Take Me Money and Run Venezuela – Venezuela’s Oil Industry Could Be Poised for a Rebound, But It Will Take Time

Venezuela took center stage over the weekend when U.S. forces removed President Nicolás Maduro from power, triggering a flood of speculation and market commentary about the country’s vast oil reserves and the potential for reviving its now-moribund upstream and refining sectors. Of course, there is a lot of uncertainty about how this might play out, but one thing seems clear: The upheaval could impact everything from crude oil flows and price differentials to refining slates and export economics. In today’s RBN blog, we’ll take a deep dive into the outlook for Venezuela’s oil and refined product sectors in the short, middle and long term.

Venezuela was once a critical supplier of heavy sour crude to Gulf Coast refineries, providing more than  1 MMb/d in the late 1990s and early 2000s before Venezuelan production entered a long period of decline soon after Hugo Chavez came into power (see It's Tricky). Today, the country produces less than 1 MMb/d of crude oil, barely one-quarter of where it was in the late ’90s at around 3.5 MMb/d. Most Venezuelan production is low-API, high-sulfur crude, coming primarily from Venezuela’s Orinoco Belt (dark-blue-shaded area in Figure 1 below). Because the crude is so dense and viscous, it needs to be blended with diluent — typically condensate or natural gasoline — or upgraded to a lighter synthetic crude oil (SCO) before it can be easily transported, which is similar to crude produced in the Canadian oil sands. Yet, while Venezuelan oil requires significant expertise and investment to produce, it tends to be less expensive to extract than similar quality Canadian bitumen as in-situ combustion (ISC) techniques, a type of enhanced oil recovery (EOR), can be utilized there. Venezuelan crude also requires more complex refining equipment than lighter crudes, making it a good fit for U.S. Gulf Coast plants that have invested specifically in such facilities. Venezuela was also once a major regional supplier of refined products and is home to five operating refineries (black pentagons), all of which have operated far below their full capacity in recent years. (More on the refiners later.)