Venezuela’s oil industry, once a significant supplier to the United States, faces numerous challenges that affect its production capabilities and the potential for renewed exports. By the late 1990s, Venezuela exported almost 2 million barrels of oil per day to the United States. American refineries used more than half of that production. The reality is that the picture has changed considerably by a perfect storm of sanctions, a lack of investment and political turmoil.
Venezuelan crude oil is incredibly heavy and sour, which is extremely desirable for US refineries. These refineries are primarily located on the Gulf Coast, where they have been designed to process heavy, unctuous crude imported from Latin America. US refineries today import heavy crude from such countries as Canada, Colombia and Mexico. If political conditions permitted, they could very quickly bring on an additional 1 million barrels per day from Venezuelan production.
Though it still has some of the biggest oil reserves in the world, Venezuela’s once-productive output has been hampered by years of mismanagement and corruption. The country’s oil infrastructure is in crisis and requires urgently needed investment. At the same time, persistent turmoil has sent a lot of the most experienced talent packing. The country’s capacity to rebuild is limited by US sanctions placed on the recently formed regime.
Experts estimate that it would require approximately 16 years of dedicated effort and an investment of $185 billion to restore Venezuelan oil production back to 3 million barrels per day. Jorge León, an industry analyst, commented on the current situation:
“A rapid recovery in Venezuelan oil production in the short term is highly unlikely,” – Jorge León
The international investment community is still understandably gunshy about Venezuela’s potential. Rystad went on to say that any upturn in production levels would depend on the participation of IOCs. Only then would such companies begin to look at investments, and only if they were confident in the stability of Venezuela’s governance and investment climate.
“Years of chronic underinvestment have severely eroded oil infrastructure, much of the skilled workforce has left the country, and ongoing political instability continues to undermine operational confidence.” – Jorge León
The picture is complicated by the hurtful impact of US sanctions. They have banned Venezuela from exporting their oil. This has created new alarm among would-be investors about the risks they might face. Political analyst Shah noted that the sanctions are a part of a broader strategy:
“This could only be financed by international oil companies, which will consider investments in Venezuela only if they have full confidence in the stability of the country’s systems and its investment climate for international oil and gas players.” – Rystad
Shah pointed out how these actions serve a dual purpose:
“This is part of Trump’s view that almost any issue can be solved by making the cost of energy cheaper so that prices for consumers across the economy fall too,” – Shah
There are unprecedented challenges to Venezuelan oil production as we speak. This conundrum is hurting the nation and US refineries that rely on heavy crude. Recovery in the near term does not appear to be in the cards.
“It is also Trump flexing the US’s muscles on the global stage against one of its greatest global rivals.” – Shah
The current state of Venezuelan oil production poses significant challenges for both the country and US refineries that rely on heavy crude. While there is interest in re-establishing ties and increasing imports, immediate recovery seems unlikely.