One of the most questionable managements in the history of oil has been witnessed in a country that has very important historical and cultural ties with Spain: Venezuela. The Caribbean country has the largest proven oil reserves in the world, however, its crude oil production has not reached one million barrels for years. Added to the dubious management of crude oil are the sanctions imposed by the US on the Venezuelan regime. Although it is true that these sanctions were partially lifted with Russia’s invasion of Ukraine, few dared to predict an awakening of this industry that had been in free fall since the late 90s (the golden years of Venezuela). However, a handful of ‘actors’ including Spain are helping to boost the country’s production, so that, sooner rather than later, crude oil production could once again reach one million barrels per daya figure that has not been seen since the beginning of 2019.
The latest data have once again been encouraging (there have already been a few months of growth). Venezuela produced an average of 989,000 barrels per day (bpd) of crude oil in October, an increase of 4.8% compared to 943,000 bpd in September, according to official figures collected in a report published this Tuesday by the Organization of the Petroleum Exporting Countries. (OPEC). The country with the largest proven crude oil reserves also recorded an increase of 25.8% compared to October last year, when it produced 786,000 bpd. Although Venezuela has oil reserves of more than 300,000 million barrels, the problems in extracting and marketing that crude oil in recent years and almost decades have been evident. The lack of investment in the industry, the mismanagement of the income obtained and the sanctions have created this paradox: the country with the most crude oil in the world produces much less than other countries that have 80% less proven crude oil reserves.
Experts attribute the recent and unexpected increase to the resumption of operations of several transnational companies, especially the American company Chevron. In Trump’s first stage, the president sought to overthrow Venezuela with an aggressive measure, a total embargo on its oil industry. No company could work in Venezuelan wells and key components for refining such as chemicals could not be marketed. Nor could any country that traded with the US do so (legally). This was a blow to the jugular for Caracas, whose crude oil, despite being so abundant, is ‘ultra-heavy’ therefore, it requires significant processing that requires these chemicals.
With Biden came the thaw with two key measures. First, he granted a special license (license 41). That allowed directly chosen companies to work in the country. The most notable was Chevron. With a bankrupt PDVSA and a devastated economy, these companies were the only ones that could increase the production capacity of the Caribbean country. Later, it temporarily lifted the sanctions, conditioning the measure on guarantees in the last elections, guarantees that were considered unfulfilled, so it was not renewed. However, companies that were already operating under this license 41 could continue and, in fact, two new European firms were included (Repsol and Maurel & Prom).
In statements to elEconomista.esFrancisco Monaldi, director of the Latin America Program at the Baker Institute for Public Policy at Rice University in Houston, comments that although he has doubts with the official figures and believes that there may only be 900,000 barrels a day pumping right now, the growth is undeniable. “The key is Chevron, which has reached 225,000 barrels per day”. In that sense, he explains that although this has been the main catalyst, there is now no room for maneuver, since “the plan that the firm set as a ceiling was 260,000 barrels, so there is not much more room in this forehead”.
Spain and Repsol oil
The other side of this coin is the strong increase in Venezuelan oil imports that is being witnessed in Spain. In recent months, Spain has been importing between 80,000 and 100,000 barrels of Venezuelan crude oil, which has made the Caribbean country the fifth or fourth most important supplier along with Nigeria, according to data published by CORES. So far this year, Spain has already purchased more than two million tons of Venezuelan crude oil, data that has not been seen (accumulated for the year) for this date since 2009, 15 years ago.
Although correlation does not imply causation, diving into the CORES data you can see how Spain stopped buying Russian crude oil in April 2022coinciding with the beginning of Russia’s invasion of Ukraine. From that moment on, increasing imports of Venezuelan crude oil, also from the United States, were detected. Before 2022, Spain had even gone entire years without buying a barrel of Venezuelan oil. This greater demand for Venezuelan crude oil is essential for the country’s industry to restore part of its production capacity.
This translates into imports for Spain, but Christopher Canler, professor at Carlemany University, points out that positioning itself in Venezuela, particularly in its oil industry, makes great strategic sense. “We must not forget that Venezuela has the most important oil reserves on the planet, much larger even than those of countries like Saudi Arabia.” Therefore, “the country’s growth potential is enormous, it could become the richest country on the planet. All countries (USA, China, Europe…) know that this is the case and try not to lose positions there waiting for the opportunity to intervene in its development” explains the expert.
However, a good part of the relationship between Venezuelan crude oil and Spain, in addition to the new impulse from Venezuela, comes from Repsol, which is having a faster and more marked evolution in the country. The Spanish company has four projects in the regionthe first is ‘Campo Perla’, one of the largest offshore gas fields in all of Latin America. It also has Quiriquire Gas, with a 60% stake in an area of 93 square kilometers in Monagas.
Very close is Petriquiriquire, a company that controls 40% of which operates the oil fields in Monagas, but also those of Mene Grande and Barúa Matatán, in the states of Zulia and Trujillo. Petrocarabobo stands out, an area of 383 square kilometers. All these fields allow the Spanish company to pump close to 65,000 barrels of oil per day, that is, 11% of its business worldwide.
Monaldi explains that these figures must be qualified and that, in fact, they have even greater implications behind them. According to his estimates, lThe Spanish company would be producing between 30,000 and 40,000 barrels per day. “Apart from Chevron it is being the key, there are no new contracts, but they have two new areas in the Lake Maracaibo basin (Zulia) in the context of the Petriquiriquire project“. In that sense, they believe that the potential of the Spanish company can be the greatest catalyst for Venezuelan crude oil in the coming months and years. “Repsol could double its production in the next year or year and a half.”
However, Monaldi warns that something curious is happening, Repsol is obtaining more barrels from Venezuela than it is extracting. “The Spanish company is not only exporting its production, but I think it is also selling barrels from PDVSA itself”. How is it possible? The expert explains that, although there is no great public information that clarifies this situation 100%, he assumes that this is due “to an agreement they received to collect debt (in barrels of oil) for the Campo Perla project.” . In summary, “most likely they are collecting a portion of the canceled debt by exporting additional barrels, which is good news for Repsol.”
Will Trump’s rise kill the oil awakening?
However, returning to the Venezuelan oil rebound, it may be seriously compromised in the coming months, as Trump takes command of the country in January. “The political results (of the US elections) can affect global oil production if there are sanctions on producers like Iran or Venezuela. If there are stricter sanctions, there will be a lower supply of oil in those countries.”
At the moment it is not known exactly what Trump will do in relation to Venezuela. During the campaign, the Republican has shown his rejection of the Caribbean regime without showing his cards. Although he has defined Maduro as “a dictator,” he has focused his speech on how “crime is decreasing in his country by sending immigration to the United States.” However, he has not mentioned whether sanctions will return in their full splendor (without any license) or if he will opt for a more pragmatic approach.
Monaldi explains that, without a doubt, a period of doubt is opening where anything can happen. “People like Rubio and Waltz, who could be in the new Trump government, have openly expressed the need to impose more sanctions on Venezuela,” comments the expert. However, he believes that now there is a stage of ‘fog of war’ because “we do not know if Trump will be more pragmatic as he has already done on other fronts. The normal thing will be for the pressure to rise.” For the expert, all scenarios are on the table, from nothing happening to a “cancellation of licenses” that completely destroys Venezuelan production. In any case, Monaldi believes that “the new government will allow some time to pass before taking any drastic measures.”
From Venezuela they have wanted to opt for a rapprochement. Maduro congratulated Trump on his victory and explained that “during his first government we did not do well, this is a new beginning so that we can bet on win-win and things will go well for both the United States and Venezuela.”
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