Venezuela: Russian control of PDVSA?

Moscow Times has an article up about Venezuela giving up PDVSA (state-owned oil producer) to Russia's Rosneft in exchange for debt relief. I don't know how reliable Moscow Times is as a source, but I'll say the site is skeptical that this is going anywhere:

“Frankly speaking, it seems strange,” Alexander Korolkov, an expert at the Russian International Affairs Council (RIAC) told The Moscow Times.

“For me, there are more questions than answers around these rumors. Why do they want to give control to Rosneft? They owe much more to China than to Russia.”

“And I’m not sure that Rosneft really needs this kind of a ‘gift’. ‘Control’ here may mean not direct control over the business but a new level of coordination on the oil market. I suppose there might be an advisory team from Rosneft giving support to the locals in terms of reforms.”

Give it up to the Moscow Times. They're showing some distinct skepticism about this. What isn't mentioned in the article is that the head of PDVSA is Major General Manuel Quevedo. If Venezuela gave up to control of PDVSA to Russia, I'd say the military would be part of a coup against Madura within a year.



On other topics regarding Venezuela and oil, Reuters has a couple articles up on the impact that US sanctions are having on exports.

This Reuters article writes:

Unipec, the trading arm of China’s Sinopec, Swiss trader Trafigura AG, oil firm Equinor ASA, Exxon Mobil Corp and others are shunning contracts or vessels that might put them in jeopardy of violating U.S. sanctions on Venezuela, according to sources and documents.

Even though the US is in a trade war with China, it appears at least one Chinese company is following the sanctions.

This Reuters article; however, mentions that one Indian refiner has found a loophole in the sanctions:

Indian refiner Reliance Industries Ltd (RELI.NS) is scheduled to resume loading Venezuelan crude in October after a four-month pause, according to sources and internal documents from PDVSA seen by Reuters, a move that could help Venezuela’s state-run company drain its large oil inventories.

. . . . A Reliance representative said on Wednesday it has been supplying Venezuela with fuels permitted under U.S. sanctions, including diesel, and thus it “is able to recommence crude sourcing” in exchange for the refined products.

The article also mentions that Italy's Eni may also be getting a shipment of oil from Venezuela in October. Rosneft is also getting oil from Venezuela. They appear to be in the clear from US sanctions as there is another loophole where oil can be exchanged for the payment of debt.

Oilprice mentions that the sanctions are having a serious impact on Venezuela's production as oil inventories aren't moving:

PDVSA slashed output in the Orinoco Belt to just 200,000 bpd, according to Bloomberg, after averaging roughly double that for much of this year. The lack of space in storage forced production cuts, including at joint venture projects, where output has been more stable. Sources told Bloomberg that the Sinovensa blending facility would be idled for at least a week.

Bloomberg sent some reporters to Venezuela to check out the oil fields:

Facilities in the Orinoco Belt, which produces more than 90% of Venezuela’s dwindling flow, look like graveyards for million-dollar equipment: abandoned rigs, empty tanks, disemboweled generators, gutted power panels, stripped cables among pools of spilled crude oil and encroaching vegetation. 

. . . The nation could increase production to about 2 million barrels a day in five years at a cost of as much as $30 billion. “The recovery depends in large part on who is going to replace Maduro,'' [Fernando Ferreira, director for geopolitical risk service at Rapidan Energy Group, a consultancy in the Washington area] said. Full recovery from the pillage could take decades. Luis Pacheco, president of a PDVSA board named by opposition leader Juan Guaido, said the extent of damage to the system is a matter of conjecture: The board controls only PDVSA assets outside Venezuela. It predicts a cost of $120 billion to restore the domestic industry, he said.

The article mentions that Venezuela used to produce 3.7 million barrels per day. I'm assuming the $120 billion to restore-the-industry-estimate is targeting 3.7 million. The gap between $30 billion for 2 million barrels per day versus $120 billion to get to 3.7 million seems like a big gap.

I'm going to go out on the limb and say that Venezuela will never get anywhere near 3.7 million barrels per day ever again if the cost is $120 billion. Peak oil is within 15 - 20 years. Why would anyone want to invest $120 billion in a country that even if Maduro is forced out would likely remain unstable for a number of years.

I'd also venture to guess that the five year target is overly aggressive. As the article mentioned, a lot of employees have left PDVSA. They've probably headed to other oil producing countries. What are the chances they'll want o return to Venezuela? To get oil production up, you not only need cash, but also brain power.

Also, the longer that Maduro stays in power, the harder it will be to ramp up production. Even if the Russians aren't interested in controlling PDVSA, they don't want to see Maduro fall and Venezuela become aligned with the US. I suspect they've try and keep him in power (or someone currently aligned with Maduro) for as long as possible.