to exploit mature oil fields was
enthusiastically and repeatedly pushed by Chávez in 2007-2008 on his Sunday “Aló Presidente” program,
where he introduced Chinese visitors said to be involved in a plan in which
Chinese equipment and engineers would supervise production of 30 percent of
national oil production by 2015. A Chinese joint service venture with PDVSA was
signed on April 4, 2008, but it never
materialized into any concrete action.
Despite the lack of momentum on the Chinese plan, a
mature-field-first strategy is reasonable. EOP in Venezuela is relatively
simple due to its geology, and with modern exploration methods, the amount of
remaining oil in and around mature fields is often underestimated. The
possibility of certified oil reserves being larger than expected has proved
very lucrative for PDVSA’s partners.
Mature fields also are in developed regions with the
necessary infrastructure—pipelines, ports, refineries, etc.—to support oil
production along with the towns, roads and electrical grids to support workers
and families. This is significant since Venezuela has been unable to maintain
infrastructure in major cities or build the complex greenfield projects that
many remote Faja fields require.
PDVSA—strained managerially and technically and in need
of capital—needs significant assistance. Once Chávez died, “PDVSA socialista” began
vigorously enlisting private domestic firms in a national effort to raise
production. Conferences with goods or services providers were held in Sucre,
Zulia, Falcón, Anzoáteguí, and Monagas states.
On July 20, 2013, approximately 320 businesspeople
attended a meeting in Puerto Ordaz to discuss PDVSA’s 2019 Faja development
plan. The Cámara Petrolera
de Venezuela (Venezuelan Petroleum Chamber), Federación de Cámaras y Asociaciones de Comercio y
Producción de Venezuela
(Federation of Venezuelan Chambers and Associations of Trade and
Production), Federación de
Industriales, pequeños, medianos y artesanos de Venezuela
(Federation of Small, Medium and Artesanal Industrialists of Venezeula) and
others participated. The PDVSA documents and plans from these meetings—and
statements by private sector leaders—show that the process represents a new
level of collaboration unlike Chávez’ previous China scheme.
Obstacles to Success
The disrepair of PDVSA facilities is striking, with the
Amuay refinery disaster last year highlighting the many failures and costing
some 40 to 50 lives. Still, in the last one to two years, PDVSA’s board has
apparently begun focusing on jump-starting investment in mature fields. For
example, PDVSA built a new flexible-pipeline facility and installed significant
expanses of pipe around Lake Maracaibo to connect old fields and distribute gas
for the high-pressure injection necessary for enhanced oil extraction.
Now, PDVSA has called for private domestic firms to bid
on “reinvigorating” production at thousands of wells. This is reminiscent of a
major opening by the old PDVSA in the 1980s to private foreign and domestic
firms to boost production in Lake Maracaibo. Those projects were then re-nationalized
by Chávez in 2010.
Even though the recent series of meetings between PDVSA
and the private sector are full of promises by PDVSA to end past problems,
PDVSA President Rafael Ramírez is known to be no more generous on contract
terms with domestic, international or even Chinese firms than Chávez was—and to
be just as likely to withhold payments due to firms and to oppose the
repatriation of foreign-firm funds. For these reasons, it is possible that, out
of necessity, the Maduro administration would prefer a new head of PDVSA.
However, the departure of Ramírez could be problematic for the already
precarious company if several key managers left with him.
Beyond personalities, a caution on this new private-PDVSA
partnering is that the Venezuelan government and PDVSA simply do not have cash
to pay, and PDVSA owes huge sums to its partners. The country is enmeshed in a
dollar-shortage crisis as the government prepares to face municipal elections
in December. The temptation to raid PDVSA cash and managers—starving the goose
that lays the golden eggs, Chávez style—is immense but would wreck PDVSA’s
minimal-yet-unprecedented efforts.
Beijing’s Frustration and Demands
Beijing’s assistance in providing short-term cash and the
expertise it could provide to develop both the Faja fields and regional
infrastructure are important factors in PDVSA’s recovery. A few months ago, in
difficult talks for another loan-for-oil, Beijing made undisclosed demands that
caused Venezuela to walk away.
Since then, Beijing, deeply distrustful of the capacity
and credibility of Venezuela and PDVSA, has made demands including an
unprecedented “partnership” in planning Venezuelan mining and petroleum
sectors. While the government and PDVSA are in dire need of assistance and are
now clearly accepting Beijing’s conditions, this type of a partnership would
decimate Chávez’ promise for resource sovereignty.
Beijing now has its vision of how to proceed—and, given
the dollar crisis and other problems in Venezuela, it now has the leverage to
achieve its vision. Over the past century, Venezuela’s oil sector was
integrated with that of the United States, but U.S. demand for imports is not
growing. Objectively, Venezuela’s oil export future is in East Asia, where the
demand lies—and with China in particular.
Moving Forward
Given the many plans to increase PDVSA’s depressed
production, and the unmet production target projections, the recent push should
be approached with caution. At the same time, it should be remembered that
Venezuela’s low production in the last decade is an anomaly among OPEC’s “price
hawk” faction, to which the Bolivarian PDVSA belongs. Even regimes such as
those of Libya’s Muammar Gaddafi and Iraq’s Saddam Hussein maintained high
levels of production, and often under sanctions.
There is, in the end, one fundamental reason why PDVSA
might not be able to reverse its miserable performance of the past decade—the
excessive and undisciplined raiding of its funds and managerial talent by the
Office of the President of the Republic to win elections. If President Nicolás
Maduro and President of the National Assembly Diosdado Cabello can resist this
addiction, there is no reason that Venezuela, a state literally floating on
oil, could not increase its production and sustain the country economically.
Tom O'Donnell, PhD, a former
Fulbright Scholar in Caracas, analyzes global energy, especially oil, in
international relations, and blogs at http://GlobalBarrel.com. A
previous version of this article appeared in the Americas Quarterly web site (www.americasquarterly.org). Republished with permission.