News Column

What Happens to Venezuelan Oil When Chavez Is Gone?

Jan 20 2013 12:11AM

Sean Cockerham

hugo chavez, Venezuelan Oil, uncertainty

WASHINGTON - The end of Hugo Chavez could mean big changes for the struggling state-owned Venezuelan oil industry, which drives its nation's economy, provides the money for Chavez's export of socialism, and has helped prop up Cuba through subsidies of hugely discounted oil.

Chavez, who is possibly in his final days after cancer-related surgery in Cuba, has used the state-owned oil company Petroleos de Venezuela SA as a cash cow to bankroll social welfare programs for his country and to give cheap oil to favored countries. But in the meantime, the country's oil production has dropped, and Venezuela is forced to import gasoline from the United States despite reportedly having the largest crude oil reserves of any nation on the planet.

"Chavez squandered probably Venezuela's best opportunity to really make some significant wealth," said Phil Flynn, senior energy analyst at Price Futures Group. "If you look at the Venezuelan oil industry, it's dilapidated compared to where it should be."

The fate of Venezuelan oil has broad implications for Latin America and the world, with Chavez giving oil on generous terms not only to allies such as Cuba and Nicaragua, but to countries throughout the Caribbean and Central America through the Petrocaribe program. Oil has helped Chavez spread his socialist gospel and challenge U.S. dominance in the region.

The 58-year-old Chavez has not been seen or heard from publicly since a serious operation in Cuba more than a month ago, his fourth surgery since being diagnosed with an unspecified type of pelvic cancer on June 8, 2011. He missed his inauguration this month for a new six-year term. Venezuelan officials maintain Chavez's condition is improving but he's "in battle." If Chavez is unable to take office, Venezuela's constitution says there must be new elections within 30 days.

Oil will be at the top of the agenda of any new leader: Oil accounts for about 94 percent of Venezuela's export earnings and more than 50 percent of federal budget revenues. Venezuela also sends an estimated 100,000 barrels of subsidized oil a day to Cuba, which the Cuban economy depends on. Roger Tissot, an energy consultant based in Canada, said an eventual change is likely even if Chavez ends up replaced by an ardent supporter such as his vice president, Nicolas Maduro.

"There are some questions even within the Chavez movement about how much influence Cuba has taken and the cost. My sense is those agreements, even in a Chavista administration, might be curtailed," Tissot said.

Venezuela also will need to tackle its declining oil production and lack of foreign investment regardless of whether the Chavistas or the opposition take over, Tissot said. Chavez fired thousands of oil managers and workers after a 2002 strike that sought his resignation, and he later nationalized the assets of companies like Exxon and ConocoPhillips.

Crude oil production in Venezuela has dropped by about a quarter since 2001, according to data from the U.S. Department of Energy. The industry also suffers from a deteriorating refinery system and accidents, including an explosion that killed at least 41 people in August. Venezuela a decade ago exported gasoline to other nations, including the United States. Now Venezuela imports U.S. gasoline, bringing in a record 196,000 barrels a day of petroleum products in September.

Venezuela buys the U.S. gas at a market rate but sells it to its nation's drivers at a huge discount: Fuel prices in Venezuela are the cheapest in the world at between 9 and 19 cents a gallon.

The Venezuelan state oil company also spends billions of dollars each year on social programs inside the country and, through its retail arm Citgo, has even run a heating oil-assistance program for poor Americans. That's included millions of dollars in free heating fuel for Northeastern states and rural Alaskan villages.

A Citgo spokesman said there's no information on whether the U.S. assistance program, which already has seen cutbacks in recent years, will happen this winter.

Venezuela remains the fourth-largest supplier of imported crude oil and petroleum products to the United States. But that's on the decline with America's boom of domestic energy and Venezuela's efforts to increase sales to China and other nations. Venezuela's oil minister asserts the nation's industry is sound and production will swell with oil from the Orinoco Belt in southeastern Venezuela.

Venezuela is working with Chevron and the Spanish firm Repsol on efforts to drill in the Orinoco Belt, but analysts say the oil there is extra heavy, difficult and expensive to extract.

Pedro Burelli, a former board member of the Venezuelan state oil company, predicted that after Chavez dies Venezuelans will be shocked to learn of the "disaster" the company has become. Whoever is in charge will be forced to either make a speech about cutting social programs or one about bringing in foreign investment, he said.

Chavez's charisma has helped distract from a real debate in the country about oil, he said. "The moment Chavez dies, a lot of what's happening in Venezuela will come to light," Burelli said.

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Source: (c)2013 McClatchy Washington Bureau Distributed by Mclatchy-Tribune News Service.


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