The sanctions-hit industry has been further hurt by restrictive licenses and unreliable intermediaries.
By Venezuelanalysis – Ricardo Vaz
Mar 16, 2023
Venezuela’s crude production continues to struggle amidst a number of obstacles resulting from wide-reaching US sanctions.
The latest monthly report from the Organization of Petroleum Exporting Countries (OPEC) placed the South American nation’s output at 700,000 barrels per day (bpd) in February, according to secondary sources. The number is barely above the 696,000 bpd pumped in January.
State oil company PDVSA reported a nearly identical 704,000 bpd figure, down from 732,000 bpd the prior month.
Venezuela’s oil industry has been hampered by mismanagement, a brain drain and especially unilateral coercive measures from Washington. Since 2017, the US Treasury Department has levied financial sanctions, an export embargo, secondary sanctions and a raft of other measures meant to strangle Caracas’ main source of foreign income.
Output fell precipitously from 1.9 million bpd in mid-2017 to less than 350,000 bpd in the second half of 2020. It recovered in 2021 and has been hovering around 700,000 bpd for more than a year.
Despite widespread condemnation and calls for sanctions relief, US officials have stated that the Biden administration is not planning to ease its blockade against the Caribbean country.
The country’s February crude exports fell by 8 percent to 555,000 bpd, a four-month low. Exports of oil byproducts and petrochemicals likewise receded in February to 347,000 tonnes, an almost 50 percent drop from January.
A newly-appointed PDVSA board headed by Rafael Tellechea moved to temporarily suspend and renegotiate sales contracts.
With sanctions driving away established trade partners, Venezuela has increasingly resorted to smaller or inexperienced intermediaries that have allegedly fallen behind on payments. PDVSA is now demanding upfront cash from buyers, similarly with food or goods in swap agreements.
The availability of cheap Russian oil has been an additional hurdle for PDVSA, with China, the main destination for Venezuelan crude, reducing its imports in recent months. Venezuela has been forced to place its output on the spot market which is more vulnerable to price fluctuations.
Caracas has increasingly looked toward its allies to shore up the ailing oil industry. Irán has become a reliable partner to revamp refining and pumping activities. Under a long-term swap agreement, Tehran has supplied diluents. According to Reuters, Venezuela received 100,000 bpd of Iranian condensate in February with another shipment expected this month.
Venezuelan authorities also held a meeting with Igor Sechin, president of Russian energy giant Rosneft, to evaluate plans to “increase crude oil production and advance new business opportunities.”
Rosneft offered PDVSA a lifeline in the wake of the US oil embargo, lifting Venezuelan crude cargoes before redirecting them to their final destinations. However, the arrangement was halted after Washington hit the Russian firm with secondary sanctions in early 2020.
Russian companies take part in five joint ventures with PDVSA that currently produce around 80,000 bpd.
Caracas has also turned to little-known company GazMin to reactivate PetroZamora, a joint project in the western state of Zulia. According to Bloomberg, GazMin has operations in the United Arab Emirates and Kuwait.
The Middle Eastern firm will take over a 40 percent stake that belonged to GPB Global Resources before the Venezuelan government took it over in September 2022 in a bid to jumpstart operations at the 110,000 bpd capacity venture. GPB has pledged to fight the expropriation in court.
Other avenues to boost output from Venezuela’s oil sector rest with western companies including Chevron, Eni and Repsol. However, such an increase would not be as favorable for PDVSA.
In November, the US Treasury Department handed Chevron a six-month license to restart pumping and exporting operations from its mixed projects in Venezuela. The US oil giant holds minority stakes in four joint ventures in Venezuela that total a 200,000 bpd capacity.
Nevertheless, output is currently at around 90,000 bpd with Chevron CEO Michael Wirth claiming further gains are limited by “political risks.” The company’s sanctions waiver has sparked speculation and debate over clauses that would limit tax and royalty benefits for the Venezuelan state.
For their part, both Eni and Repsol received oil-for-debt licenses in May 2022. PDVSA suspended the agreement in August to renegotiate terms before resuming shipments six months later. It is currently unknown if a new deal was struck. Both European companies have allegedly lobbied for greater operational control over their respective projects in the South American country.
Read More: Venezuelanalysis – Venezuela Looks to Russian, Mideast Partners to Jumpstart Stagnant Oil Output