Orinoco Flow – Venezuela’s Prized Extra-Heavy Crude Oil Is Thick With Potential and Pitfalls

The news out of Venezuela has commanded the world’s attention since U.S. forces captured President Nicolás Maduro in early January, with the country’s highly prized heavy crude oil caught in a geopolitical tug of war. Although there are myriad questions about how much oil the country can really produce and where those barrels might head (and when), the eventual answers will depend in large part on the fundamentals of the sludgy, tar-like oil produced there. In today’s RBN blog, we’ll lay out where Venezuela’s crude oil is produced and how it differs from grades elsewhere.

As we discussed in Take Me Money And Run Venezuela, the unfolding situation is fluid, chaotic and will take years to resolve. Venezuela, once a cornerstone supplier of heavy sour crude to U.S. Gulf Coast refineries, has seen its oil industry unravel after decades of decline. Production plunged from about 3.5 MMb/d in the late 1990s to less than 1 MMb/d today. After years of state control under Maduro and his predecessor, Hugo Chávez, chronic underinvestment has gutted production capacity and the country’s refineries. Currently, Chevron is the only U.S. producer allowed to operate there under a special Treasury license.

This is the second blog in a series on Venezuela. In future pieces, we’ll compare Venezuelan and Canadian crudes, how increased Venezuelan crude supply might fit into the U.S. refining industry, examine the foreign interests and partnerships already operating in Venezuela, and the major stumbling blocks facing the sector, including refinery utilization, constraints on crude upgraders, and access to export markets. In today’s blog, our primary focus is on Venezuelan oil itself. We’ll dig into what makes this thick, murky crude so different from other grades, identify where it originates within the country, and lay out just how much of the stuff Venezuela might have beneath the surface.

Where Is The Oil? 

The heart of Venezuela’s oil industry lies in the Orinoco Belt (blue-shaded area in Figure 1 below), which holds most of the country’s petroleum reserves. Venezuela’s oil history dates back to the early 20th century (and, interestingly, future U.S. President Herbert Hoover was involved in early survey efforts), but the Orinoco didn’t emerge as a major focus until much later. In fact, 1922 marked the true beginning of substantive oil production in the country with the discovery of major oil reserves in the Lake Maracaibo region. By the late 1920s, Venezuela had moved into the top echelons of global oil producers and was the leading oil exporter until the post-WWII years when Middle East discoveries shifted leadership to that region.