Venezuela’s oil and gas sector was already caught on a vicious cycle well before the Covid-19 outbreak created a world economic crisis. During the last decade, the country’s hydrocarbon sector has suffered from chronic underinvestment and in 2019 the US government imposed sanctions on the country’s oil trade, its main source of revenue.
This has effectively restricted the exporting capabilities of the country, has created operational bottlenecks and has left Venezuelan government and its National Oil Company, PDVSA, with less and less means for investing on the sector. As a result, production has been on a continuous decline since 2015 and in May 2020 was officially reported at 570 thousand barrels per day (mbd).
During 2018, the United States accounted for approximately 500 mbd of Venezuelan crude oil exports. After the 2019 sanctions, exports to China and India somehow compensated the loss of the US buyers. However, during 2020 both lower demand for crude worldwide and a tightening of sanctions have reduced export capability to its worse level to date.
Lower exports have led to an increase in the storage capacity utilization of the country, which has a peak operating capacity estimated at less than 40 million barrels, and in consequence, production cuts have already occurred. The largest production drop is expected to happen in Orinoco Oil Belt, where production is currently estimated at 161 mbd, already three times lower than in 2019. Also in Orinoco Belt some ventures with the highest heavy oil production in the region (Petrolera Sinovensa and Petromonagas) have apparently produced nothing in June, while assets Petropiar and Petrocedeno stopped operations. At present, there is only one oilrig operating in the country.
Natural gas projects announced to develop Venezuela’s vast offshore reserves have been in the planning for many years, and during the last five years negotiations between the Venezuelan government with Russia’s and Trinidad and Tobago’s counterparts had put these projects back on track. However after a worsening of the political and economic climate of the country these projects are currently on hold.
Several international companies currently remain in Venezuela. However, they are not investing in any relevant manner and have in fact minimum personnel. It is fair to assume that for most of these operators the best-case scenario requires a change in government, which could kick-starts the sector under renewed rules or laws.