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In January 2018, Venezuela had 302 billion barrels of proved oil reserves, the largest in the world, according to Oil and Gas Journal, “Worldwide Reserves Report,” January 2018. As of May 2018, Venezuela’s crude oil production was 1.4 million barrels per day (b/d). Despite its production declines, Venezuela was still the 12th largest producer of petroleum in the world in 2017.

Venezuela’s crude oil exports to the United States fell from 840,000 b/d in December 2015 to about 506,000 b/d in October 2018–at its peak, U.S. imports of Venezuelan crude oil averaged 1.1 million b/d in 2007. Venezuela was the third–largest supplier of crude oil imports into the United States after Canada and Saudi Arabia.

Reduced capital expenditures by state–owned oil and natural gas company Petròleos de Venezuela, S.A. (PdVSA) are resulting in foreign partners continuing to cut activities in the oil sector, making crude oil production losses increasingly widespread. With Venezuela’s heavy dependency on the oil industry, the country’s economy will likely continue to shrink, and that the runaway inflation will remain the mainstay at least in the short term.

Venezuela’s revenue from oil exports is severely constricted because only about half of the exports generate cash revenues. U.S. refiners are among the few customers that still remit cash payments. The remaining crude oil exports are sold domestically at a loss or sent as loan repayments to China and Russia (the repayments to Russia are sent to Nayara Energy’s (formerly Essar) Vadinar refinery in India to service debt that Venezuela owes to Russian oil company Rosneft, the co–owner of the Vadinar refinery).

Executive Order 13808 of August 24, 2017, among other things, prohibited transactions by a United States person or within the United States related to: certain new debt of Petroleos de Venezuela, S.A. (PDVSA); certain new debt or new equity of the Government of Venezuela; existing bonds issued by the Government of Venezuela prior to August 25, 2017; and dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled by the Government of Venezuela. In addition, E.O. 13808 prohibited the purchase by a U.S. person or within the United States of most securities from the Government of Venezuela.

CITGO, an indirect wholly owned subsidiary of Venezuela’s government Petróleos de Venezuela, S.A., had revenue of $42.3 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.8 billion in 2013. While Citgo was not directly sanctioned in August 2017, it was barred by name from transferring dividends or distributing profits to PDVSA or the Venezuelan government. Citgo had provided nearly $2.5 billion in dividends to its parent company since 2015.

Problems in the Venezuelan oil industry are a consequence of years of mismanagement in the industry and were only aggravated with the decline in oil prices that started in 2014. Financial sanctions have led to a further deterioration of oil activities in the country, not only because of the reduction in financing options for the company, but by introducing additional constraints on daily operations. One of the implications for PDVSA is that it restricts the ability to get financing through bond issues and loans coming from U.S. institutions. This was one of the main financing mechanisms used by the company in recent years.

In strictly political terms, Venezuela's republican history exhibits a seeming incongruity between the instability and dictatorial rule of the period prior to 1935 and the stability of its post-1958 democracy. Scholars have posited a variety of explanations for this fortuitous transformation, most of which cite the usefulness of vastly increased petroleum revenues in allowing the state to address the demands of virtually every politically active sector of society. The marked decline in petroleum revenues during the 1980s therefore placed significant strains on this political system, which for over two decades had been the envy of the other nations of Latin America.

Venezuela claims to have the world's largest oil reserves. Hugo Chávez often boasted of the country's oil industry. But by 2014 the country couldn't pump enough oil out of the ground to meet domestic needs. In 2013, the US Geological Survey reported proven crude oil reserves were estimated to be 298.3 billion barrels (Gbbl) and natural gas reserves were estimated to be 5,581 billion cubic meters.

As early as 1978 the tar belt was one of the world’s largest reserves of non-conventional oil. The nation’s capacity to expand exploration and productive capacity is limited because its access to technology and capital is limited.

Saudi Arabia's unique role in the world long stemmed from its possession of the world's largest reserves of oil. In 2005 The Alberta Energy and Utilities Board estimated, for instance, that the proven tar sand reserves total 174 billion barrels. Oil & Gas Journal (OGJ) accepted the estimate of tar sand reserves, vaulting Canada up the ranks of the world’s largest reserves, ahead of Iraq.

While Venezuela has more than 256 billion barrels of extra-heavy crude, the downside is that grade contains a lot of minerals and sulfur, along with the viscosity of molasses. To make it transportable and ready for traditional refining, the extra-heavy crude needs to have the minerals taken out in so-called upgraders, or have it diluted with lighter blends of oil. Taking the lhe latter tactic, state oil company Petroleos de Venezuela SA (PDVSA) decided to import crude from Algeria and Russia. PDVSA heavily subsidizes oil, with gasoline costing consumers just pennies per gallon.

It is difficult to set a magic number on the price for the Venezuelan oil basket needed to sustain the Government's fiscal policy. It depends on the production levels of the various types of crude that make up the Venezuelan basket, as well as factors such as inflation, government spending, debt issuance, and the amount of "rainy day funds" the Government has stored up for just such an eventuality. Conventional wisdom is that Venezuela loses US$1 billion in revenues for each dollar drop in the price of oil. To define the break even point as the point at which Government expenditures exceed revenues would not be illuminating, as many countries have long-term policies of deficit spending. Rather, it is important to estimate the point at which the Government's fiscal deficit becomes so large as to force it to burn through its cash reserves and begin serious deficit spending (say in excess of 10 percent) within a one to two year time frame. The traditional number has been assumed to be around US$40/barrel for the Venezuelan basket, though local analysts provide ranges from US$25/barrel to US$55/barrel.

Petroleum dominated the economy throughout the twentieth century. In 1989 the petroleum industry provided almost 13 percent of the GDP, 51 percent of government revenues, and 81 percent of exports. Before the sharp drop in international oil prices in the 1980s, these ratios were considerably higher. From 1929 to 1970, the year of the country's peak production, Venezuela was the world's largest exporter of petroleum. In 1990 the country ranked as the third leading oil exporter, after Saudi Arabia and Iran, and contained at least 7 percent of proven world oil reserves.

The country's national petroleum company, the Venezuelan Petroleum Corporation (Petróleos de Venezuela, S.A.--PDVSA), the third largest international oil conglomerate, owned refineries and service stations in North America and Europe. Although Venezuela was only the third largest petroleum producer in the Western Hemisphere, behind the United States and Mexico, its proven reserves, at 58.5 billion barrels in 1989, exceeded those of both countries. Venezuela exported 54 percent of its petroleum to the United States in 1988, representing about 8 percent of American petroleum imports.

Venezuela long remained marginal primarily because it lacked deposits of gold, silver. or the precious stones that constituted Spain's fundamental interest in the New World. No useful purpose existed during colonial times for the petroleum--dubbed "the devil's excrement" by early Spanish explorers--that oozed out of the ground near Lago de Maracaibo. Venezuela's growing prosperity toward the end of the colonial era was based instead on its flourishing production and trade of cocoa. When the ravages of Venezuela's independence struggle combined with a collapse in the international market to put an end to Venezuela's cocoa "boom," coffee became the nation's principal export. This second phase in Venezuela's agricultural export economy lasted nearly a century, until petroleum became king with the popularization of the internal combustion engine in the early twentieth century.

The petroleum industry in Venezuela began under the control of foreign firms. The first commercial drilling of petroleum in Venezuela took place in 1917. After World War I, British and American multinational oil companies rushed to Lago de Maracaibo to tap the country's huge petroleum reserves. Oil jumped from 31 percent of exports to 91 percent from 1924 to 1934. The industry proved extremely lucrative to the scores of foreign companies that drilled Venezuelan crude because of the country's low wages and nominal taxes, policies supported by corrupt relations between foreign oil companies and various military dictatorships.

In the forty-year period after the death of Juan Vicente Gómez in 1935, the government and foreign oil companies engaged in a tug-of-war over taxation, regulation, and, ultimately, ownership. Although Venezuela reaped substantially greater benefits from its generous oil endowment after 1943, corruption and deceit on the part of the foreign companies and avaricious caudillos such as Pérez Jiménez still limited the national benefits of the industry. By the early 1970s, the possible nationalization of the oil industry became the focus of debate among labor, businesses, professionals, government, and the public at large. Aware of the conflicts and subsequent difficulties of Mexico's sudden, dramatic nationalization of the entire oil industry in the 1930s, Venezuela pursued its acquisition of the petroleum sector cautiously and deliberately. In December 1974, a national commission created by President Pérez delivered a proposal for nationalization. This proposal formed the core of the 1975 law that nationalized the oil industry. The most controversial element of the new law was Article 5, which gave the government the authority to contract out to multinational firms for various technical services and marketing. Despite the controversy, Article 5 provided technical expertise that proved crucial to the industry's smooth transition to state control beginning on January 1, 1976.

The nationalization of the remaining assets of the foreign oil firms in 1976 represented the culmination of full government control. Nonetheless, the government had little effect on the international price of crude oil, despite the efforts of the Organization of the Petroleum Exporting Countries (OPEC), of which Venezuela was a founding member. Fluctuations in the price of oil during the 1970s and 1980s exercised a commanding impact on the political as well as the economic life of the nation.

In 1977 the government created a holding company, PDVSA, to serve as the umbrella organization for four major petroleum- producing affiliates. This process consolidated the holdings of fourteen foreign companies and one national company, the Venezuelan Petroleum Corporation (Corporación Venezolana de Petróleos--CVP), into four competing and largely autonomous subsidiaries. Industry analysts have credited the competitive structure of the subsidiaries with increasing overall efficiency to levels well above those of most nationalized companies. The largest subsidiary of PDVSA was Lagoven, which was composed mainly of the facilities previously operated by the United States oil company Exxon. Lagoven accounted for 40 percent of national output in 1976. From the holdings of British and Dutch Shell, PDVSA created a subsidiary called Maraven. Four smaller United States companies became Meneven. Finally, PDVSA consolidated six smaller foreign firms and the state oil company into Corpoven.

A slump in world oil prices beginning in 1981 rolled back the substantial revenues acquired, and largely squandered, during the 1970s. The symbolic end of PDVSA's prosperity came in 1982, when the Central Bank of Venezuela seized US$6 billion of the oil company's earnings to help offset the country's growing external debt problems. This action effectively eliminated PDVSA's autonomy. After oil prices dropped nearly 50 percent in 1986, the government accelerated industrial diversification programs in specialized petroleum refining, natural gas, petrochemicals, and mining, and also stepped up oil exploration efforts.

Exploration remained a major focus of PDVSA activities in the 1980s. At the time of nationalization in 1976, exploration efforts had come to a near standstill. Little exploratory activity took place during the 1960s and 1970s because the Venezuelan government did not grant any new oil concessions after 1958 and most foreign oil companies anticipated eventual nationalization. Although financial constraints slowed the pace of exploratory drilling in the 1980s, major new finds of light, medium, and heavy crude by 1986 nearly doubled proven reserves.

The country's 1989 oil reserves were expected to last for at least ninety-three years at prevailing rates of extraction. The Orinoco heavy oil belt accounted for 45 percent of proven reserves in 1989, followed by the Maracaibo region with 32 percent, the eastern Venezuelan basin with 22 percent, and 1 percent in other areas (see fig. 6). Only a small fraction of the Orinoco's total heavy oil deposits, however, were routinely included in estimates of total proven reserves because of the cost and difficulty of extraction. Some estimates of total recoverable heavy crude reserves ran as high as 190 to 200 billion barrels.

PDVSA's early exploration strategy emphasized heavy crude, but by the 1980s the company's efforts shifted toward more valuable light and medium grades. This approach proved successful, as major new discoveries were made in the Lago de Maracaibo area, the Apure-Barinas Basin in southwest Venezuela near the Colombian border, and in the eastern Venezuelan basin in the El Furrial/Musipán area in the state of Monagas. Encouraged by its finds in the mid-1980s, PDVSA launched further drilling operations in the late 1980s, with the goal of adding 14.4 billion barrels of light and medium crude to its proven reserves by 1993. In addition to its land-based drilling, PDVSA established an increasing number of offshore rigs. The Venezuelans also explored off the coast of Aruba and had discussed with the governments of Guyana, Trinidad and Tobago, and Guatemala the prospects of exploratory drilling.

PDVSA not only extracted crude oil, but also refined and distributed a wide variety of petroleum products. In 1988 six active refineries in Venezuela boasted an installed refining capacity of approximately 1.2 million barrels of oil a day. These refineries produced a full range of oil products and specialty fuels, making Venezuela an international leader in petroleum refining (see table 9; table 10, Appendix). PDVSA increased the percentage of locally refined crude from 35 percent to 58 percent between 1979 and 1988. In 1988 the country for the first time exported more refined petroleum than crude. PDVSA diversified its production during the 1980s, increasing the share of petroleum products that fell outside OPEC quotas until the late 1980s, in an effort to enhance price stability and boost profits. Orinoco Asphalt (Bitúmenes del Orinoco), a PDVSA subsidiary, began preliminary shipments in the late 1980s of orimulsión, a uniquely Venezuelan synthetic fuel derived from Orinoco heavy crude, water, and chemical additives. PDVSA hoped to export increasing quantities of orimulsión, outside OPEC quotas, to Canada and Europe as a substitute for coal or fuel oils used by electric power stations.

From 1983 to 1989, PDVSA acquired overseas refining capacity from at least five multinational oil conglomerates, either through production contracts or outright purchases. For example, in 1983 PDVSA bought a 50 percent share of the West GermanApple LaserWriter Plus/IINT/IINTXAPLASPLU.PRSthe Swedish lubricant and asphalt producer, Nynas. Beginning in 1986, PDVSA entered the United States oil market by purchasing United States oil firms, refineries, and retail outlets previously held by Citgo, Champlin, and Unocal. PDVSA's overseas refining capacity exceeded 700,000 barrels per day by the close of the decade. By 1990, therefore, PDVSA had the capability to refine nearly all of its crude oil production, either at home or at Venezuelan-owned facilities overseas. Moreover, with PDVSA's purchase of Citgo in 1989, Venezuela became the first OPEC member to wholly own a major United States oil refinery.

The United States has consistently been Venezuela's leading oil export recipient. During the 1980s, however, PDVSA increased its exports to Central America and the Caribbean. In 1980 Venezuela and Mexico embarked on a joint program called the San José Accord, under which the two oil producers exported oil to many countries of the Caribbean Basin (see Glossary) region at concessionary rates. The accord set up a system of compensatory finance and purchases of Venezuelan goods in exchange for crude that amounted to a 20 percent discount on the world market price.

After a period of modest economic growth in 2000 and 2001, the Venezuelan economy entered into recession in 2002. Political conflict, particularly a nationwide strike beginning early in December 2002, further compounded the deteriorating economic situation. On December 2, 2002, opponents of President Chavez organized a nationwide strike to call for an early referendum on the President's rule. Employees from Venezuela's state-owned oil company Petroleos de Venezuela S.A. (PdVSA) also joined the strike, shutting down a large portion of the country's oil industry and drastically reducing the production of Venezuelan oil and its delivery to internal and external markets. President Chavez declared the strikers' demands unconstitutional and dismissed nearly half of PdVSA's workforce. In 2003, the strike, along with the implementation of currency controls, severely impacted Venezuela's economy, with real gross domestic product (GDP) contracting 29 percent in the first quarter, and 9.2 percent for the entire year, after already contracting 8.9 percent in 2002.

Despite political turmoil, Venezuela's economy has almost fully recovered from the 2002-2003 period, registering real GDP growth of 16.8 percent in 2004. High world oil prices have helped fuel Venezuela's recovery, as the petroleum industry is the mainstay of the country's economy. The oil sector accounts for more than three-quarters of total Venezuelan export revenues, about half of total government revenues, and about one-third of GDP. Continuing high world oil prices will likely continue to drive Venezuela's economy.

Venezuela has made a decision - fully in accordance with sound commercial considerations - to devote financial resources, both domestic and foreign, primarily to the development of the extra-heavy oil fields of the Orinoco Belt - and not our older, more depleted fields that, while still important and not to be ignored. When Venezuela finishes its certification process of the Orinoco Belt, more than 230 billion barrels of oil will be added to Venezuela's official proved reserves, which will make Venezuela the largest holder of oil reserves in the world, exceeding even Saudi Arabia. As Oxford Analytica explained in its June 2006 report, "If further upgrading investment is undertaken, Venezuela should (subject to funding, engineering, and logistical constraints) be able to increase its oil production very considerably. It has talked about total crude production of 5.8 million b/d by 2012. If this is to be achieved, most of the increase will have to come from extra heavy oil upgrading."

Regarding Venezuela's current production, analyses of the International Energy Agency and the BP Statistical Review, both independent sources, that place Venezuela's production in 2005 at over 3 million barrels per day. Regardless of the different production numbers often attributed to Venezuela, the level of Venezuelan oil exports to the United States continue at precisely the same levels as they have always been. Venezuela is 'hard-wired' to the United States - among other reasons because the United States refines much of Venezuela's oil.

By 2006 a number of private sector analysts believed that Venezuelan crude production had dropped to 2.3 million barrels per day. Conventional wisdom had placed production at 2.4 to 2.6 million barrels per day. Venezuelan production capacity falls by 20 to 25 percent per year due to the heavy nature of Venezuelan crude as well as the advanced age of many of its wells.

In order to counteract these two factors, producers must use gas or steam injection to bring the crude to the surface. This requires constant maintenance on the part of operators. It is clear that PDVSA has not been carrying out this maintenance, particularly in western Venezuela. It used to take the energy equivalent of one barrel of oil to produce 20 barrels of oil. By 2006 it took the energy equivalent of one barrel to produce three barrels of oil.

PDVSA is not applying cathodic protection to its pipes in eastern Venezuela. Cathodic protection is an anti-corrosion technique for metal. Given the high sulfur and metal content of some Venezuelan crude, it is necessary to apply the protection to pipes in order to keep them from corroding. If PDVSA does not carry out routine maintenance to its pipelines, it is possible that a situation could develop where PDVSA had maintained or even increased protection but is unable to distribute it due to failures in its pipeline networks.

PDVSA has more people with less experience involved in drilling. Once drilling begins, two to six PDVSA personnel make drilling decisions as opposed to one person in the past. Problems with a rig can take weeks to resolve. By 2006 an estimated 60 percent of PDVSA employees had three years experience or less.

Officials from US oil companies explained that the poor bilateral relationship between Venezuela and the United States makes it more difficult for them to compete for new investment contracts in Venezuela. In addition, US companies do not even seek US government assistance in negotiations and the like because it would be more harmful than beneficial given current US Administration attitudes. The lack of dialogue and cooperation is impeding increased investments by US companies in the Venezuelan energy sector.

China appeared to be focused on Venezuela for future oil supplies, although Venezuela currently does not have the ability to export a significant amount of oil to China-primarily because there are no practical means of moving it to the Pacific Ocean for shipment. Venezuela extracts about 2.6 mbd and sends 60 percent of this to the United States; Venezuela's goal is to produce five mbd by 2009. China already operates two oil fields in Venezuela and Venezuela's President Hugo Chavez has said that China will be allowed to operate 15 mature oil fields that could produce more than a billion barrels. In addition, Venezuela and China are exploring means of transporting oil from the wellhead to deepwater Pacific transfer points, including pipelines across Venezuela and Colombia or, alternatively, through Panama. China also plans to build refineries in Venezuela.

The story of CITGO Petroleum Corporation as an enduring American success story began back in 1910 when pioneer oilman, Henry L. Dougherty, created the Cities Service Company. When Cities Service determined that it needed to change its marketing brand, it introduced the name CITGO in 1965, retaining the first syllable of its long-standing name and ending with "GO" to imply power, energy and progressiveness. The now familiar and enduring CITGO "trimark" logo was born.

Occidental Petroleum bought Cities Service in 1982, and CITGO was incorporated as a wholly owned refining, marketing and transportation subsidiary in the spring of the following year. Then, in August 1983, CITGO was sold to The Southland Corporation to provide an assured supply of gasoline to Southland's 7-Eleven convenience store chain.

In September, 1986, Southland sold a 50 percent interest in CITGO to Petróleos de Venezuela, S.A. (PDVSA), the national oil company of the Bolivarian Republic of Venezuela. PDVSA acquired the remaining half of CITGO in January, 1990. With a secure and ample supply of crude oil, CITGO quickly became a major force in the energy arena.

London has Big Ben, Paris has the Eiffel Tower. Boston has the CITGO sign. Ever since 1965, the CITGO sign has held a place deep in the hearts of Boston residents. Photographs of the sign appear on postcards, in newspapers, movies, books, tourism brochures and even in Life magazine. During the day, the CITGO sign sits impressively on its perch in Kenmore Square. At night, its pulsing red, blue and white neon are visible for miles around. Red Sox fans can't see past left field at Fenway Park without taking in the majestic sign. CITGO decided to dismantle the deteriorating sign in 1983, but the people of Boston came to its rescue. Claiming the sign was an excellent example of urban neon art, and as Boston as baked beans, they stopped the demolition crew. Groups fought to have the sign declared a landmark. It quickly became clear Bostonians were fond of their sign. CITGO refurbished the sign and, with the flip of a switch, Kenmore Square was bright again in the night sky.

On 28 August 2005 it was reported that President Hugo Chavez offered gasoline and heating fuel at low and affordable prices to the poor and needy in the US. Chavez said that he will be apportion 1.5 million barrels of oil daily at 40% less than market price through the Venezuelan government owned Citgo in the US. Citgo will refine the oil into gasoline and heating fuel and make it available to the unemployed, the poor and old folks who find it difficult to heat their homes in the winter.




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