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Venezuela and oil


It was a Venezuelan, Juan Pablo Pérez Alfonso, one of the founding fathers of Opec, who described oil as “the devil’s excrement”, and his country’s dismal recent history proves his point. Venezuela holds what are generally reckoned to be the world’s largest proved oil reserves, but mismanagement has sent its economy into freefall, and the anger that has been building for years broke out into political chaos this week, as opposition leader Juan Guaidó declared himself interim president.

Nicolás Maduro, who was this month sworn in as president for a second term, after winning a rigged election in May, has shown no sign of being ready to step aside, and so far he still has the backing of the army. The US and Canada, along with Brazil, Colombia and several other Latin American countries, recognised Mr Guaidó as Venezuela’s interim president, prompting Mr Maduro to say he was breaking off all diplomatic and political relations with the US, which he accused of trying to foment a coup. The FT’s Andean correspondent Gideon Long wrote a useful guide to what to watch for as the crisis unfolds.

The White House has been considering new sanctions on Venezuela’s oil industry to increase the pressure on Mr Maduro, but at the time of writing had not taken any action. Some analysts suggested Mr Maduro’s regime was likely to collapse, even without any more of a push from the US. Venezuela both exports oil to the US and imports ultra-light oil to dilute its heavy crude. The Trump administration could decide to disrupt either or both of those flows, although there would be some costs for American companies if it did so. The prospect that some US refiners might have to look elsewhere in the world for different and possibly more expensive sources of heavy crude sent their share prices lower. The prospect of possible further disruption to Venezuela’s oil exports has not so far had much impact on global crude prices, however. On Friday Brent was trading at about $61 a barrel, very close to where it began the week.

A critical part of the explanation for Venezuela’s decline lies in the damage done to PDVSA, its national oil company. When the Arab countries nationalised their oil industries in the 1960s and 1970s, they managed to retain many of their skills and capabilities. After Hugo Chávez, predecessor and mentor of Mr Maduro, was elected president in 1998, there was an exodus of experienced oil workers, as PDVSA was “packed with political and military appointments and descended into mismanagement and incompetence”, as the FT’s Jonathan Wheatley put it. Venezuela’s crude production fell to 1.1m barrels a day in December, just a third of its level in the mid-2000s.

It is worth noting that although the decline in oil prices since 2014 has not helped Venezuela, the depth of its economic slump has not been shared by other petro-states. Over the past 10 years Saudi Arabia and Angola, to take two examples of economies that are heavily dependent on oil revenues, have outperformed Venezuela enormously in terms of economic growth.

The future of oil in a world shaped by the US shale revolution and the threat of climate change was one of the topics under discussion at the World Economic Forum annual meeting at Davos. The panellists included Mohammad Barkindo, secretary-general of Opec, Vicki Hollub, chief executive of Occidental Petroleum, and John Hess, her counterpart at Hess. The mood of the discussion seemed convivial: Mr Hess said people should recognise that “Opec members play a very important role in stabilising the market for oil”, while Mr Barkindo observed that the actions of Opec and its allies in cutting production since 2016 had “helped to rescue the US oil industry”.

Separately, but also at Davos, Kirill Dmitriev, chief executive of the government-owned Russian Direct Investment Fund, expressed a similar spirit of peaceful coexistence, acknowledging that dreams of crushing the US shale industry were futile. “For US shale production to go down, you need oil prices at $40 per barrel and below. That is not healthy for the Russian economy,” he said.

Both Ms Hollub and Mr Hess emphasised the new capital discipline of the US shale industry, and suggested US oil production growth would slow from last year’s breakneck pace. Ms Hollub said: “Not as much money is going to be pouring into the Permian basin.” Their comments aligned with a story I wrote about how the flows of capital that have enabled shale companies to pay for their drilling programmes have recently dried up, at least for the time being.

The Energy Information Administration this week published its 2019 Annual Energy Outlook, projecting possible future scenarios for the US out to 2050. S&P Global Platts focused on the outlook for oil, highlighting the EIA’s projection, based on unchanged policies, that “record-breaking US oil production is expected to continue for decades, driven largely by the Permian Basin”. However, the EIA showed different scenarios as possible outcomes, ranging from a high output case with US production going over 20m barrels a day by 2040, to a low case with a peak at just under 13m b/d that could be only five years away. The fact that the EIA’s projections have often underestimated the growth of US oil production has encouraged expectations that the high-output scenario may turn out to be closer to the truth.

Rystad Energy, meanwhile, suggested that US oil production, including lighter liquids as well as crude, could be more than that of Russia and Saudi Arabia combined by 2025.

The EIA also forecast that wind and solar power would be the fastest growing sources of new electricity generation in the US, for at least the next two years. The longer-term projections imply a slowdown in the pace of growth in the 2020s, but the EIA also has a record of underestimating the growth of renewables, and many analysts think wind and solar in the US will also end up outpacing the EIA forecasts.

The discussion of climate change at Davos by executives who had arrived there by private jet was too obvious an open goal for environmental campaigners to miss it. Air Charter Services estimated that there would be almost 1,500 flights by private jets moving in and out of local airfields over the six days around the meeting. The WEF rejected that figure, suggesting there would be only 270 flights during the first three days of the meeting, 14 per cent fewer than last year.

The energy density advantage of oil-based fuels over batteries means that aviation will be one of the toughest sectors to move away from hydrocarbons. If world oil consumption does go into a declining trend at some point, jet fuel is one of the products that is likely to remain in use the longest. Rocky Mountain Institute warned in a report this week that the global aviation industry needed “a radical new plan to achieve its climate goals”, because its emissions are growing faster than earlier forecasts suggested, “and long-term solutions are nowhere in sight”. There is a research and development effort going into electric aircraft, however, and Boeing this week said it had recently held a first test flight for its “all-electric autonomous passenger air vehicle”. It was, wrote The Verge, “a significant step toward a future in which autonomous, electric ‘flying taxis’ zip from skyscraper to skyscraper”.

A record-breaking heatwave has been scorching Australia, straining the country’s power supplies. In the state of Victoria, customers have been hit by rolling blackouts, as the heatwave caused “unanticipated levels of demand” for electricity. As the Australian Energy Market Operator worked to keep the lights on, it ordered Alcoa’s aluminium smelter in Victoria to cut its power usage for about 100 minutes under the system’s emergency process. Lily D’Ambrosio, Victoria’s energy minister, identified shutdowns and reduced output at several of the state’s coal and gas-fired power plants as critical factors in causing the blackouts. The AEMO warned that Australia’s ageing coal plants could be expected to break down more often in the future.

The question of how to replace that failing capacity is fiercely debated. The authorities have been urging customers to limit their demand wherever possible, to help keep the grid stable, but Pauline Hanson, a senator for Queensland who has been described as “the Donald Trump of Australia”, had a different idea. On Twitter she urged people to “go out and start up everything: go and start your washing machine, ironing, vacuum cleaning, air-conditioning, whatever”, to “send a clear message to those out there” that the country needed more coal-fired power plants.

Meanwhile, renewable energy is booming in Australia. Renewable generation on the grid in Australia’s national electricity market grew from 13.4 per cent in December 2017 to 17.6 per cent in December last year. Including rooftop solar, the renewable share last month was 21.4 per cent of electricity supplied to consumers.

The estimated number of people killed in the gasoline pipeline explosion in central Mexico last week has risen to 107. The explosion is believed to have happened after the pipe was deliberately punctured, drawing hundreds of people hoping to collect fuel.

People talk a lot about “the energy transition” away from fossil fuels, but rarely reflect on how rare it is for the world to give up using a source of energy. I wrote about some of the implications of that history, with a big debt to Richard Newell and Daniel Raimi of Resources for the Future, who explored the idea last year.

And finally: MuckRock is a US non-profit collaborative news website that helps people use freedom of information laws to obtain and share government documents. It stores hundreds of thousands of pages, but few can be as quirky as the story of “the Green Reaper”: a bizarre mascot for the US Department of Energy. The pictures will haunt your nightmares.

Other views

Nick Butler — Renewables boom fails to dent investment allure of hydrocarbons

Nick Butler — Falling demand is the energy sector’s next challenge

David Sheppard — Investors risk losing faith in returns on offer from ‘Big Oil’

FT View — Venezuelan crisis calls for concerted diplomacy

Colby Smith — Venezuela bondholders are betting on Maduro’s downfall

Edward Luce — The risks of Trump’s Venezuela freedom cry

Roula Khalaf — Seeds of doubt sown among the elite on the slopes of Davos

FT View — The cylinders of the global economy are starting to sputter

John Kemp — The global economy is headed for recession

Philip Verleger — What’s behind oil’s slow flash crash?

Quote of the week

“I think it is insane that people are gathered here to talk about the climate and they arrive here in a private jet.”

Greta Thunberg, the 16 year-old Swedish climate activist, arrived at the World Economic Forum in Davos and was scathing about the transport choices of some of her fellow attendees. She has inspired a wave of school strikes and protests around the world, including a march with an estimated 35,000 children in Brussels on Thursday.

Chart of the week

This comes from a fascinating report for the Oxford Institute for Energy Studies, which looks at how expectations of an energy transition away from fossil fuels might be influencing large investors’ risk preferences. The authors say the message from this chart, derived from a survey of 26 institutional investors, is that expectations of such a transition have started to affect views of required hurdle rates for oil, gas and coal projects. “Investors are demanding a higher hurdle rate in order to invest in long cycle oil and coal projects,” they write.

There is plenty of room for debate about what their findings really mean, but it is an original and important piece of work. Beyond that headline result the report, by Bassam Fattouh, Rahmatallah Poudineh and Rob West, also has plenty of other thought-provoking insights, and is well worth reading in full. Thanks to Jamie Webster of the Boston Consulting Group for pointing it out on Twitter.

119 Comments on "Venezuela and oil"

  1. makati1 on Sun, 27th Jan 2019 5:47 pm 

    Davy gets “triggered” when someone points out how the terrorist, baby killing country he supports is dying and nothing will save it. US, the debtor country, at 105% of GDP and increasing quickly.

    Russia will do just fine. Very low debt (15% of GDP). Multiple resources still in the ground. A nuclear military second to none. And powerful friends like China and even Germany. Putin still understands diplomacy.

    As the SHTF, Davy will melt down and go postal. All the US wants in Venezuela is the oil. Damn the Venezuelans. If Venezuela had a Stalinesque dictator that sided with the US, the US would be happy.

    As for China, losing a few billion here and there is cheaper than a war. Besides the fact that the US sends China at least a billion a week in interest for the $1T+ USTs/USBs that it holds and a plus of $5B to $8B per week in trade surplus. The debtor nation, America, is paying for the new Silk Road and is too stupid to see it.

    China will be just fine. China’s debt is just 47% of GDP. It’s military is able to keep the rogue US at bay. Even America’s admirals know they cannot get within 1,000 miles of China in a real war. It is a nuclear country and is safe from the coward America.

    So, keep that blood pressure up, Davy. it shortens your life and will end the pain. LOL

  2. Davy on Sun, 27th Jan 2019 6:12 pm 

    “As the SHTF, Davy will melt down and go postal”

    makato, you have been saying shit like that for years. It is more like you have been wounded and now whining. You are so dramatic and stupid at the same time. You don’t even know what the stats you post mean. They just look good.

  3. makati1 on Sun, 27th Jan 2019 6:29 pm 

    And you keep proving me correct Davy. Your delusions have only gotten worse and your reactions to my posts have only gotten more desperate. Just like your country. Desperate. You cannot ignore me. That is an obsession. But I can, and do, ignore you most of the time.

    I understand more than you do about what I post, obviously. I view the world with open eyes and an open mind. I do not suck on the US government propaganda teat like you do. I also have at least a decade or more of experience to weigh my assertions against than you do. Perspective. Always perspective.

    I lived in the time of the real American Dream. You did not. I can compare. You cannot. I can see the changes as I lived thru them as an adult not a child. You did not. You are still an immature bully Davy. You will never grow up. That makes it so much more difficult for you as the US slides into the 3rd world. Aww. Too bad! NOT! LMAO!

  4. Davy on Sun, 27th Jan 2019 6:44 pm 

    “And you keep proving me correct Davy. Your delusions have only gotten worse and your reactions to my posts have only gotten more desperate. Just like your country. Desperate. You cannot ignore me. That is an obsession. But I can, and do, ignore you most of the time.”
    Not really makato, I am getting bored with your same old shit. I try to ignore most of what you say but when you stick your foot in your mouth it is fun to swat you down. You are such a proud asshole you make great entertainment when you are humbled.

    “I understand more than you do about what I post, obviously. I view the world with open eyes and an open mind. I do not suck on the US government propaganda teat like you do. I also have at least a decade or more of experience to weigh my assertions against than you do. Perspective. Always perspective.”
    7 year and makato is still trying to call anything different from what he says is propaganda. What is hilarious is he will use sources he call propaganda when it suits him. The dumbass will use USA today when the opportunity to trash the US arises.

    “I lived in the time of the real American Dream. You did not. I can compare. You cannot.”
    Makato, only you didn’t live the American dream. You loved a failed life this is why your every waking hour is devoted to cutting the US down. You are so full of hate and resentment it oozes from you.

    “You are still an immature bully Davy. You will never grow up.”
    Sure makato and what are you? You spend your day doing put downs and character assassinations. What a friggin hypocrite.

  5. makati1 on Sun, 27th Jan 2019 8:07 pm 

    NO Davy, you cannot resist trying to bully me. It is not “my foot in my mouth”, it is the facts and truth I post that has you frustrated. You cannot defend your loser country with facts so you resort to delusions and bullying.

    Sorry. I do not “spend my day” on here. I drop in occasionally, if I am bored, but am offline most of my waking hours. No so for you, delusional Davy. You live on here to try to prove you are superior to the rest of the world. All you do is prove that you are not. Exactly the opposite, in fact.

    “You spend your day doing put downs and character assassinations.” Look in the mirror Davy and see the real hypocrite. Prove you assertions, goat’s ass. I only “assassinate” your character because you deserve it.

    I will continue to post any negatives about the US as it is needed to educate persons such as yourself to the real world. I could fill this site, but the owner posts many of the articles I have read anyway. More so every day. An intelligent person.

  6. makati1 on Sun, 27th Jan 2019 8:08 pm 

    BTW Davy, using cutesy names only proves your immaturity and frustration. LOL

  7. makati1 on Sun, 27th Jan 2019 10:24 pm 

    “Social Credit Systems and Basic Human Rights”

    “China has instituted a system of official “social credit” monitoring which is supposed to come online by 2020….

    We read about China but few are aware that Israel is a total surveillance state as is Saudi Arabia…

    …the current regime in Israel has put in place a simplified social credit system with sledge hammer brutality….

    Israel is, perhaps, the most extreme expression to date, of a social credit system based on an imaginary racial subset….

    Free of any objective data, Israel has assigned perhaps the world’s most pervasive and dehumanizing social credit system imaginable, built on fake history, junk science and false claims of racial origin, deeply paralleling the work of certain German officials in the 1930s, some of whom were later executed after judicial processes at Nuremberg. …”

    A similar system is coming online in America as well,…” – Gordon Duff

    We read a lot of propaganda from the USMSM about China’s surveillance but nothing about that of Saudi Arabia, Israel, or the US. I wonder why? Hypocrites all!

  8. makati1 on Sun, 27th Jan 2019 10:30 pm 

    “Trump’s trade tantrum triggers slump”

    “We shall commence by explaining why trade tariffs are likely to be the trigger for a possible slump before moving on to the important issues that arise from the public’s discovery of its own financial precariousness, the discrediting of macroeconomic theories and the likely reactions in currency markets….

    The American government is alienating China, its key Eurasian creditor, which with its principal Asian partners has been planning to reduce exposure to the dollar. The influence of this movement against the dollar extends to China’s trade counterparties nearly everywhere outside the United States. This even includes Japan, which remains officially on side with America for now, but her zaibatsu are being drawn into China’s sphere of influence. Good Europeans such as Poland and Hungary are hedging their dollar bets by accumulating gold reserves, now that the silk road is transiting goods to and from the Far East….

    The US has two problems with this issue. Not only does the budget deficit need funding by foreign investors recirculating their capital, but the trade deficit will continue to rise irrespective of tariffs….

    Not only is it in a government’s perceived interest to look no further than an increase in GDP, but the abuse of statistics by way of the introduction of a price deflator has reached remarkable levels. In the Alice-in-Wonderland of government economics a price deflator is necessary to measure the increase in welfare liabilities arising from indexation. Indexation has simply become a cost to be controlled by fiddling the figures….

    See part 2:

  9. makati1 on Sun, 27th Jan 2019 10:39 pm 

    Part 2:

    “Independent estimates of price inflation in the United States are in the region of nine or ten percent annually, compared with the most recent official estimate of 1.9%[i]. Governments can cheat in this way because there is no such thing as an indisputable price index….

    John Williams of has been pointing out the corruption of US Government inflation statistics for years.[iii] The process of deliberate data corruption started in 1980, and Williams estimates price inflation today to be in line with Chapwood’s calculation of nine or ten per cent, when all the changes to the state’s calculation methods are removed….

    Consequently, the US’s non-financial, non-government economy has been in a long-term DECLINE in absolute terms for some time…. (No real GDP growth, just contraction.)

    If we make a rough assessment based on an annual compounding loss of the dollar’s domestic purchasing power averaging a conservative seven per cent since 2000, today’s price level is about 250% higher than then, which feels more correct than the BEA’s official estimate of a cumulative rise in prices of only 48%….

    Revelation of the full debilitating effects of the prolonged wealth transfer from productive economic sectors in the welfare-driven nations is only a matter of time, but probably requires a trigger for it to be widely understood. That trigger seems set to evolve from a potentially rapid contraction of global trade, brought about in large measure by American tariff policies.”

    Fake economy, fake numbers, lies and more lies. The collapse is picking up speed. Go Trump! LOL

  10. makati1 on Sun, 27th Jan 2019 10:46 pm 

    BTW: Taking the ~7% real inflation over the last 18 years would have increased my SS buying power by ~250% instead of the 48% the government claimed. THAT is why the government lies. It made promises it cannot keep and is trying to cover them up with bullshit.

  11. Davy on Mon, 28th Jan 2019 4:15 am 

    “We read a lot of propaganda from the USMSM about China’s surveillance but nothing about that of Saudi Arabia, Israel, or the US. I wonder why? Hypocrites all!”

    I have read plenty of news makato you are just making that hsit up to deflect from what is happening in China.

  12. Davy on Mon, 28th Jan 2019 4:17 am 

    “Fake economy, fake numbers, lies and more lies. The collapse is picking up speed. Go Trump! LOL”

    Everyone knows the worst “fake” numbers are in China makato. More deflection

    Gold money dot com want you to buy gold. Haven’t you figured that out yet with gold sites on Zero Hedge?

  13. Davy on Mon, 28th Jan 2019 4:27 am 

    “BTW: Taking the ~7% real inflation over the last 18 years would have increased my SS buying power by ~250% instead of the 48% the government claimed. THAT is why the government lies. It made promises it cannot keep and is trying to cover them up with bullshit.”

    Makato, do you have the reference or the detail on how you got that number. Plus, apply that to the real world and get back to me why your comment does not add up.

  14. Davy on Mon, 28th Jan 2019 6:09 am 

    ‘Election-Meddler’ Wasserman Schultz Now “Fixing Democracy” In Venezuela”

    Regime change and foreign interventions are things that the two US ruling parties agree on regardless of how much they exchange blows at home. Venezuela is the latest place where Republicans and Democrats have found common ground. If you watch the US media, you know what is happening in Venezuela: Dictator Nicolas Maduro is brutally suppressing the people he has been robbing for years, and now they have revolted and elected a true representative of their interest, the one true legitimate acting president Juan Guaido. And now, as RT’s Alexandre Antonov reports below, it’s up to America to ‘fix’ democracy by whatever means necessary. The House Foreign Affairs Committee has even offered a simple explanation on how a ‘dream team’ of Democrats have prepared a package of laws, which will ensure Venezuela’s transition into a better future.

    “Debbie Wasserman Schultz gets arguably the hardest task of them all – taking on Russia’s President Vladimir Putin. You know, the one who – according to the current dogma of the American left establishment – already denied the Democrats the presidency in 2016 and whose puppet Donald Trump is currently trying to topple the Venezuelan government for some reason that only a 5-dimensional-chess master can understand. Wasserman Schultz may hold a personal grudge against Putin. She had to resign as the Chair of the Democratic National Committee after leaked documents revealed how it was playing on the side of Hillary Clinton and against Bernie Sanders in 2016. The leak is widely attributed to Russia by American politicians and media. The irony of Wasserman Schultz now being on the frontline of bringing democracy to Venezuela didn’t go unnoticed by Jill Stein, the head of the Green Party.”

  15. Davy on Mon, 28th Jan 2019 6:35 am 

    “Trump Floated “Military Option” In Venezuela With Sen. Graham”

    “Axios has revealed key explosive contents of a recent meeting between President Trump and Sen. Graham wherein the president “mused to him about the possibility of using military force in Venezuela, where the U.S. government is currently pushing for regime change using diplomatic and economic pressures.” According to Axios: Graham, recalling his conversation with Trump a couple weeks ago, said: “He [Trump] said, ‘What do you think about using military force?’ and I said, ‘Well, you need to go slow on that, that could be problematic.’ And he said, ‘Well, I’m surprised, you want to invade everybody.'” Graham laughed. “And I said, ‘I don’t want to invade everybody, I only want to use the military when our national security interests are threatened.'” Sen. Graham explained further to Swan in a phone call that “Trump’s really hawkish” on Venezuela, and added the president’s willingness to use military force against the Maduro regime actually surpasses Graham’s. Graham summarized the unusual and unexpected takeaway from the contents of his discussions with president with the conclusion that “Trump was even more hawkish than he [Graham] was on Venezuela.”

  16. Davy on Mon, 28th Jan 2019 6:57 am 

    Wow, hand Trump 2020 why don’t you! I think the Democrats better come up with a front runner soon or their identity political nightmare is going to sink them.

    “Hillary Clinton Reportedly Weighing Third Presidential Bid”

    “And while her numbers are well below those of Joe Biden and Bernie Sanders, she still outperformed many of her would-be primary rivals in the first polling for the Iowa caucuses. She’s already polling ahead of Elizabeth Warren and Kirsten Gillibrand, and is only one spot below Kamala Harris.”

  17. Davy on Mon, 28th Jan 2019 7:06 am 

    “Venezuelan pirates – the new scourge of the Caribbean”

    “As Venezuela’s economy collapses, a tide of lawlessness is spreading to the nearby island of Trinidad. Its fishermen now live in fear of Venezuelan pirates, discovers Colin Freeman, while Venezuelan smugglers exchange drugs and guns for basic necessities.”

  18. Duncan Idaho on Tue, 29th Jan 2019 3:42 pm 

    “Phil Flynn reports that Trump administration gave the refiners a heads up on coming sanctions, so they could buy more oil before they went into effect. Wouldn’t expect the API report or EIA weeklies to show a decrease for awhile.”

  19. Dredd on Thu, 31st Jan 2019 1:06 pm 

    “It was a Venezuelan, Juan Pablo Pérez Alfonso, one of the founding fathers of Opec, who described oil as ‘the devil’s excrement'” …

    That gives new meaning to “shit-hole country” doesn’t it?

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