Crisis-hit Venezuela's oil output
plummets in 2017 to decades low, by Marianna Parrage and Alexandra Ulmer,
1/18/18, Reuters
HOW LOW WILL IT GO? Venezuela’s oil gloom is set to persist this year, with the main question among analysts just how low its production will fall.
HOUSTON/CARACAS (Reuters)
- Venezuela’s crude oil production fell nearly 13 percent last year, according to
figures released by OPEC on Thursday, hitting a 28-year annual low that points
to a deepening economic crisis and increased chances of a debt
default.
The South American country
produced 2.072 million barrels per day (bpd) in 2017 versus 2.373 million bpd
the previous year, a nearly 300,000-bpd drop.
That was the biggest
decline among the members of the Organization of the Petroleum Exporting
Countries that have pledged to restrain production since the start of 2017 through 2018.
But unlike voluntary cuts
by Saudi Arabia, Russia and others intended to stoke higher crude prices by
draining a global glut, Venezuela has been unable to stop a now six-year-long
production decline.
Insufficient investments,
payment delays to suppliers, U.S. sanctions, and a brain drain have hammered Venezuela’s oil
industry. The production fall has hit oil exports – its only major source of
foreign currency to repay debt - and refining, creating intermittent fuel
scarcity in the country and at some of its main allies, such as Cuba.
An alleged crackdown on
oil graft in the last few months, seen by critics as an effort by President
Nicolas Maduro to consolidate power, has sown panic across the energy industry
and all but paralyzed state oil company PDVSA, according to people at the firm
and in the sector. It is a remarkable downfall for the OPEC member home to the
world’s biggest crude reserves.
“This is one of the worst
collapses in history. It happened without an invasion like in Iraq, the breakup
of a country like in the Soviet Union, or a civil war like in Libya,” said
Francisco Monaldi, a fellow in Latin American Energy Policy from Rice
University’s Baker Institute. Venezuela’s oil ministry and PDVSA [PDVSA.UL] did
not respond to a request for comment.
The output drop is likely
to worsen a bitter recession and hyperinflation that have poor Venezuelans
skipping meals or eating from the garbage.
Opposition politicians say
Venezuela’s inefficient state-led economic model and rampant corruption are to
blame for the oil industry’s meltdown.
“This is the most
irresponsible act against the Venezuelan people. They destroyed the industry
that generates almost 96 percent of the country’s foreign revenue,” said
opposition lawmaker Elias Matta. Socialist Maduro retorts that U.S.-backed
opposition supporters have sabotaged the oil sector.
Just in December,
Venezuela’s output sank by 216,000 bpd from November to 1.621 million bpd, the
OPEC figures showed, a 29-percent drop from December 2016 levels.
Venezuela’s new oil czar,
former housing minister General Manuel Quevedo, has vowed that output will rise
to more than 2.4 million bpd this year. But Quevedo, who has no experience in
the energy sector, has yet to provide a detailed plan.
January has seen an
unprecedented surge in resignations, spurred by dislike of the new management
and salaries that often do not allow workers to eat properly, current and
former PDVSA employees say.
“They’re desperate to
maintain production. Increasing it is too difficult. Internal conditions are
devastating,” said one PDVSA employee, who asked to remain anonymous, referring
to Quevedo’s output recovery plan.
Still, the most vulnerable
oilfields have already clocked the sharpest drops, according to Monaldi, which
could limit this year’s decline. He forecasts production to fall another
250,000 bpd-350,000 bpd in 2018, starting from December’s average.
Control Risks and Oxford
Economics forecast a 470,000-bpd fall
as PDVSA’s unexperienced management struggle to reverse low investment,
cronyism, lack of payment, and equipment theft.
Oil consultancy Energy
Aspects expects a drop of at least 200,000 bpd in 2018, helping to balance an
oversupplied global oil market.
“Underperformance by
Venezuela helps OPEC to reach its overall (production cut) target quicker for
sure. Once balance is achieved, they will taper the cuts,” Amrita Sen,
co-founder of Energy Aspects, told Reuters.
A further production fall
could also push cash-strapped Venezuela into full default, which experts say
would be one of the largest and messiest credit events in history. Maduro has said Venezuela is willing to
restructure its foreign debt, including some $60 billion in bonds issued by
PDVSA and the government, but the country has been late with bond payments in
the last few months.
As Venezuela is still
making efforts to pay, holders of some of the world’s highest yielding debt
bonds have so far been tolerant of the delays, but that could change if
Venezuela is perceived to no longer have enough income to pay.
Reporting by Marianna
Parraga in Houston and and Alexandra Ulmer in Caracas; Editing by Andrew Hay
and Marguerita Choy
Norb Leahy, Dunwoody
GA Tea Party Leader
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