IEA Sees Venezuelan Output Collapsing Further

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Crude oil production in Venezuela is set to fall off a cliff over the next two years after a steep drop in 2017, which the International Energy Agency (IEA) calls “the biggest decline anywhere in the world.” “Venezuela’s escalating crisis is expected to take a heavy toll on capacity, which is forecast to tumble by 650,000 barrels per day to just 1.1 million [barrels per day in 2023], the lowest since the 1940s,” the IEA said in its five-year outlook Oil 2018. The report, released Monday, notes that forecasting Venezuela’s energy situation through 2023 “is extremely difficult” given the political and economic volatility in the country. “Our projected decline could be an underestimate given the alarming deterioration of the oil sector,” the report says. It could also “prove too aggressive should Petroleos de Venezuela (PDV) defy expectations and revive output.” Answering its own doubt, the IEA notes that “given Venezuela’s staggering debt and the structural damage to its oil network ... the situation is far more likely to deteriorate.” Sources tell Energy Intelligence that oil production has already fallen to around 1.4 million b/d, and perhaps below that, but reliable data is hard to get as all information is politicized (OD Feb.28'18). Tanker trackers see Venezuelan exports dropping fast. Bank Societe Generale quoted Geneva-based Petro-Logistics, which reported exports dropping by 350,000 b/d in February from January, with production still seen at 1.6 million b/d. The IEA saw output in the country average 2.24 million b/d in 2016 and 1.97 million b/d in 2017, a loss of 270,000 b/d. That fall is expected to accelerate to 370,000 b/d in 2018. After another fall of 210,000 b/d in 2019, Venezuela would produce a little more than 1 million b/d and stay there through 2023, the IEA forecasts. The Paris-based agency, which looks after the interests of large energy consumers, fears the oil industry might not be investing enough in new production to prevent a supply shortfall after 2020 (related). “The cash crunch at PDV and poor reservoir management have already cut output by 20% over the past two years. US financial sanctions are also making it tougher for PDV to operate,” noted the IEA report, referring to a new set of financial sanctions the US implemented late 2017. The company is more than $65 billion in debt, which makes raising output by 1 million b/d, a task set by President Nicolas Maduro, hard to implement. The high debt levels make “it ever more difficult to pay for goods and services to operate, to repay foreign investors and to import diluent to process extra-heavy Orinoco oil,” notes the IEA. Lower exports from Venezuela, a founding member of Opec and at times its largest crude exporter, support relative prices of other heavier oil production and also fuel oil (OD Mar.5'18). Investors said late last year that Venezuela and PDV are technically in default on debt repayments, but that few are keen to call them out on it as that might stop the trickle of repayments that do come (OD Nov.17'17). Some calculations say Venezuela has the world’s largest oil reserves. Yet output has fallen in a near-straight line from peak production at 3.4 million b/d in 1998 under President Hugo Chavez and successor Maduro. The IEA also sees Venezuela’s production of condensates and natural gas liquids sliding from an average of 167,000 b/d in 2017 to 135,000 b/d in 2018 and 122,000 b/d in 2019. Venezuela’s once-mighty refinery system has collapsed alongside its crude system and is running at 40% of capacity, the IEA thinks. Less crude refined at home keeps more oil available for exports. John van Schaik, New York

Oil Supply, Security Risk , Sanctions
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