According to the 2022 BP Statistical Review of World Energy, Venezuela has more proved oil reserves than any other country in the world. Venezuela’s 304 billion barrels of proved reserves just edges out Saudi Arabia’s 298 billion barrels. Both are far ahead of U.S. proved reserves of 69 billion barrels.
But the Top 3 oil producers in 2021 were the U.S. at 11.1 million barrels per day (BPD), Russia at 10.5 million BPD, and Saudi Arabia at 9.4 million BPD. Venezuela was way down the list, at #25 with 605,000 BPD.
Venezuela’s heavy crude oil is especially prized by U.S. refiners. How is it that a country with so much oil produces so little? And why has the country seen its oil production plummet by more than 75% over the past decade?
One reason for the decline of Venezuela’s oil industry is that many countries — including the U.S. — have placed various sanctions on Venezuela over the years. Most recently, the Trump Administration placed Venezuela’s oil sector under sanction in 2019.
But the steep decline, which preceded the Trump sanctions, was largely a result of Venezuela’s own policies.
During the first decade of this century, oil prices skyrocketed. From an annual average of $26 a barrel in 2002, by 2007 global prices had reached $80/bbl. The Venezuelan government, led by the late Hugo Chávez, sought a larger share of the revenue as investments made by international oil companies began to pay off. The government already siphoned a substantial amount of money from the oil industry to pay for social programs, but it wasn’t enough.
Venezuela demanded changes to the agreements made by the international oil companies that would give PDVSA majority control of the projects. ExxonMobilXOM and ConocoPhillipsCOP refused, and as a result their assets were expropriated. These expropriations were later ruled to be illegal, and compensation was granted to both companies.
Most of Venezuela’s proved oil reserves consists of extra-heavy crude oil in the Orinoco Belt. That oil requires a higher level of technical expertise to develop, which international companies possess. However, the implications were that most international companies were essentially kicked out of the country. Further, the Chávez government had fired many experienced PDVSA employees in 2003 and filled those positions with Chávez loyalists.
The net result of a loss of expertise, international sanctions, failure to reinvest in the oil industry, and falling oil prices in 2015 resulted in the steep decline seen in the graphic above.
This production decline has particularly impacted U.S. refiners. Venezuela’s oil is heavy, which means it requires more processing by refiners. But U.S. refiners have invested billions of dollars into processing heavy oil. This oil sells at a discount to lighter oil, and as a result refiners make more money processing this crude oil into finished products.
But, the U.S. government recently loosened the sanctions a bit, allowing Chevron to expand production in a joint venture with PDVSA, and to ship that oil to the U.S. Reuters reported last week that Chevron obtained a license from the U.S. Treasury Department that will allow it to ship more than 100,000 BPD of Venezuelan crude to the U.S. this month.
This deal may finally help Venezuela grow its oil production after more than a decade of decline. On paper, Venezuela alone could meet global oil demand for nearly a decade. The country could grow wealthy in the process. But it’s got some work to do.