Chavez’s new oil reserves likely to stay buried
By Christopher Swann and Martin Hutchinson
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
NEW YORK — Leapfrogging Saudi’s oil reserves to become the Organization of the Petroleum Exporting Countries’ largest repository of crude gives Venezuelan strongman Hugo Chavez fresh bragging rights. But with output down 25 percent since 2000, citizens and oil users should hold their applause. Only with better Brazil-style relations with foreign firms and a revamped national oil company, PDVSA, will production ramp up.
Self-proclaimed reserve figures from OPEC members often deserve skepticism. A bigger endowment enables a nation to demand a higher production quota as well as lifting its political standing within the group. Still, Venezuela’s 40 percent jump in reserves to 296 billion barrels is reasonably credible. The nation’s Orinoco Belt contains oceans of oil — up to half a trillion barrels, according to the U.S. Geological Survey. Much of this heavy oil is potentially worth extracting at the current high oil prices.
Yet for Venezuela, reserves have never been the problem. The nation has enough trouble extracting what it already has. Ever since his election in 1999, President Hugo Chavez has made a hash of the nation’s crude sector, purging PDVSA of qualified staff while driving away foreign collaborators like Exxon Mobil and ConocoPhillips.
As a result, oil production has fallen by a quarter since 2000. Brazil has ramped up output by 60 percent over the same period, according to BP statistics. Uncontrolled domestic consumption, encouraged by government subsidies, has further reduced Venezuela’s heft in international energy markets. Exports have almost halved since the late 1990s, reducing the potential flow of wealth into the nation.
However big Venezuela’s reserves, this trend may continue unless Chavez changes his policies. Many of the nation’s most reliable gushers are past their prime and suffer decline rates of 25 percent a year. Just keeping production stable requires $3 billion in investment a year, the U.S. Department of Energy believes.
Despite past blunders Venezuela is not a hopeless case. Chavez doesn’t even need to ditch socialism to turn the oil industry around. The striking success of Brazil suggests that even a modest shift toward more oil- and business-friendly policies could boost production. But as Venezuela’s president isn’t given to such compromises, the most likely outcome is still that most of its oil remains buried.