2
Figure 1. Venezuela
Venezuela’s economic and political instability
Venezuela’s crude oil production has been in rapid decline — average crude oil output has fallen to a 30-
year low (excluding the decline in production during the 2002 – 03 strike). As of May 2018, Venezuela’s
crude oil production was 1.4 million barrels per day (b/d). According to tanker tracking data, Venezuela
exported an average of 1.5 million b/d of crude oil in 2017, 10% lower than the 2016 level. In the first
quarter of 2018, exports of Venezuela’s crude oil fell to 1.1 million b/d, based on tanker loadings data.
In addition to falling production and exports, refiners in the United States and Asia have reported crude
oil quality issues with crude oil imported from Venezuela, resulting in requests for discounts or
discontinuation of purchases.
Venezuela’s crude oil exports to the United States fell from 840,000 b/d in December 2015 to roughly
480,000 b/d in March 2018. Venezuela was the third-largest supplier of crude oil imports into the United
States after Canada and Saudi Arabia, occupying a top-three spot from 2015 to 2017. In March 2018,
Venezuela was the fifth largest supplier of crude oil imports into the United States.
The Venezuela’s oil industry’s chronic problems that led to the steep production declines are unlikely to
change any time soon. The industry has been mismanaged since the late 1990s. A somewhat recent anti-
corruption campaign has resulted in the firing and jailing of dozens of officials and technical staff at the
Petroleos de Venezuela S.A. (PdVSA), the country's state-run oil and natural gas company, since last
year. This has caused a near-complete paralysis at the company.2
The Venezuelan government is also facing with high levels of debt and hyperinflation. During the last
quarter of 2017, Venezuela was late in making some bond payments, and the main rating agencies
declared the country in selective default. During 2018, more than $9 billion in bond payments will comedue, raising the possibility of a general default. In addition to the approximately $64 billion of debt in
traded bonds, Venezuela owes $26 billion to creditors and $24 billion in commercial loans, according to
Torino Capital estimates, although some estimates place Venezuelan debt at $150 billion.3
Venezuela’s economy contracted by nearly 9% in 2017, based on estimates from Oxford Economics.
While the Venezuelan government has not published any economic data in more than two years,
Venezuela’s National Assembly reported in mid-March 2018 that inflation was over 6,000% between
February 2017 and February 2018. The International Monetary Fund projects that inflation will soar to
13,000% in 2018 and expects that Venezuela’s economy will contract 15%, resulting in a cumulative
gross domestic product (GDP) decline of nearly 50% from 2013 to 2018.
The reduced capital expenditures by PdVSA are resulting in foreign partners continuing to reduce
activities in the oil sector and crude oil production losses are increasingly widespread. With Venezuela’s
heavy dependency on the oil industry, it is likely that Venezuela’s economy will continue to shrink, and
that the runaway inflation will remain the mainstay at least in the short-term.
The non-payment to oil service companies has resulted in the scaling back of operations, which has
profoundly affected Venezuela’s crude oil output, especially since mid-2016. Because PdVSA relies on
international oil service companies to maintain and operate its oil and natural gas wells, reduced
investment and involvement by these companies has led to precipitous declines in production, which
has dropped to multi-decade lows. The number of active rigs fell from near 70 in the first quarter of
2016 to 35 rigs in April 2018.Reports indicate that missed payments to oil service companies, a lack ofworking upgraders, a lack of knowledgeable and able managers and workers, and declines in oil industry
capital expenditures will continue to affect crude oil production negatively.4
Additionally, Venezuela’s revenue from oil exports is severely constricted as only about half of the
exports generate cash revenues. U.S. refiners are among the few customers that still remit cash
payments. The remaining crude oil exports are sold domestically at a loss or sent as loan repayments to
China and Russia (the repayments to Russia are sent to Nayara Energy’s (formerly Essar) Vadinar refinery
in India to service debt that Venezuela owes to Russian oil company Rosneft, the co-owner of the
Vadinar refinery).
Venezuela’s midstream, downstream, and export facilities are also experiencing difficulties. In a recent
legal setback for PdVSA, ConocoPhillips successfully seized PdVSA Caribbean assets following a $2 billion
award the company received in April 2018 as compensation for the seizure of its assets in Venezuela.
PdVSA depends on its Caribbean assets to export extra-heavy crude oil to Asia. This latest action will
severely hamper Venezuela’s ability to prevent production from declining further.
Venezuela has also been experiencing increasing power blackouts and electricity rationing, additionally
exacerbating events.
Petroleum and other liquids
Venezuela has the world’s largest proved oil reserves, but production of oil and other liquids has
been steadily decreasing. Most recent production data indicate that crude oil output has reached
a multi-decade low as oil sector mismanagement and economic problems affect the industry.