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Venezuela's oil industry in post-Chavez era

Staff writer ▼ | January 1, 1970
Venezuela oil industryWith the passing of President Hugo Chavez, the world and foreign companies are waiting to see what changes the new situation will bring to the Venezuela's oil industry.

Venezuela has oil deposits of estimated 297 billion barrels, slightly above those of Saudi Arabia, but the production is far behind because for decades there were no investments in one of the most important industries in the country. Venezuela is today the fifth largest oil exporter in the world and it could have been even bigger if it wasn't for an output fall of 25 percent since 1998, from 3 million to 2.4 million barrels per day. In other words, while Venezuela exports 3 percent of the world's oil, its main competitor, Saudi Arabia, exports 12 percent.

The state oil company PDVSA was very fast with the statement, calling for calm in OPEC and, of course, blaming foreign elements for rumors: "The call for calm is aimed at clearing the climate of rumors and political destabilization that enemies of the fatherland are trying to sow in the public opinion."

The eyes of the United States are on the country because Venezuela is a top-four supplier to the U.S and, also very important on a global power scale, the country that exports more and more to China.

It's very unlikely that the death of the leader will have a big impact on the industry in the short term, especially if the successor he preferred wins the next elections. And indeed, there is a big chance that Mr. Chavez's United Socialist Party of Venezuela will stay in power, which in turn means that nothing much will change in country's oil industry.

It is safe to say that U.S. companies will be the first to enter the country with significant investments if the situation changes. They helped to develop well in Venezuela during the first half of the 20th century, but they were forced to leave when the oil and gas industry was nationalized. Mr. Chavez took control over the whole industry and nationalized more than thousand companies, and among them were oil giants Exxon-Mobil and Conoco-Phillips.

ConocoPhillips will be the first to try to regain what it once had in the country - the company lost more than $20 billion - since it was the biggest foreign company in Venezuela. Exxon Mobil is also seeking a nice amount - $12 billion in compensation for assets at Cerro Negro; while Chevron is working in the country, but with a limited degree of freedom.

China should be also taken into account because it was helping Mr. Chavez a lot and Venezuela was paying its debt in oil. Political reasons aside, China is more interested in oil for its fast-growing economy than in spreading its political agenda; without energy there's no industry, and without industry there's no stability; Chinese leaders know that very well.

The key points for Venezuela are foreign investments and there will be no investments if the politics doesn't change. The country needs a better cooperation with other countries, better terms for foreign investors and a climate that will attract companies that once were working there. Without that, Venezuela's oil industry has no future.

Shel Kestley