The civilian disaster that Venezuela is facing currently is not news from yesterday or the past month. It is the unfolding of a saga being made for years now. Even though this nation has the largest oil reserves of the world, its citizens are starving to death in a crisis that has humanitarian aspects wrapped around it. It’s nothing more than a nation run by a socialist government that does not blink an eye before mercilessly killing the protestors. It is almost impossible to ignore that a country with the world largest oil reserves is too poor to feed its own people. In comparison, Norway has become one of the wealthiest countries, even with just 1/40th of the oil reserves. But, this irony exists in the oil-rich nation, and this crisis-saga of the Venezuela Oil Industry can be traced back to the year 1998.
Venezuela Oil Industry Saga – The Beginning
In 1998, Venezuela saw the highest-ever production of oil at 3.5 million barrels/per day (BPD). Co-incidentally, this was the year when Hugo Chavez got elected as the President of Venezuela. The Venezuela oil industry saga started during the 2002-2003 Venezuelan general strike. The President, Chavez fired almost 19,000 employees of Petroleos de Venezuela, S.A (PDVSA), the state oil company. He replaced this humongous number of fired employees with people who were loyal to his government. Eliminating 19,000 employees meant eliminating a huge amount of expertise from the Venezuela oil industry.
Why Venezuela was ahead than Saudi Arabia
There is a reason that makes this nation ahead in the oil-reserves game, and in fact, the reason is the quality of its oil reserves itself. Venezuela’s oil reserves contain extra heavy crude oil in the ‘Orinoco Belt’. This belt consists of 1.2 trillion barrels of oil resource on an estimate. Once oil prices saw a climb at $100 per barrel, almost 235 billion barrels were shifted in to the ‘Proved Reserves’ section. Due to this move, Venezuela got acclamation as the world largest oil-reserves nation. With a challenging aspect of production, this oil-rich nation invited international giants to develop its oil-reserves. Companies like BP, Chevron, ConocoPhillips, Total, and ExxonMobil invested billions in the oil-reserves of this nation. These companies worked towards the infrastructure and development of manufacturing crude oil from the extra heavy oil.
Oil Industry Directly Dependent on the Oil Prices
As Forbes reports, the oil industry is always capital intensive. The companies investing in this industry earn profits when the prices of oil are at the peak levels. But these profits reaped, require an initial investment in dollars, which can turn into losses in billions at light-speed if the oil prices show a decline. This can be a major reason why the Venezuela oil industry saw a major failure even with a tremendous amount of liquid wealth.
Step-by-Step Creation of Self-Crises
The oil-rich nation did not see this steep decline in its value out of a random moment. It placed the hammer on its own foot, again and again. As mentioned above, the Chavez government first fired around 19,000 employees in 2003. This was the first step that removed such a big amount of expertise from the oil-rich nation.
Then, in 2007, Venezuela saw that investments from international companies were paying well, due to a rise in the oil prices. The Chavez government, seeing this, demanded some significant changes in the agreements with international oil firms. These changes meant giving the PDVSA a majority of control over the oil projects. Some companies like Chevron, BP, Total, etc. agreed to retain the minority interests. But this move pushed away some other major firms like ConocoPhillips and ExxonMobil, which to some extent also removed the international expertise away from this nation. This greedy move by the Chavez government did not come off as a positive one for the Venezuela oil industry.
The Rise and Decline of Venezuela’s Oil Value
The first step taken in 2003, showed a decline in the oil production at below 3 million barrels per day (BPD). This saw a recovery at 3.3 million barrels per day (BPD) during 2004 till 2006. But after the 2007 greedy move, there has been a constant decline, even with oil prices remaining above $100 per barrel.
Venezuela’s oil production significantly fell down to 2.6 million barrel per day (BPD), which was a decrease at more than 20 percent lower than the 2006 levels. In comparison, U.S. has almost 20 percent lesser oil reserves than this oil-rich nation. Yet, its oil production saw a rise at a huge 86 percent during 2006 to 2015.
In the name of nationalization, the expropriation of Venezuela’s oil industry backfired on the nation itself. Chavez’s socialist outlook that aimed at success is now literally starving the people of this nation. Currently, Venezuela faces a historical economic crisis, and a record breaking low oil production in almost 23 years – just 2.5 million barrels per day (BPD). This country even though rich in its liquid asset is yet poor financially.
Venezuela Needs to Swim before it Drowns
This country has pushed away expertise and international investment for years down the line. This and some other reasons are leading to protests, economic crisis, and deaths of innocent civilians and protestors currently. Venezuela really needs to adopt and shift towards economical diversity. It needs to open the doors of its markets and embrace foreign companies with open hands.
If Venezuela fails to take significant steps necessary to buck up its oil-game, it may drown in its own oil reserves one day.