A bleak picture for PDVSA

July 22, 2003


Extremely interesting article in today’s Tal Cual newspaper (by subscription only) in which PDVSA’s former economist Ramon Espinasa gives his views on the future of the Venezuelan oil industry. Espinasa is a highly regarded Economist who understands PDVSA from an economic and technical point of view better than anybody I know. He is the type of solid technical person Chavez hates because he can not refute their points of views with his gut feeling because they deal with realities and numbers. Among the highlights:


Venezuela’s oil production will begin falling in the next eighteen months. The reason is very simple, in order to maintain the country’s oil production we need to have between 80-100 active drills, thee are currently only 25 working.


-Production is being maintained by intensive exploitation, particularly at the El Furial oil field with a risk of damaging it.


-As production falls there will be more pressure on PDVSA, fewer resources, less investment which takes you back to the starting point.


-With the current formula of more funds from PDVSA (short term fiscal resources), smaller operational costs and less investment “we are no longer feeding the hen with the golden eggs”


-Operational costs at PDVSA, which includes the costs of producing, transport, refining, distribution in the internal market and export are about $7 per barrel. Of that $7, $4 corresponds to production, $2 to refining and $1 to internal market. These costs have gone up in nominal terms by 150% since 1990, while in real terms they have gone up by 75%……in the cost structure 20% is salaries and 80% is machinery and equipment.


Not a pretty picture, the question is what will happen when PDVSA’s fiscal contribution drops sharply. Will the country be forced to sell pats of PDVSA in order to survive? Will anyone remember who destroyed the industry?

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