Francisco Monaldi, Ph.D. Fellow in Latin America Energy Policy, Baker Institute for Public Policy, Rice University Belfer Center Associate in Geopolitics of Energy, Harvard Kennedy School Founding Director and Professor, Center on Energy, IESA, Venezuela Columbia University, CGEP, September 2015
Wasted opportunity. Popularity tracked consumption How bad can it get? Will the opposition win? 2
Wasted opportunity: The largest windfall and the worst economic performance
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75 65 55 45 35 25 Chavez popularity (lhs) Maduro (lhs) Real consumption growth (rhs) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 25 20 15 10 5 0-5 -10-15 -20-25 Source: BCV and Datanalisis
Public Opinion: How is the country doing? Source: Datanalisis, July 2015 6
Public Opinion: Maduro s Approval Source: Datanalisis, July 2015 7
Voting Intention: Legislative elections Dec. 2015 Source: Datanalisis, July 2015 8
Worrying tendencies Pragmatism or desperation? 9
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Venezuela will continue to produce oil until the world demands it Venezuela s official proved oil reserves are 298 billion barrels (using a 20% recovery rate on the Orinoco Belt, for 257 billion barrels). The USGS estimates that 510 billion barrels would be ultimately recoverable in the Orinoco Belt (using a 45% recovery rate). Even using a 10% recovery rate Venezuela would have the second largest reserves after Saudi Arabia, at around 190 billion barrels (close to Canada s). Reserves/production (years) Non.OPEC OPEC Nigeria United Arab Emirates Saudi Arabia Kuwait Iran Russian Federation Canada including oil sands 110 years Venezuela low estimate 190 years Venezuela US 0 50 100 150 200 250 300 Years of production Source: BP Statistical Review of World Energy (2013) 12
Traditional areas and PDVSA decline. Orinoco and JVs partly compensate. Venezuela Oil Production IPD Latin America OOB Heavy and extra-heavy Conventional 13
PDVSA s share decreases. JVs increase. Oil Production by Ownership, Venezuela 1990-2013 3.5 MBD 3 2.5 2 Orinoco JVs Conventional JVs 23% 16% 1.5 1 PDVSA 61% 0.5 0 Source: Oil Ministry (PODE 2007-2008); PDVSA Annual Reports, 2009, 2010, 2011 & 2013. Note 1: Since 2006 the conventional crude operative agreements transformed into Joint Ventures Note 2: Since 2007, the heavy oil strategic agreements transformed into Joint Ventures. Note 3: Production data does not include Natural Gas Liquids
Heavy and extra-heavy Orinoco Projects IPD estimates Chevron Gazprom/Rosneft Rosneft ENI Total/Statoil CNPC CNPC Chevron/Inpex Repsol/ONGC 15
EIA reports 802 kbd Ven exports to US in 2015 vs. 790 kbd in 2014, up 1.5% According to Petrologistics in the last 12 months total exports are up 4% and net exports up 1% Total imports 300 kbd, import of diluents up 40% to 140 kbd (future swaps?) North America (St. Croix included) Central America & The Caribbean Not paid in cash (kbd) Cuba 80 (from 100) Others 40 (from 80) Domestic market 700-750 (Smuggling 100, Imports 150) China loans 350-400 Total ~ 1.2 mbd Asia Europe South America Africa Others Cash flow production ~ 1.4 mbd of ~2.7 mbd 0 200 400 600 800 1000 1200 1400 1600 1800 2012 2011 2010 2009 2008 2007 2006 16 Source: PDVSA
VENEZUELA Cash Flow availability PDVSA Significant contributions to FONDEN & social programs, compared to investment. Financial Debt has increased to more than US$ 45 bn. Debt with suppliers and partners above $15 bn. Debt with Central Bank above Bs. 800 bn. Arbitrations $7-8 bn. (estimate)
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The Reputational Legacy Texas 5 Qatar 33 United Arab Emirates 39 Colombia 48 Alberta 51 Trinidad and Tobago 58 Brazil 66 Alaska 83 Angola 118 Nigeria 124 Algeria 126 Russia 127 Libya 128 Iraq 129 Kazakhstan 131 Iran 132 Bolivia 133 Ecuador 134 Venezuela 135 Ranking sobre barreras a la inversión Fraser Institute 2009 2010 2011 2012 2013 2014 Ranking Venezuela 141 132 135 146 157 156 Jurisdicciones Consideradas 141 133 135 147 157 156 19
Productivity down, costs up Daily production per employee b/d per employee 120.00 100.00 80.00 60.00 40.00 20.00 26.14 0.00 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: PDVSA financial statements 20
Gasoline price: $0.07 per gallon or $0.002 at black market exchange rate. 1 cent per barrel versus $21 in Saudi Arabia Domestic subsidies: $24 billion in 2013. $13-14 bn. in 2015 21
Worrisome trends in the oil industry: production and net exports down, limited exports cash-flow, heavier production basket, most productive fields declining, PDVSA s own-operated production collapsing. PDVSA s malaise: debt rising, investment stagnant, costs rising, and productivity collapsing. Pragmatism prevailing: Chevron contract, windfall tax exemption, exchange rate, operational control, strategic focus on extra-heavy blending, reduction in Petrocaribe and increase in US exports, etc. However, unlikely to have significant impact in the short term due to: low oil prices, cash-flow and human resources problems, and risk environment (macro-imbalances, credibility, instability, and security issues). However, if investor-friendly policies continue and the price environment / political stability help (particularly under a new government) production should reverse the negative trend. There is significant upside potential. 22
Thanks for your attention francisco.monaldi@rice.edu Twitter: @fmonaldi 23