Venezuela is the USA's number one supplier of crude oil. As part of a continuing effort to help us grasp the significance of possible Y2K problems/disruptions on oil, it would be helpful to gain better understanding of some of the various nations that export oil. Our first focus is on Venezuela. The following comes from special analysis provided by the DoE.

http://www.eia.doe.gov/emeu/security/hot.html#VENEZ Major Crude Oil Customers: United States, Germany, Canada, and Italy

Oil Exports to the United States (1H99): 1.7 million bbl/d, of which 1.4 million bbl/d was crude

Major Foreign Oil Company Involvement: Arco, British Petroleum-Amoco, Chevron, CNPC (China), Conoco, Exxon, Mobil, Occidental, Pennzoil, Phillips, Repsol, Shell, Statoil, Texaco, Total, Union Texas, and Veba Oel

Main Concerns:Venezuela, which has the largest oil reserves in the Western Hemisphere and is a major oil exporter, especially to the United States, has been experiencing serious political and economic uncertainty over the past year. In December 1998, Hugo Chavez won election as president with 56% of the vote, running on a populist agenda against the established political order, as head of a leftist coalition. On September 7, 1999, Standard and Poor's placed its ratings on Petrozuata Finance Inc.'s bonds on "CreditWatch" with negative implications. The Petrozuata project is a $3.6 billion partnership of Venezuela's state oil company, PdVSA, and Conoco, and aims to extract 1.5-2 billion barrels over its 35-year contract. In July 1999, Petroleum Intelligence Weekly (PIW) reported that three existing projects (Petrozuata, Cerro Negro, and Sincor) in Venezuela's huge, heavy-oil, Orinoco belt are facing construction delays, cost overruns, and limited access to finance. PIW also reported that many companies which had been interested in Venezuela several years ago have now backed off. In early September 1999, PdVSA was hit by numerous resignations of top officials amid concerns over President Chavez's intentions for the company. Also, credit-rating agency Fitch IBCA has announced that it is reviewing PdVSA for a possible downgrade. Fitch IBCA said that it was concerned about Venezuela's "increasingly complex political situation and the low priority assigned to economic reform." Finally, Reuters reported in early September 1999 that foreign oil companies are stepping up their lobbying of the Venezuelan government out of concerns that billions of dollars in their investments may be threatened by President Chavez's policies.

Venezuela in 1998 produced an estimated 3.3 million barrels per day, up about 64,000 bbl/d from 1997 levels. Venezuela exported about 2.8 million bbl/d, of which about 1.7 million bbl/d went to the United States. In June 1999, Venezuela was producing 2.72 million barrels per day of crude oil, which is exactly the amount allotted by the Organization of Petroleum Exporting Countries (OPEC). As part of a coordinated effort by major oil exporters to prop up world oil prices since early 1998, Venezuela has agreed to production cuts totaling 650,000 bbl/d over the past year, including 125,000 bbl/d pledged in the Hague OPEC meeting in late March 1999. Venezuela's target OPEC quota is now about 2.72 million bbl/d (compared to around 3.4 million bbl/d in January 1998), a 19.3% cut. Venezuela's actual production peaked at 3.7 million bbl/d in early 1998, its highest in 26 years. By May 1999, Venezuela was producing less than 2.8 million bbl/d of crude oil, just slightly above its quota. These moves by Venezuela appear to mark a break from years of a strategy aimed at increasing oil production and world markets share, to one of increasing oil prices. To date, Venezuelas oil sector has been hurt by the production cuts, although prices might have been even lower without them. Among other things, the cuts and shut-ins have lessened Venezuelas oil production capacity, and this capacity could be difficult to reestablish anytime soon. Prior to budget cutbacks and production restraints, Venezuela had raised its oil production capacity by more than 200,000 bbl/d annually for 3 years. For a broader overview of Venezuela's situation politically and also for oil, gas and electricity see this DOE link. It paints a nation in "deep trouble"

The next segment is found at the following URL: http://www.eia.doe.gov/emeu/cabs/venfull.html

PdVSA operates the Western Hemispheres largest refining system, and is the world's fourth largest oil refiner, with a combined domestic and international capacity of about 3 million bbl/d. Domestic refinery capacity stands at about 1.187 million bbl/d, while its foreign holdings in Curagao, the United States (in Lake Charles, Lemont, Corpus Christi, Paulsboro, Savannah, and Lyondell-in Houston), and Europe (with Nynas and Ruhr Oel), add about 1.8 million bbl/d of capacity. Presently, Venezuela sells mostly crude oil but is seeking to increase the production of refined products, and would like to raise the refined proportion to 60% from the current 40% rate. About one-third of Venezuela's refined product exports are exported to the United States, where they are distributed mainly by Tulsa-based Citgo, PdVSA's U.S. refining and marketing subsidiary, and the largest U.S. gasoline retailer. Venezuela has one of the highest electrification rates in Latin America, at 91%, and Venezuelans are the highest per capita users of electricity in Latin America. The electric power sector in Venezuela is characterized by under-investment, heavy state control, controlled tariff rates, and frequent shortages. The rapid electricity demand growth, combined with serious under-investment in the power sector, has resulted in shortages and a need for private investment, at an estimated cost of $6 billion over the next 5 years. In addition, an estimated $200 million in upgrades to the transmission and distribution systems is urgently needed to reduce the growing number of power failures. In April 1999, the Energy Ministry began the reform of Venezuela's power sector, armed with Congress' April 1999 grant to President Chavez to regulate the power sector by decree and re-order the industry.

NEXT: SECTION --- Let's repeat what Andy posted here a couple of days ago from the following thread: http://greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=001ym2

------------ This is from an oil engineer just back from Venezuela:

" Here are some points to consider: Bear in mind I have been working as a Senior Petroleum Engineering Consultant in South America for the past 3 year (mostly in Venezuela and Colombia.....currently with one of the largest multi-nationals in the world), and previous to that I worked in the Persian Gulf.

1. First of all, I am very much inclined to agree with Harry Schultz's article from yesterday regarding his prediction that crude oil could doubled in price very soon (he is predicting possibly $50/bbl by Dec. 31st and $75 to $100 early in 2000). I think the following scenario will un-fold:.

a. Y2K creates oil shock. b. stock market collapses due to oil shock....similiar to 1973/74 scenario. c. precious metal prices go ballastic in reaction to collapsing stock markets.

2. Venezuela is by far the single largest supplier of crude oil imports to the U.S. Having worked there recently I observed the following;

a. majority of the wells require artificial lift. There are literally 10s of thousands of wells producing via gas lift and electric submersible pumps. Power outages are frequent at the best of times in Venezuela.

b. the words "equipment maintainence" are virtually non-existent in Venezuela.

c. Venezuela was 100% non Y2K compliant in March of this year, now they claim to be 100% Y2K compliant. I don't believe them for one moment! To my knowledge, they have done nothing in regards to Y2K testing. d. Venezuela is severely cash-strapped. The government can barely pay it's workers.....so how can they check for Y2K compliance. e. Because of artificial lift requirements (i.e. electrical power requirements) and lower well production rates I think the logistical infastructure is much more complicated, thus more vunerable, to Y2K than in many other producing nations around the globe.

3. The basket price for Venezuelan Crude (heavy oil) is considerally cheaper than West Texas Intermediate, Brent or Saudi light crudes. The U.S. has a cheap sources of crude, which they up-grade in U.S. domestic refineries for commercial purposes. I believe the real motive of Richardson to "drive down" energy prices is to conceal that inflation is here, and Y2K problems and a cold winter will exasperate the problem.

He has more to say on other aspects of the oil problems but not directly related to Venezuela so we'll save that for another post.

---------------

The point here is for you to compare what this "Senior Petroleum Engineer Consultant" had to say with what the DOE analysis is for Venezuela. Do you see how the two sources compare?

Also, remember the recent announcement by Venezuela that they were going to shut down their port facilities during the CDC Yet of course, Venezuela stood tall with Saudi Arabia the other day announcing that they stand ready to pump more oil if needed. More PR spin.

Please note the following from the IEA website while old it is re-posted to testify to a previously known factVenezuela had not even started to do Y2K work as late as February of 1999 when the new gov't admitted nothing had been done. This from the IEA oil industry website:

Venezuela's Oil and Electricity Industries Venezuela Faces $1.5 Billion Y2K Computer Problem This report finds that PDVSA, the world's third largest oil exporter and largest oil exporter to the US, is aware of Y2K and has made progress. The electricity sector in Venezuela is however very vulnerable. The previous Government which left office in February 1999 had made no Y2K preparations. A senior government official is quoted as saying that Venezuela is very behind in its preparations and that the situtation is "very, very serious".

http://www.iea.org/ieay2k/homepage.htm

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The actual Reuters news story quoted the new leaders as saying that not even the national oil company had begun any Y2K remediation. That link is now dead and gone.

----------------=========================== Bottom line. Venezuela is not in good shape, despite what their spinmeisters are saying. If you don't want to believe the Senior Petroleum Engineering Consultant then at least read between the lines of this DoE report. That alone should tell you the situation down there is not very promising, despite the official happy talk.

Now, let's remember the Venezuela factor as we look at other oil exporters in other threads. Does anyone reading this think Venezuela is A-OK for Y2K???

-- R.C. (racambab@mailcity.com), December 12, 1999

Answers

Thanks R.C. Terrific job.

-- nothing (better@to.do), December 12, 1999.

Thanks R.C. - I believe Dick Moody is trying to track down the guy (Goldenfinger) at gold-eagle - hopefully he can maybe give us more detailed information.

-- Andy (2000EOD@prodigy.net), December 12, 1999.

R.C. - I've got some questions for you... if you are interested. After reading a bunch of oil stuff over the last few days... in particlar all the statements from Naimi seeing no reason to change things before March etc.... I got to wondering where China and Russia fits into the oil picture. Especially with them getting so chummy together recently.. what's the chance that there is a squeeze play going on with regards to oil? Does Venesuela export oil to China or Russia? What about Saudi oil? Have the percentages been changing recently? Esp. with the saber rattling going on lately, a squeeze on our oil supply would make sense.. esp. in advance of any other planned activities. To get us to dip into our Strategic Oil Reserves, just to keep down prices, might have certain strategic advantages for Russia/China dontcha think?

Just wondering.

-- Linda (lwmb@psln.com), December 12, 1999.

Linda,

excellent points - what better way to get back at "The great Satan"... the USA has mucho enemies...

-- Andy (2000EOD@prodigy.net), December 12, 1999.

Linda,

Some good observations and questions. I'm getting ready to post more oil info on other oil producing/exporting nations. Venzuela and Saudi Arabia battle back and forth for #1 position as supplier to the U.S. Regarding your question as to whether China or Russia are major oil buyers of Venzuelan oil...NO, not according to the DoE report. Here are the major buyers according to DoE:

Major Crude Oil Customers: United States, Germany, Canada, and Italy

In that order, too.

I'll have more on Russia and China in a follow up post. In a nutshell though, they are both declared "toast" before the event. It's hard to say how they intend to deal the Y2K in their foreign policy. They may have a hard time keeping their gov'ts in existence. (esp Russia)

-- R.C. (racambab@mailcity.com), December 12, 1999.

WAIT A MINUTE:

Russia is a MAJOR oil and natural gas EXPORTER - they DON'T import oil. they provide 60+% of Europre's natural gas, 15% (I think of the oil supplies going overseas - from the pipelines through the Caucasus and Turkey/Black Sea pipelines, and tremedous amounts of oil to the Eastern European nations.

Obviously, much is also consumed internally: if/when their production is lost through politcal pressure or through y2k-induced primary. secondary, or tertiary systematic troubles - look for immediate crisis in Europe. Jobs, heating, gasoline, indutrial production, and production lines of plastics, refined goods, and raw material are heavily dependent on Russian oil for stock, or to avoid using stock to burn for heat.

In other words, if oil or natural gas has to be diverted from plastics production to heating oil to make up for losing Russian imports, the plastics plant goes out of business - immediately. Those jobs are lost until Russia recovers.

Up until now, Russia needed the foreign currency from oil to prop up its government mobsters....but if China has income from the US/world buying goods, then they can pay the mobsters and governmetn - and so the rest of the world can good to hell - since the Russian mob only cares about its comfort and businesses......

---

IF somebody can better print the actual export figures for Russia, please print it. Russia is not an OPEC member, they just charge OPEC prices. We (the US) don't import oil from Russia - but everybody we trade with does.

-- Robert A. Cook, PE (Marietta, GA) (cook.r@csaatl.com), December 12, 1999.

Robert.. of course you are right about Russia being an oil exporter. Duh.. silly me. About China though? I ran across something on a search for +Saudi +China +oil +Naimi.. "Saudi Oil Policy in a Globalized and Dynamic Market"By H.E. Ali I. Al-Naimi, Minister of Petroleum and Mineral Resources

15th World Petroleum Congress, Beijing, China October 15, 1997

"As markets shift, we respond. More than ten years ago, for instance, Saudi Arabia exported less than one million barrels of oil a day to Asia. Today we ship four times that amount, or about 60 percent of our total exports."

And about Russia and China being "toast" after rollover. Doesn't mean they might not be doing a squeeze play now to try to cause an oil shortage in the U.S. Perhaps in advance of other planned actions. The anticipation of being "toast" after rollover just might influence the timing. Now or never?

-- Linda (lwmb@psln.com), December 12, 1999.

Robert,

I just posted a thread above on DoE World Watch ... Russia is listed with links to the correct DoE page on Russia and stats.

Linda,

I can understand your thinking but frankly, I think Russia and China have other things on their mind. And NO, I don't think they're planning on attacking the US during Rollover. I think that is just a lot of hype being built up by our Military-Industrial complex desperate for more Fed budget dollars. Happens every time we have budget-cutters get their way on the Defense bills. Remember, it was Eisenhower and McArthur who warned us about the threats of the Military-Industrial complex. They're back trying to scare more $$$ out of us.

-- R.C. (racambab@mailcity.com), December 12, 1999.

R.C. - I think that is VERY true of a lot of the anti-terrorism scare tactics. Not that there is not a REAL terrorism risk.. but that Anti-Terrorism is BIG business. But when the saber rattling is coming from Russia and China, and the soothing voices are coming from Administration, it doesn't sound like a play for more defense bucks. Hope you're right though.. obviously. But it feels a little riskier than usual right 'bout now. Not that we can do much about those "big picture" things though. Got enough to disturb our dreams with just Y2K and associated worries.

-- Linda (lwmb@psln.com), December 12, 1999.

IMO, Most of the saber-rattling reporting is coming from folks who are shills for the military-industrial complex. Guys like Nyquist and Al Cuppett, etc. etc. Even the Russian "defectors" talking about it are really just trying to earn a living, scaring people. All are "Sponsored" by the same M/I complex folks. There are numerous agendas out there. What if, in reality the whole time, there was a group that superceded both communism and capitalism and was simply using both systems to bring about a New World Order? There are strong indications that this has taken place. Why is it that most wars are financed by bankers who finance both sides? Happened in the US Civil War, WWI and WWII. It happened during the Cold War, too. Hmmm.

-- R,C, (racambab@mailcity.com), December 12, 1999.

This thread linked today by Gary North.

-- more visitors (expected@as.usual), December 13, 1999.