Archive for July 17th, 2007

Sowing the country’s oil…elsewhere

July 17, 2007

Today, news from Ecuador tell us that Venezuela and Ecuador will build a refinery in that country at a cost of US$ 5.5 billion and that Venezuela will be a an investment partner in that project. The refinery will process 300,000 barrels of oil a day and reportedly will allow Ecuador to be energy independent.

The first question one has to ask is why Venezuela, which has failed to invest much in its own country at the levels required to maintain oil production, let alone its refining ability or capacity decides to invest in another country. When Arturo Uslar Pietri said we had to sow the oil, I think he meant here in our country, not elsewhere. The second question is whether this is much like those projects in Venezuela announced frequently by the autocrat/dictator, simply hot air, personal propaganda for Chavez and nothing will ever come out of it.

You see, while Venezuela’s oil production falls, no matter whose numbers you follow and while PDVSA has not been investing in its own operations, President Chávez and Minister of Energy Ramirez do nothing but announce new projects that nobody knows where the funding will come from, if ever, or whether it is simply more grandstanding by the autocrat. Not only does Venezuela not invest in its own oil production or refining capacity, but it also needs to compensate partners in the heavy oil crude operations and maybe even buyout bonds from those projects, which will require many billions of dollars that could be used elsewhere., including, just as a random thought, helping the poor of the country.

But let’s look at the other refinery projects announced by both Chávez and Ramirez in recent months to realize how harebrained the whole thing is.

The only refinery project known to exist so far is, of course, the Cuban project. But there have been announcements about refinery projects in Jamaica, which according to Veneconomy combined with the Cuban one would have a cost of US$ 1.5 billion. There is also a project in Brazil, another in Paraguay, and one with Uruguay, one inVietnam, now one Ecuador, and then projects Argentina, Indonesia, Iran, Syria, India, Panama, Nicaragua and Nigeria.

Estimates are that Venezuela’s share of these projects (if all are ever completed) will be around US$ 25 billion without taking into account the cost of the Amazonian pipeline which is estimated to cost at least US$ 20 billion which Venezuela (or the autocrat) has said he will fund alone. I am, of course, ignoring other projects such as the Bolivian pipeline, the pipeline through Colombia to Chile, since we don’t not have enough natural gas production for the great Trans Amazonic pipeline, then how can we really build these other ones?

But the whole point is that nobody knows anything about these projects except for the loud and bombastic announcements from the Government. Only the Cuban one really exists and given PDVSA’s hard-pressed and unknown finances (numbers in various PDVSA’s 2006 reports don’s even agree with each other, but cash flow is clearly way down) then can anyone really believe these projects will ever come to reality?

But you see, now that “PDVSA es de Todos” (PDVSA belongs to everyone) nobody really knows what is going on within the company. OPEC, IEA and others disagree with what PDVSA claims its oil production or exports are. Projects and contracts approved by the country’s Congress in the 90’s are now voided without consulting anyone. Service contracts are changed, giving ownership in the oilfields to the former contractors in violations of the Hydrocarbons laws. Heavy crude exploration and production projects are given out to State oil company’s in the underdeveloped world without any approval from anyone, other than the index finger of the autocrat/dictator pointing at them, without regards to their ability capability’s or potential financial contribution to the project.

Such is the state of the oil industry under the robolution: No transparency, giving away oil fields, projects handed out at the autocrat’s whims, a weakening of PDVSA and little investment in the country’s oil production, while our oil, or the autocrat’s hot air, is sowed elsewhere.

Neither Uslar, nor the people ever meant it to be this way.