Market Factors Alone Create Venezuelan Headwinds

Written by Daniel Graeber for IIR Energy (Sugar Land, Texas)

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Summary

U.S. President Trump says the U.S. economy could take as many as 50 million barrels of oil from Venezuela. Actual storage levels and macroeconomics complicate that ambition.

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Money Will Be 'Controlled by Me,' Trump Says

The break-even price for Venezuelan crude oil is likely the highest for major global producers, which adds further complications to U.S. President Donald Trump's ambitions to overhaul a delipidated industry.

Various media outlets are reporting that Trump said that interim leaders in Venezuela will hand over between 30 million and 50 million barrels of oil to the U.S. That, in turn, would be sold on the open market, with Trump saying "the money will be controlled by me ... to ensure it is used to benefit the people of Venezuela and the United States."

Data from IIR Energy show those volumes are likely out of reach. Estimates for Venezuela's terrestrial storage range from 15 million to 48 million barrels. Of that, only half would be readily available due to logistical bottlenecks, a shortage of diluting agents for Venezuela's extra-heavy crude and the distance between storage tanks and production fields.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Terminals databases can learn more about Venezuela's storage capacity from a list of unit profiles.

Jesus Davis, a vice president for energy services at Industrial Info, noted that the Venezuelan refinery sector needs upgraders to help turn the extra heavy crude oil into useable refined petroleum products. This would be in addition to the costs associated with downstream activity.

Moving heavy crude oil is costly in general. Davis noted, however, that Venezuela does has some advantages in terms of modes of delivery.

"Venezuelan crude will see many of the same challenges (as Canada), with the exception of the transportation concern as shipping crude by tanker is more efficient than loading hundreds of railcars or being subject to pipeline maintenance and unplanned outages," he said.

Canada, a heavy crude oil supplier and the primary foreign exporter of crude oil to the U.S., is largely isolated to North America because of the lack of crude oil pipelines that can ship outside the continent. Leaders are working to address that with new export capacity from British Columbia, but any meaningful progress is a long way off.

By the Numbers

• 50 million barrels from Venezuela sought by Trump
• 14 million barrels are likely what's available
• $80 break-even for Venezuela's oil sector

Markets Just One of the Challenges

Meanwhile, market constraints could create headwinds for any company looking to gain a foothold in Venezuela. Trump's announcement sent crude oil prices sharply lower in Wednesday trading, showcasing the complex math involved in the oil industry.

According to energy consultancy Wood Mackenzie, energy companies working in Venezuela need oil priced at about $80 per barrel to break even. Brent, the global benchmark for the price of oil, was trading closer to $60 per barrel on Wednesday, and U.S. government forecasts expect that Brent will average about $55 this year.

More supplies from Venezuela likely would lead to even lower prices, as markets generally are oversupplied because of lackluster global demand. U.S. shale producers, meanwhile, likely need oil at about $50 per barrel, though the domestic sentiment has soured since Trump returned to the White House for a second, non-consecutive term.

"There are a variety of issues affecting our business," a respondent told the Federal Reserve Bank of Dallas in its fourth-quarter energy survey. "First, elevated uncertainty stemming from government policies and geopolitics. Second, near-term global oil market dynamics."

If those dynamics are impediments in the U.S. economy, operating in Venezuela would be fraught with risks from the regional repercussions of regime change, as well as macroeconomics.

Venezuelan oil production, meanwhile, peaked in the 1970s at about 3.5 million barrels per day (BBL/d). The South American nation now is producing fewer than 1 million BBL/d, accounting for a tiny fraction of global output. The U.S., for its part, is the world leader in crude oil production, with output expected to average 13.5 million BBL/d.

So far, Venezuela's oil sector appears intact. IIR Energy on Saturday, the day of Maduro's capture, reported that repairs were completed at the Amuay Refinery, Venezuela's largest. Subscribers can learn more from a detailed plant profile.

Even the U.S. president acknowledged at least some of the challenges, saying it would require substantial investments. Sources for the Reuters news agency said the Trump administration is expected to host oil-sector delegates to discuss Venezuela.

Chevron Corporation (Houston, Texas) is currently the only U.S. company with a license to operate in Venezuela, working alongside state-owned PDVSA.

Key Takeaways

• Economics alone create challenges for Trump's ambitions.
• White House expected to host oil-sector delegates.
• Venezuelan oil production peaked in the 1970s.

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).