Venezuela on Its Way to Becoming a Dysfunctional Petrostate

Jan.21.10 | About: The United (USO)

A great deal of the newsflow from Venezuela over the past decade has detailed the gutting of PDVSA, the national oil company, for the sake of illusory programs dreamed up by one Hugo Rafael Chavez. As this has gone on for some time now it was inevitable that Venezuelan oil production would eventually suffer. Indeed, after serial takings in the Orinoco, the stuffing of PDVSA with cronies, and the depletion of its capital, there’s little surprise that Venezuelan oil production is down 1 mbpd since 2001. That’s a 30% fall.

Of course, with each successive nationalisation it was inevitable that Venezuela’s various systems would eventually merge to form new, tightly coupled, super-scaled problems. From Tuesday’s Bloomberg/BusinessWeek:

Venezuela’s power shortage may push oil above $100 a barrel if President Hugo Chavez diverts electricity from the biggest refining complex in the Americas, Curium Capital Advisors LLC said. Chavez may tap a power plant at the 940,000 barrel-a-day Paraguana complex to supply electricity for public use, said Colin Fenton, chief executive officer of the Boston-based oil research firm. “He has to decide every single day what to do with Paraguana,” Fenton said today in an interview with Bloomberg TV in New York. A shutdown there would cause a temporary price spike until U.S. refiners make up for the lost output, he said. Most regions of Venezuela are facing blackouts for two to four hours a day to save power as the worst drought in 50 years reduces water levels in hydroelectric dams that provide 73 percent of the country’s energy.

Despite alot of incendiary rhetoric from the Chavez regime over the years, The United States secures alot of its just-in-time supply from Venezuela. (I’m not convinced that the power outages in the country’s grid will actually get the price of oil to 100 just yet). However, it’s instructive that along with geological declines in Mexico, hemispheric supply to the United States remains on a well-established downward path. It appears that Chavez is about to achieve dysfunctional petrostate status for Venezuela.

chart by www.gregor.us using data from EIA Washington