Venezuela's Declining Oil Production

While reading about world affairs, I couldn't help noticing articles such as this from The Irish Times:

Opec’s crude production held steady in December as the group approached a fresh year of output curbs in full compliance with its supply deal . . . Venezuela, which has suffered a slump in output amid economic collapse and US sanctions, reduced volumes by a further 50,000 barrels a day to 1.81 million a day.


With oil prices increasing, what does Venezuela need to do to increase production? An article from Public Radio International (PRI) had this quote from Francisco Monaldi, a Venezuelan oil expert at Rice University:

“Venezuela needs to invest around $8 billion a year just to keep current levels,” says Monaldi. “And the government is investing maybe half of that.”

The New York Times had some additional details:

1. Oil production is at the lowest level in three DECADES.

2. Fires break out in US refineries so perhaps the importance of this quote is being over-stated; however:

Days later, a fire broke out in a separate refinery, Cardón, leaving only one of five distillation units functioning . . . but he added that another fire had broken out in Cardón on Tuesday causing injuries.

Even if exaggerated, it is an example of disrepair of facilities to have fires breakout within days of each other.

3. Workers are looking for other careers. This has to hurt as Hugo Chavez fired 18,000 oil workers in 2003. Constantly losing skilled workers doesn't exactly help turn around an industry.

In the PRI article, Monaldi suggests that Venezuela should open itself up to foreign investment. Should, but will it? To me, this would appear to go against the DNA of the socialist revolution even if it would help cover the investment gap.

Also, President Nicolas Maduro recently handed over the reigns of PDVSA (the national oil corporation) to Major General Manuel Quevedo. This handover was done based on the argument that Maduro was trying to eliminate corruption. This might be true in terms of replacing previously corrupt oil managers, but at the same time one might view this as just a payoff to the military to prevent a coup and that the military will now benefit financially from heading PDVSA.

There are some interesting dynamics going on. First, PDVSA is in heavy debt. Second, oil prices are increasing. That leaves a race against time: corporate collapse or saved by higher oil prices?

In the meantime, we'll continue to read quotes such as this from Reuters:

Mobs gathered outside some Caracas supermarkets on Saturday [January 6] after the government ordered shops to slash prices . . .

This will no doubt result in:

. . . his policy will dissuade supermarkets from stocking their shelves and could trigger looting.