US President Joe Biden’s administration made a significant change to its Venezuela policy when it allowed Chevron to pump oil into the South American country again. The decision, however, will yield little increase in world production of the commodity in the short term.
The company will face a myriad of technical problems in Venezuela’s former oil fields and a complicated web of US reserves left over from sanctions that must be amended to ensure more of the country’s oil reaches the global market.
This Saturday, the 26th, the Treasury Department granted Chevron a new license to operate in Venezuela after a meeting in Mexico City between the government of Nicolás Maduro and opposition groups in which participants agreed that Venezuela would spend billions of frozen funds on aid. humanitarian aid and infrastructure into a program to be administered by the United Nations.
The policy shift comes two years after the Trump administration cracked down on the activities of Chevron and other oil companies in Venezuela as part of a “maximum pressure” campaign aimed at toppling the Maduro-led regime. That policy included withdrawing recognition from Maduro and supporting congressional leader Juan Guaidó as the legitimate president of Venezuela.
Officials presented Chevron’s return to Venezuela as a reason for the parties to begin negotiations on a timeline and framework for free elections. The move could also open the door for other oil companies that had previously operated in Venezuela, although the Treasury Department has not outlined how they might re-engage with the country.
Among Chevron’s first tasks are fixing broken equipment, stopping power outages and fixing problems with pipelines, rehiring hundreds of workers despite an exodus of talent from the Venezuelan oil industry and dealing with threats to physical security, including gasoline thefts, analysts said.
“The amount of money needed to invest in Venezuela to recover lost production is enormous,” said José Chalhoub, an oil and political risk analyst in Venezuela who previously worked in the country’s oil industry.
Chalhoub estimated that the investments needed to restore Venezuela’s lost oil production could reach $50 billion. In the next six months, he said, Chevron could increase production by about 20,000 to 30,000 barrels per day (boe), too little to make any difference in the global market.
Before Chevron is willing to make new investments in Venezuela, such as new fields, it wants to collect more than $4 billion in debt on Venezuela’s national oil company, PdVSA.
Collecting that debt could take two to three years, as PdVSA owes Chevron and other joint venture partners more than two years of revenue from oil sales, following the 2020 US crisis. Venezuelan company to pay its partners.
The license would allow Chevron to collect its share of dividends from its joint ventures, such as Petropiar, in which Chevron is a 30% owner.
In the first 25 days of September, PdVSA, which operates the joint ventures with Chevron, produced around 45,000 boe, according to the consultancy IPD Latin America.
Expectation and reality
While Venezuela has the world’s largest oil reserves, it could take at least a year for Chevron to bring oil production back to 200,000 barrels a day at its four joint ventures with PdVSA, analysts said.
That’s a drop in the bucket compared to the amount of oil that could be affected by Western sanctions on Russian oil. Some analysts estimate that around 1.5 million barrels per day could be affected by these sanctions next year. Venezuela’s oil production has declined by about 700,000 barrels a day this year, down from more than three million barrels a day in the 1990s.
Chevron’s initial push into Venezuela is unlikely to help drive down oil prices any time soon, analysts said. “This is not something that will happen overnight. This will add barrels over time to the global supply, but it will take months, if not more than a year,” said Robert Yawger, an analyst at Mizuho.
Venezuela’s development was valued at only about $1 a barrel off oil in the near term, Yawger said. Much will also depend on upcoming negotiations between the Venezuelan government and opposition parties, which have the potential to derail Chevron if the two sides fail to reach an agreement. Source: Dow Jones Newswires,