Venezuelan Oil - How low can production go?
The Centre for Strategic and International Studies focus on Venezuelan oil production, and are looking to answer the question; How low can production go? For this exercise, they teamed up with Kayrros, an energy data analytics company. Below we look at nine charts by Kayrros and CSIS to explore where production is going.
Down, that is where Venezuelan oil production is going;
The CSIS notes production is at its lowest in at least 50 years! May output was 1.36m b/d, over 600k b/d below its allotted OPEC level. They have, unwillingly, done a significant contribution to OPEC’s efforts do reduce the global oil inventories overhang.
In the next few charts, the CSIS and Kayrros show that Venezuela has tried to ignite oil production once more. Satellite images are used to measure production activity are translated into the activity index. The bigger the heat signal from the flaring facilities, the higher the activity of the field. The following charts depict the activity at the El Furrial field, a Giant field.
Below: The bigger the heat signal, the higher the activity. The top left picture is from June 2016, top right from July 2017, bottom left from February 2018, and bottom right from May 2018. Activity was high at the start of this year, but has since waned again.
As can be seen, activity picked up in the first quarter of 2018, However, for a variety of technical reasons, this short-term increase could not offset the field’s precipitous decline. This is reflective of the overall trend.
The CSIS lists other issues that have exacerbated the situation; payment difficulties, logistical challenges, labor shortages, trouble sourcing diluents. Actually exporting the crude that is still produced is also problematic, with Conoco’s seizure of Petróleos de Venezuela, S.A. assets forcing the latter to divert exports. More than 24m barrels are waiting to loaded on to 70 tankers queuing up in the Caribbean.
A record low of 1.1m b/d was exported in May. Another issue is that China still entitled to oil to have its debt serviced, resulting in reduced income from oil for Venezuela, however exports to China seem to have dropped with a greater proportion flowing to India and the US Gulf Coast. An overview of export destinations;
Adding insult to injury for exports are US led sanctions. Financial sanctions make servicing its debt quite tough for Venezuela, and possible sanctions forthcoming may constrain the importing and exporting of oil and related chemicals. The CSIS notes the US may revert from the latter due to already high oil prices, and the increased pain it would bring to Venezuelan people.
US imports are at a record low today, at 400k b/d
Finally, Venezuela has been unable to bring new refineries online, and keep the exiting ones running. It has an installed capacity of 1.62m b/d, however only one refinery is still in operation, the 955 kb/d Paraguana Complex, and this is only running at a third of its capacity. Further declines look possible due to maintenance issues, and a shortage of chemicals and labor. This has caused a need to actually import petroleum from the US. A further drop in output will cause large shortages in the local market, possibly creating additional turmoil in the already unstable country.
The only good news Venezuela has had recently is the increase in oil prices, in which of course they have played no small part. Unfortunately, these higher prices will not be enough to counter the problems caused by the drop in production and resulting loss in revenue.
AS will be very clear by now, the Venezuelan oil sector faces several headwinds, and this can only lead to one answer on the question posed; Much lower.