Venezuela’s oil production continues to experience fluctuations with output declining for two consecutive months amidst the industry’s slow recovery.
The latest report from the Organization of Petroleum Exporting Countries (OPEC) placed Venezuela’s output at 733,000 barrels per day (bpd) in September, down from 758,000 in August, according to secondary sources. The drop happens after July’s 772,000 bpd, the highest figure registered since early 2020.
For its part, state oil company PDVSA reported a higher number of 762,000 bpd, but still much lower than the prior month’s 820,000 bpd.
Since 2017, Washington has imposed financial sanctions and an export embargo against PDVSA while levying secondary sanctions and threats against foreign oil companies and actors dealing with Venezuela. The situation has been compounded by corruption inside PDVSA and a brain drain due to migration.
As a result, the country’s crude output fell from 1.9 million bpd in 2017 to less than 500,000 bpd by the end of 2020. In 2021, the industry began a slow and unsteady recovery process to reach an average of 690,000-700,000 bpd by 2022. This year’s average has been 728,000 bpd.
Despite the recent crude production slides, September’s oil exports hit the second-highest monthly average this year with PDVSA and its partners shipping around 812,000 bpd of crude and fuel mainly to China.
The export rise responded mainly to the reactivation of extra-heavy crude upgraders in the eastern Orinoco Oil Belt and new imports of Iranian crude and US heavy naphtha, which are crucial for refining and crude blending operations. However, export figures could decrease in the upcoming months due to PDVSA seeing a significant reduction in inventories of its flagship Merey 16 grade.
According to reports, this month’s export numbers included 145,000 bpd shipped by US oil corporation Chevron from its four joint ventures with PDVSA. In November 2022, the California-based company received an oil-for-debt license from the US Treasury’s Office of Foreign Assets Control (OFAC) to resume trading in Venezuelan crude.
Chevron is reportedly planning to install two powerful drilling rigs at the Petroindependencia joint venture in the Orinoco Oil Belt. Later on, two other ventures are set to receive rigs as well.
The goal is to reach the joint ventures’ maximum production capacity of 200,000 bpd by the end of 2024. For the US oil giant, this would quicken the process of recouping the US $3 billion in unpaid dividends and debt from its projects in the country while Caracas would move closer to its one million barrel per day target set since 2021.
However, Chevron will need authorization from the US Treasury Department to obtain the large specialized rigs from an oilfield supplier abroad. So far, neither Chevron nor PDVSA have clarified if they will request a modification to the current sanctions waiver or a new license with broader terms of cooperation.
Under US sanctions, the Caribbean country has been unable to acquire modern equipment to expand crude output and perform maintenance work on its oil facilities, leading to recurring operational setbacks and stoppages in joint venture operations.
If Chevron’s drilling campaign is successful, other foreign PDVSA partners might follow its steps. Recently, the Chief Executive Officer of state-owned Brazilian corporation Petrobras, Jean-Paul Prates, said it made “geopolitical sense” to reengage with Venezuela and Bolivia given their proximity and extensive oil and gas reserves. No official statement has been made about a potential license request to US authorities.
In August, Caracas successfully renegotiated the oil-for-debt deal struck last year with European firms Eni and Repsol in order to receive fuel while continuing to repay debt. The new terms of the agreements were reportedly approved by Washington and since then PDVSA has received two cargoes of 260,000 and 351,000 barrels of fuel and diluent.
Despite this progress, Washington’s sanctions relief has been exclusively directed at helping US and European companies to recoup unpaid debt from Caracas while the blockade against the Caribbean nation remains intact.
However, Bloomberg reported that Washington and Caracas have been engaged in talks since last year in Doha, Qatar, and the US government might be willing to lift some oil and banking sanctions against Venezuela. This could allegedly allow the Venezuelan government to reengage with financial institutions and recover around $3 billion frozen in accounts in Europe.
According to the financial outlet, the Biden administration is demanding that the Maduro government remove the bans on opposition candidates, including María Corina Machado, ahead of next year’s presidential elections. In 2015, Machado was banned from holding political office after calling for military intervention. She is currently running in the opposition primaries to be held on October 22.
Source: Venezuela Analysis