Plummeting Oil Prices and Venezuela’s Energy Oil Prices and Venezuela’s Energy Outlook ... •...
Transcript of Plummeting Oil Prices and Venezuela’s Energy Oil Prices and Venezuela’s Energy Outlook ... •...
Plummeting Oil Prices and Venezuela’s Energy Outlook
-- Agenda --
All times are Pacific Times (GMT/UTC – 8 hours)
11: 00 – 11:05 am Review of agenda & logistics by Alexis Arthur, Energy Policy Associate at the Institute of the Americas
11:05 – 11:10 am Introductory remarks by Jeremy Martin, Energy Program Director at the Institute of the Americas
11:10 – 11:30 am Presentation by Francisco J. Monaldi, Harvard Kennedy School
11:30 – 12:00 pm Question & answer session
12:00 pm Session close
Follow the conversation on Twitter @IOA_Energy
Venezuela Oil Industry Outlook
Francisco Monaldi, Ph.D.
Visiting Professor and Roy Family Senior Fellow, Harvard Kennedy School
Non-Resident Fellow, Baker Institute, Rice University
Faculty Associate, School of Government, Tecnologico de Monterrey
Director, International Center on Energy and the Environment, IESA
Institute of the Americas, December 2014
Consumption and Popularity
-25
-20
-15
-10
-5
0
5
10
15
20
25
25
35
45
55
65
75
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Chavez popularity (lhs)
Maduro (lhs)
Real consumption growth (rhs)
Source: BCV and Datanalisis
The current macro situation
• Government deficit estimated at 20% of GDP in 2014 (about 16-17% before the price decline).
• Inflation rose above 65% in 2014 and estimates are above 100% for 2015.
• Fiscal breakeven at more than $170 with current exchange rate mix (about Bs. 12), can be reduced with a major devaluation to Bs. 35, but deficit still would be above 14%.
• Current account breakeven at around $70-80.
• Average Venezuela basket for this year $91 ($98 in 2013). Last week $62.
• President’s popularity in free fall. From 51% in 2013 to 24% today, and falling.
Oil industry’s performance: key points
1. Private investment boom in the decade before 2003 added 1 mbd of production. That and the price boom made expropriation very attractive.
2. A decade of very favorable conditions for development of the oil sector was wasted. High oil prices, very large reserves, and new investment projects in the pipeline.
3. Reality of decline and mismanagement. Production declining, subsidized domestic consumption increasing, exports declining, large external subsidies, costs increasing, number of workers increasing, arrears and debt going up.
4. Uncertain future. Conventional production keeps declining. Extra-heavy requires large investments that are unlikely to materialize.
9
Venezuela will continue to produce oil… until the world demands it
Sources: PODE hasta 2008, (*) Informe Operacional y Financiero de Pdvsa (2009), (**) Informe de Gestión PDVSA 2010 e (***) Informe de Gestión PDVSA 2011.
Venezuela’s official proven 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
297.6
0.0
50.0
100.0
150.0
200.0
250.0
300.0
1980 1985 1990 1995 2000 2005 2010
Bill
ion
s o
f b
arre
ls
Reserves/production comparison
Venezuela still offers an outstanding potential as an oil producer. The question is how to take advantage of that potential.
Source: BP Statistical Review of World Energy (2013)
0 50 100 150 200 250 300 350
US
Venezuela
Russian Federation
Iran
Kuwait
Saudi Arabia
United Arab Emirates
Nigeria
OPEC
Non.OPEC
Years of production
298 TOTAL
257 0 – 9.9 X Heavy
18 10 – 21.9 Heavy
10 22 – 29.9 Medium
11 30 – 38.9 Light
2 >39 Condensates
Reserves Grav, API Type
Orinoco
H = 4
XH = 255
Venezuela: Proven Reserves (billion barrels)
Source: PDVSA
Net oil exports
Source: BP Statistical Review of Energy
3007
2760
1846
855
-858
-1500
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
Venezuela
Mexico
Brazil
Traditional Areas Decline. Orinoco partly compensates.
14 Source: PDVSA, IPD
Declining production, declining exports,
and more than one third of total production is not paid for…
15
Not paid (MBD) Cuba 90 Others 60 Domestic market 750 (Smuggling 100, Imports 100) China loans 350 Total ~ 1.25 MMBD Cash flow production 1.5 MMBD
Source: PDVSA
0 200 400 600 800 1000 1200 1400 1600 1800
Others
Africa
South America
Europe
Asia
Central America & The Caribbean
North America (St. Croix included)
2012 2011 2010 2009 2008 2007 2006
• 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
Fraser Institute Global Petroleum Survey 2011: Jurisdictional rankings according to the extent of investment barriers
(based on All-Inclusive Composite Index values) 136 jurisdictions ranked
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The Reputational Legacy
Fraser Institute Ranking 2009 2010 2011 2012 2013
Ranking Venezuela 141 132 135 146 157
Considered jurisdictions 141 133 135 147 157
Investment and Social Spending
PDVSA’s Debt (US$ Millions)
Source: PDVSA
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• PDVSA’s current external debt at ~US$44 billion
• > US$10-15 billion in accounts payable
• >US$6-8 billion in probable arbitration settlements. Exxon $2.1 bn.
• >VEB Bs.500 billion debt with Central Bank.
2914
43384
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2006 2007 2008 2009 2010 2011 2012 2013
Mill
ion
s U
S$
19
20
26.14
19.32
30.37
0.00
20.00
40.00
60.00
80.00
100.00
120.001
99
4
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
b/d per employee
Daily production per employee
PDVSA PEMEX Petrobras
Venezuela Domestic Oil Consumption
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Gasoline price: $0.07 per gallon or $0.005 at black market exchange rate. 1 cent per barrel versus $20 in Saudi Arabia. Domestic subsidies: $24 billion in 2013
Source: BP
Gasoline subsidies
• Gasoline subsidies in 2013 were seven times higher than those of 2000
• Gasoline + diesel subsidies could suffice to cover healthcare, education and social
security budget.
• Subsidies are highly regressive: Most of it goes to rich and middle classes.
• Social costs and externalities: Wasted time in traffic equivalent to US$ 2,000 Millions
1,959
13,094
-5,000
0
5,000
10,000
15,000
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
MM US$ (2013 =100)
Gasoline Subsidies
Source: Menpet, EIA, Bureau of Labor Statistics and own calculations
Source: PDVSA Annual Report. Multiple years
Sowing the Oil Plan, 2013 – 2019
• The Plan Siembra Petrolera requires investments of US$ 257 billion,
US$ 189 billion for E&P. PDVSA would have to fund about 80% of those investments
• 2014 Forecast: 3.300 KBD (Previously 4.000 KBD)
• 2014 Investments: USD 32.7 bn.
• Increase proposal: 600 KBD/year
• Historical record:140 KBD/year (average 1943-1958)
Is it possible to achieve? NO!
2005 2012 2012 Growth (Decline) 2019
(Planned) (Observed) (Observed) (Planned)
Production (K b/d) 3269 5837 2910 -0,11 6.000*
Refining (K b/d) 3142 4050 2822 -0,1 4600
Exports (K b/d) 2993 4700 2568 -0,14 5600
Natural Gas (MM cfd) 6885 9780 7327 +6.4% 11947
* FPO: 4.000 K b/d in 2019
Venezuela: Production Forecast IEA
24 Source: IEA
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
2015 2020 2025 2030 2035
2011 Forecast 2012 Forecast
2013 Forecast
0
0.5
1
1.5
2
2.5
3
3.5M
BD
Oil Production by contract, Venezuela 1990-2013
Heavy-weight crudes, Joint Ventures (former strategic agreements)
Conventional crudes, Joint Ventures (former operative agreements)
Pdvsa direct management
61%
Source: Oil and Mining 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 Source: PDVSA
23%
16%
Joint Ventures
Key partners include:
• Petroboscán
• Petroindependencia
• Petropiar
Chevron
• Petrourica
• Sinovensa
CNPC
• Petromonagas
• Petromiranda
Rosneft
• Petrochiriquire
• Petrocarabobo
Repsol
• Petrosucre
• Petroleras Paria & Guiria
• Petrojunín
ENI
• Petrokariña
• PetroVen-Bras
Petrobras
• Petrocedeño
Total & Statoil
More pragmatism or is it desperation?
Windfall tax reduction in 2013 and waiver in new Orinoco Belt
projects (before investment recovery).
Promise of more operational and project execution control for
partners.
Loans guaranteed by export revenues (Chevron loan to
Petroboscan and others following).
The exchange rate.
Reduction in Petrocaribe subsidies? Domestic subsidies?
Pragamatic move to oil blending instead of upgrading?
But still difficult to get the necessary investments.
PDVSA’s problems: cash flow, infrastructure, and operational issues.
Macroeconomic and political instability.
Credibility and sunk investments.
The fall in oil prices
Maduro’s Oil Policy: The Return of Pragmatism
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Financing Agreements for $12 billion have been signed between
PDVSA and JV partners during 2013-14
Financing Agreements
Partner Amount (USD) J V
CNPC 4 billion Sinovensa
Chevron 2 billion Petroboscán
ENI 1.2 billion Petrojunín
Gazprom 1 billion Petrozamora
Repsol 1.2 billion Petroquiriquire
Perenco 0.4 billion Petrowarao
Repsol & ENI 1 billion Perla (Gas)
29 Source IHS
Citgo
Conclusions
• More pragmatism might lead to some increase in investment, but production is unlikely to increase much in the next year or two.
• The production basket will get heavier and less profitable.
• The pre-tax breakeven of most Venezuelan production is well below current prices.
• Imports of light oil and refined products will increase.
• The inhibitors of investments are still: PDVSA’s lack of investment capacity and human resources, political and macro instability, and the fall in the price of oil.
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