Plummeting Oil Prices and Venezuela s Energy Outlook

Transcription

1 Plummeting Oil Prices and Venezuela s Energy Outlook -- Agenda -- All times are Pacific Times (GMT/UTC 8 hours) 11: 00 11:05 am Review of agenda & logistics by Alexis Arthur, Energy Policy Associate at the Institute of the Americas 11:05 11:10 am Introductory remarks by Jeremy Martin, Energy Program Director at the Institute of the Americas 11:10 11:30 am Presentation by Francisco J. Monaldi, Harvard Kennedy School 11:30 12:00 pm Question & answer session 12:00 pm Session close Follow the conversation on

2 Venezuela Oil Industry Outlook Francisco Monaldi, Ph.D. Visiting Professor and Roy Family Senior Fellow, Harvard Kennedy School Non-Resident Fellow, Baker Institute, Rice University Faculty Associate, School of Government, Tecnologico de Monterrey Director, International Center on Energy and the Environment, IESA Institute of the Americas, December 2014

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6 Consumption and Popularity Chavez popularity (lhs) Maduro (lhs) Real consumption growth (rhs) Source: BCV and Datanalisis

7 The current macro situation Government deficit estimated at 20% of GDP in 2014 (about 16-17% before the price decline). Inflation rose above 65% in 2014 and estimates are above 100% for Fiscal breakeven at more than $170 with current exchange rate mix (about Bs. 12), can be reduced with a major devaluation to Bs. 35, but deficit still would be above 14%. Current account breakeven at around $ Average Venezuela basket for this year $91 ($98 in 2013). Last week $62. President s popularity in free fall. From 51% in 2013 to 24% today, and falling.

8 Oil industry s performance: key points 1. Private investment boom in the decade before 2003 added 1 mbd of production. That and the price boom made expropriation very attractive. 2. A decade of very favorable conditions for development of the oil sector was wasted. High oil prices, very large reserves, and new investment projects in the pipeline. 3. Reality of decline and mismanagement. Production declining, subsidized domestic consumption increasing, exports declining, large external subsidies, costs increasing, number of workers increasing, arrears and debt going up. 4. Uncertain future. Conventional production keeps declining. Extra-heavy requires large investments that are unlikely to materialize.

9 Billions of barrels Venezuela will continue to produce oil until the world demands it Venezuela s official proven oil reserves are 298 billion barrels (using a 20% recovery rate on the Orinoco Belt, for 257 billion barrels). The USGS estimates that 510 billion barrels would be ultimately recoverable in the Orinoco Belt (using a 45% recovery rate). Even using a 10% recovery rate Venezuela would have the second largest reserves after Saudi Arabia, at around 190 billion barrels Sources: PODE hasta 2008, (*) Informe Operacional y Financiero de Pdvsa (2009), (**) Informe de Gestión PDVSA 2010 e (***) Informe de Gestión PDVSA

10 Reserves/production comparison Venezuela still offers an outstanding potential as an oil producer. The question is how to take advantage of that potential. Non.OPEC OPEC Nigeria United Arab Emirates Saudi Arabia Kuwait Iran Russian Federation Venezuela US Years of production Source: BP Statistical Review of World Energy (2013)

11 Venezuela: Proven Reserves (billion barrels) Type Condensates Light Medium Grav, API > Reserves Orinoco H = 4 XH = 255 Heavy X Heavy TOTAL 298 Source: PDVSA

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13 3500 Net oil exports Venezuela Mexico Brazil Source: BP Statistical Review of Energy

14 Traditional Areas Decline. Orinoco partly compensates. Source: PDVSA, IPD 14

15 Declining production, declining exports, and more than one third of total production is not paid for North America (St. Croix included) Not paid (MBD) Central America & The Caribbean Cuba 90 Others 60 Domestic market 750 (Smuggling 100, Imports 100) China loans 350 Total ~ 1.25 MMBD Cash flow production 1.5 MMBD Asia Europe South America Africa Others Source: PDVSA 15

16 The Reputational Legacy Texas 5 Qatar 33 United Arab Emirates 39 Colombia 48 Alberta 51 Trinidad and Tobago 58 Brazil 66 Alaska 83 Angola 118 Nigeria 124 Algeria 126 Russia 127 Libya 128 Iraq 129 Kazakhstan 131 Iran 132 Bolivia 133 Ecuador 134 Venezuela 135 Fraser Institute Global Petroleum Survey 2011: Jurisdictional rankings according to the extent of investment barriers (based on All-Inclusive Composite Index values) 136 jurisdictions ranked Fraser Institute Ranking Ranking Venezuela Considered jurisdictions

17 Investment and Social Spending

18 Millions US$ PDVSA s Debt (US$ Millions) PDVSA s current external debt at ~US$44 billion > US$10-15 billion in accounts payable >US$6-8 billion in probable arbitration settlements. Exxon $2.1 bn. >VEB Bs.500 billion debt with Central Bank Source: PDVSA 18

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20 Daily production per employee b/d per employee PDVSA PEMEX Petrobras

21 Venezuela Domestic Oil Consumption Gasoline price: $0.07 per gallon or $0.005 at black market exchange rate. 1 cent per barrel versus $20 in Saudi Arabia. Domestic subsidies: $24 billion in 2013 Source: BP 21

22 Gasoline subsidies MM US$ (2013 =100) 15,000 10,000 Gasoline Subsidies 13,094 5,000 1, ,000 Source: Menpet, EIA, Bureau of Labor Statistics and own calculations Gasoline subsidies in 2013 were seven times higher than those of 2000 Gasoline + diesel subsidies could suffice to cover healthcare, education and social security budget. Subsidies are highly regressive: Most of it goes to rich and middle classes. Social costs and externalities: Wasted time in traffic equivalent to US$ 2,000 Millions

23 Sowing the Oil Plan, The Plan Siembra Petrolera requires investments of US$ 257 billion, US$ 189 billion for E&P. PDVSA would have to fund about 80% of those investments Growth (Decline) 2019 (Planned) (Observed) (Observed) (Planned) Production (K b/d) , * Refining (K b/d) , Exports (K b/d) , Natural Gas (MM cfd) % * FPO: K b/d in Forecast: KBD (Previously KBD) 2014 Investments: USD 32.7 bn. Increase proposal: 600 KBD/year Historical record:140 KBD/year (average ) Source: PDVSA Annual Report. Multiple years Is it possible to achieve? NO!

24 Venezuela: Production Forecast IEA Forecast 2012 Forecast Forecast Source: IEA 24

25 MBD 3.5 Oil Production by contract, Venezuela % 2 16% % Heavy-weight crudes, Joint Ventures (former strategic agreements) Conventional crudes, Joint Ventures (former operative agreements) Pdvsa direct management Source: PDVSA Source: Oil and Mining Ministry (PODE ); PDVSA Annual Reports, 2009, 2010, 2011 & Note 1: Since 2006 the conventional crude operative agreements transformed into Joint Ventures Note 2: Since 2007, the heavy oil strategic agreements transformed into Joint Ventures. Note 3: Production data does not include Natural Gas Liquids

26 Joint Ventures Key partners include: Petroboscán Petroindependencia Petropiar Petrourica Sinovensa Petromonagas Petromiranda Petrochiriquire Petrocarabobo Chevron CNPC Rosneft Repsol Petrosucre Petroleras Paria & Guiria Petrojunín Petrokariña PetroVen-Bras Petrocedeño ENI Petrobras Total & Statoil

27 Maduro s Oil Policy: The Return of Pragmatism More pragmatism or is it desperation? Windfall tax reduction in 2013 and waiver in new Orinoco Belt projects (before investment recovery). Promise of more operational and project execution control for partners. Loans guaranteed by export revenues (Chevron loan to Petroboscan and others following). The exchange rate. Reduction in Petrocaribe subsidies? Domestic subsidies? Pragamatic move to oil blending instead of upgrading? But still difficult to get the necessary investments. PDVSA s problems: cash flow, infrastructure, and operational issues. Macroeconomic and political instability. Credibility and sunk investments. The fall in oil prices 27

28 Financing Agreements Financing Agreements for $12 billion have been signed between PDVSA and JV partners during Partner Amount (USD) J V CNPC 4 billion Sinovensa Chevron 2 billion Petroboscán ENI 1.2 billion Petrojunín Gazprom 1 billion Petrozamora Repsol 1.2 billion Petroquiriquire Perenco 0.4 billion Petrowarao Repsol & ENI 1 billion Perla (Gas)

29 Citgo Source IHS 29

30 Conclusions More pragmatism might lead to some increase in investment, but production is unlikely to increase much in the next year or two. The production basket will get heavier and less profitable. The pre-tax breakeven of most Venezuelan production is well below current prices. Imports of light oil and refined products will increase. The inhibitors of investments are still: PDVSA s lack of investment capacity and human resources, political and macro instability, and the fall in the price of oil.

31 Upcoming Energy Programs February 3 6: Caribbean Clean Energy Symposium, in collaboration with the US Department of Energy St. Thomas, US Virgin Islands February 11 or 12: 6th Annual Dominican Republic Energy Roundtable Santo Domingo, Dominican Republic May 20 21: XXIV La Jolla Energy Conference - La Jolla, CA Support the 2015 Energy Webinar Series by becoming a sponsor- for more information, contact jeremy@iamericas.org Stay up to date on and subscribe to our Energy Podcast Series on itunes. For more information on the Energy Program, see