Venezuela: Oil output struggles, government eyes bigger revenue in 2024

– The easing of US sanctions has led to fairer trade deals but no significant investment to raise production.

By Ricardo Vaz

CARACAS, (venezuelanalysis.com) – Venezuela’s oil production remains stagnant as the industry continues to be constrained by US sanctions.

The latest monthly report from the Organization of Petroleum Exporting Countries (OPEC) placed the Caribbean nation’s November output at 780,000 barrels per day (bpd), as measured by secondary sources. The figure rose by 23,000 bpd compared to the previous month.

State oil company PDVSA reported 801,000 bpd, up from 786,000 bpd in October. Venezuelan authorities had set sights on surpassing one million bpd before the end of the year.

Since 2017, Venezuela’s most important economic sector has been repeatedly targeted by the US Treasury Department, with measures including financial sanctions, an oil embargo and secondary sanctions in an effort to strangle the country’s income.

In October, Washington suspended some coercive measures following an electoral agreement between the Nicolás Maduro government and the US-backed opposition. The Treasury’s Office of Foreign Assets Control (OFAC) issued four licenses, including a six-month reprieve allowing production, investment and sales of Venezuelan oil and natural gas.

However, US officials were quick to threaten the reimposition of coercive measures. Earlier this month, the US State Department stated that it was “reviewing” the partial sanctions lifting after unilaterally determining that Caracas was not fulfilling the agreed-to conditions.

In parallel, according to Argus Media, sanctions enforcers have told corporations that the temporary waiver is not a “call for investment.”

PDVSA has held talks with numerous potential partners but no significant projects have materialized to date. In November, the Venezuelan state firm and French company Maurel & Prom signed a deal to reactivate a joint venture in western Venezuela.

US oil giant Chevron, which restarted its operations in late 2022 after receiving a sanctions waiver, has slowly raised output levels and is targeting 150,000 bpd by year-end. However, Chevron CEO Michael Wirth stated that the corporation would require “more certainty and stability” before allocating major investments to its Venezuela activities.

Last Thursday, the Venezuelan National Assembly approved 15-year extensions for Petroboscan and Petroindependencia, two of the four PDVSA-Chevron joint projects in the country. According to Reuters, the two projects will require US $1.28 billion and $10.7 million in investment over the period, respectively.

Chevron holds stakes between 30 and 40 percent in four joint ventures with PDVSA. They have a combined maximum capacity of 200,000 bpd. Spain’s Repsol and Italy’s Eni, two other corporations who got a green light from Washington for dealings with Venezuela’s energy sector, are likewise negotiating agreements to increase exports.

While the temporary sanctions relief has not allowed Venezuela to raise oil production levels, it has led to improved sales conditions. PDVSA has been able to export crude directly via major trading companies, as opposed to requiring a network of unreliable intermediaries to circumvent the US blockade.

As a result, Venezuelan export blends have fetched higher prices for spot transactions, dealing a blow to Chinese refineries that relied on the steep discounts. In recent weeks, India has emerged as a potential destination for Venezuelan crude, both for private and state-owned refineries. Multinational Reliance Industries has already secured cargoes.

Indian Petroleum minister Hardeep Singh Puri told media on Friday that the country will purchase Venezuelan oil and that local refineries are equipped to handle the extra-heavy PDVSA blends. “If Venezuela oil comes to market we will welcome it,” he said.

Following Washington’s oil embargo in January 2019, Caracas looked to ramp up exports to India. Nevertheless, threats from US officials saw Indian companies back down or terminate existing dealings.

The recovery of sale prices has seen the Venezuelan government project a 27 percent increase in oil revenues for 2024. Reuters reported that next year’s budget forecasts $11.9 billion in income from PDVSA, up from $9.34 billion in the 2023 projections.

The Venezuelan National Assembly approved a $20.5 billion 2024 budget on Thursday, up 39 percent compared to 2023. However, the estimations are made in bolívares and currency devaluations force recurrent adjustments throughout the year. The Venezuelan government pledged that over three-quarters of the budget is earmarked for social spending.

Apart from the oil sector, PDVSA has additionally looked to court investment for natural gas projects. Unlike for oil ventures, Venezuelan legislation does not require that PDVSA hold a majority stake in gas projects.

The Venezuelan state-owned company recently struck an agreement with British multinational Shell and Trinidad and Tobago’s National Gas Company (NGC) to develop offshore gas reserves in Venezuelan waters. The project, which will have a 70 percent stake for Shell and 30 for NGC, has reportedly hit a stumbling block due to disagreements over gas price projections.