Don’t hold your breath for Venezuelan oil industry

The longest a human has held their breath is 24 minutes and 3.45 seconds, according to Guinness World Records. Even if every minute were three months, Venezuela’s oil industry won’t be back on its feet by the time you have to come up for air, no matter how the current political chaos plays out.
I’m not going to try to pretend I know how the situation in Venezuela will evolve over the coming days, weeks or months. Almost anything could happen: the quick ouster of President Nicolas Maduro; a protracted period of civil unrest; or the current regime digging in with the support of the military.
One thing I am fairly sure of, though, is that the damage inflicted on the country’s oil sector by years of under-investment and mismanagement, compounded by the exodus of large parts of the skilled workforce, will not be quickly, or easily, reversed. And it won’t matter who is in power, or how any transition comes about.
Venezuela has a mountain to climb to restore its oil industry to its former glory.
When Luis Giusti resigned as president of state oil company Petroleos de Venezuela the day before Chavez took office, in February 1999, the state oil company Petroleos de Venezuela boasted production capacity of about 3.3 million barrels a day, up nearly 30 percent since the start of 1994. It had a network of overseas refineries to secure market access and was in the process of building two cokers at its domestic refineries to boost the production of high-value products from its heavy crudes. The parts of Venezuela’s vast portfolio of reserves that were not core to its operations had been opened up to foreign and domestic investors, and there were credible plans to lift production capacity as high as 6 million barrels a day.
Today, its production is roughly a third of what it was when Chavez took power. PDVSA’s overseas refineries have mostly gone and its domestic plants are running at as little as 20 percent of capacity. The joint ventures developing the heavy oil projects in the Orinoco Belt have, for the most part, failed to build the expensive upgraders required to meet ambitious output targets. They instead rely on blending smaller volumes of the tar-like crude they produce with lighter oil — itself occasionally imported from as far away as Algeria — to allow it to flow through pipelines to export terminals on the coast. That investment may pick up under more benign conditions, but even so it will take several years to bear fruit.
It will take more than just opening some taps to let the oil flow again. Cracked pipes, busted valves and worn gaskets have left a legacy of toxic spills. Much of that infrastructure may need to be replaced before production can increase.
The country’s older oil fields in and around Lake Maracaibo in the west of the country need constant supervision, but the engineers who understand the reservoirs have largely left, taking up jobs in neighboring countries, the US or Canada. A change of government is only the start of what will be needed to bring them flooding back.
Giusti, who trained as a petroleum engineer, told me several months ago that he worries that there may also have been irreversible damage to the oil reservoirs in Maracaibo, and that production in western Venezuela may never recover.

—Bloomberg