How to Run an Oil Industry into the Ground
Posted by Robert Rapier on September 27, 2010 - 9:28am
Hugo Chavez is putting on a clinic in Venezuela. The theme is “How to Destroy a Domestic Oil Industry.” I have warned for years that this would be the end result of Chavez’s actions. As I wrote in 2007:
So, can Chavez under-invest in the industry while diverting money to his pet causes? He can for a while, but you can see the results. Despite having enormous oil reserves, he and his cronies are running Venezuela’s oil industry right into the ground. His generosity to the poor has only been possible because he had a goose that laid golden eggs because they constantly reinvested money back into the business. Once he kills the goose, where is he going to get the money to continue his programs?
Venezuela is in the Top 10 globally in oil reserves, but their national oil company is reaping what Chavez has sown:
Declining production will continue to hit Pdvsa
The report, which was prepared by the Ministry of Planning and Finance, includes Pdvsa’s consolidated results, characterized by falling revenues, lower earnings, and a growing debt. The report conceded that the oil industry was hit by lower production and a decline in oil prices.
Financial authorities acknowledged that production and expenditures have been key factors in the financial situation of the oil industry. They added that these factors will continue to hit the industry in the future.
The annual reports highlights that Pdvsa’s oil contractors have filed complaints against the state-run oil company over late payments.
It was pretty obvious that this would happen, but those who were praising Chavez would not listen. I got a lot of knee-jerk reactions about Chavez standing up for the people and sticking it to those greedy oil companies. Actually, I think it is great to use oil revenues to benefit the public. We do that in the U.S. by taxing the industry in various ways — and along with windfall profits for the oil companies came windfall taxes for the government. Chavez did it by raiding the industry and expropriating property of many private companies. I stress to my kids that actions have consequences, and the wrong actions will have undesirable consequences that one has to face. Chavez’s actions are an example of this, and his prediction of rising oil production in the face of siphoning revenues was just wishful thinking.
As I have said many times, the oil industry is very capital intensive. Those big revenues don’t come without some very big bills that have to be paid. You can’t raid gross revenues for very long without suffering serious production difficulties. But as oil revenues exploded on the back of higher oil prices, they became a very attractive target for governments seeking to pay for expensive social programs. What many didn’t understand is that as oil revenues exploded, inflation hit the entire oil sector and everything became much more expensive. I was in the North Sea as oil prices crossed $100/bbl, and the cost of doing projects escalated along with oil prices.
Chavez can only hope for much higher oil prices, or that he can convince foreign firms to come back and set up shop after previously stealing their assets. More likely he will continue to seize assets and dig himself into an even deeper hole. He has started a downward spiral that can only be corrected by a massive infusion of cash back into the industry; cash that he no longer has. It is a classic case of the Goose and the Golden Egg. Chavez reaped short term “profits” for the government, but in the long run he will have much less money with which to finance his social programs. (For a successful example of using oil revenues to better the lives of its citizens, see Norway).
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While in the short run Venezuela will have lower revenues, consider the long term: Venezuela will still have oil while there will be enormous shortages in the rest of the world.
"Drill, baby, drill" until the oil is all gone is simply not the best policy for either countries or the world.
Yeah... that above thing always produces this paradox
is it a bad thing?
depends
I suspect that a poorly run oil industry will damage its reservoirs so while leaving the oil in ground is good in the long term poorly run oil industries are not good at getting the most of what they have... but then you enter some giant jevons scenario...? dunno?
you would have to work out the loss of recoverable oil by poor management investment and the net gain of leaving it the ground thus raising its value in the long term.
While in the short run Venezuela will have lower revenues, consider the long term: Venezuela will still have oil while there will be enormous shortages in the rest of the world.
Some even go so far as to suggest he is crazy like a fox for that very reason. I don't buy into that, since his stated goal is to increase oil production. Further, he needs that revenue to fund his social programs.
This oil is challenging to produce. If the doomers are right, then not only will Venezuela have lots of oil in the ground while things fall apart, but it will stay there forever because it is too technically challenging to produce.
I can't help but think about the Alberta oil sands projects, which are technically challenging and capital intensive. They might not have happened at all, under similar leadership.
In the long-run, however, say in a hundred years, Venezuela may still be whole and healthy, while Alberta will be a vast strip-mined, poisoned, desolate, and uninhabitable scar. And the money one made versus the money another made will amount to nothing.
And of course the world will be far better off if they DON'T ever produce that oil and certainly if the DIDN'T develop the oil sands.
Unfortunately, people believe all this BS about the consequences of oil sands operations. These mines operate under strict environmental regulations and there are plans in place to convert them to agricultural land once the oil is mined out. They have all the topsoil stockpiled, ready to be put back, fertilized, and planted to alfalfa. They are legally required to restore it to as good as or better than original condition, and since the original land was actually pretty marginal, not the pristine forest the environmental groups paint it as, they are going for the "better than" option.
If global warming predictions are to believed, 100 years from now the oil sands will be a major new agricultural area - the forests of northern Alberta will have been cleared and planted to crops. It will look much like the US Midwest does now, because climate zones will have shifted and it will be possible to grow corn and soybeans up there. Right now it's climate-constrained.
The oil sands will still be producing oil 100 years from now, in fact it will be one of the few areas on Earth still producing oil, but by that point it will be almost all in-situ production. Fort McMurray will be a major city with up to a million people. If it is one of the last areas producing oil, and oil is still in demand, odds are they will be very affluent and the city will have become a major industrial center.
Most of the US, however, will look considerably less affluent - largely desert, interspersed with poverty stricken cities surrounded by abandoned suburbs of collapsed houses and crumbling roads. During the last global warming episode, the US Midwest turned into desert, and the Canadian prairies expanded north right into the Northwest Territories. If it got warm enough, it could happen again. But that's only if you believe the global warming extremists.
Venezuela - well, who knows what it will look like, but based on previous Latin American experience, odds are it won't be very good.
Rocky, Actually I was at a presentation by the company environmentalist for the major oil sands producer in Canada. Unfortunately, alfalfa is NOT an option. They had already accomplished a 10 acre remediation, but because they used imported Russian larch instead of "native" trees, the entire process was invalidated. Too bad because the Russian larch absolutely LOVED the environment and was growing faster and healthier than all the native trees, by an order of magnitude. But "environmentalists" who believe they know better than everyone vastly outnumber the pragmatic kind, and even if a superior species were introduced, their argument is that it "might" create some unknown problem in the future, and as bunglecrats, it is always easiest to say, "No" to anything at all than do something productive with their lives.
And unlike perhaps 99.999% of the posters on this site, I have actually BEEN to Alberta and seen everything first hand.
Strip mining may well be a stupid way to get to the oil, but Provincial law REQUIRES IT. There is no in situ method that can recover 90% of the oil but that is what the law requires, so in situ methods are verbotten.
Off my soapbox now.
* Larix laricina Tamarack Larch or American Larch. Parts of Alaska and throughout Canada and the northern United States from the eastern Rocky Mountains to the Atlantic shore.
* Larix lyallii Subalpine Larch. Mountains of northwest United States and southwest Canada, at very high altitude.
* Larix occidentalis Western Larch. Mountains of northwest United States and southwest Canada, at lower altitudes.
There are some local choices.
Alan
Choices that were planted side by side with the Russian larch, and didn't do so well. Just typical self-serving protectionism of species that differ only slightly from each other. Clearly whatever can handle a Siberian winter can handle ANYTHING a Canadian winter can throw at it, obviously a superior species according to evolutionary principles. But why confuse patriot environmentalists bunglecrats with facts? They just have to use political means instead of science to achieve their ends.
I question that there was that significant difference in larch species. Larix sibirica (one of 3 larches from Siberia) is the best commercial variety. Larix cajanderi survives under the most extreme environmental conditions.
Do you have a link ?
I would like to forward the study to an international expert on larch.
Thanks,
Alan
Pasttense, if Venezuela waits too long, and there are enormous shortages, then an alternative will emerge to oil, and Venezuela's reserves may not fetch as high a price as you may think. The answer is to develop some of this huge resource now, and do it intelligently.
Evidently there's a way to manage the resource which doesn't involve a very fast development pace, but the conventional oil production base is declining, therefore investments are needed in the Orinoco Oil belt (I object to the use of the word bitumen to characterize most of this oil resource, it is oil, which happens to be extra heavy).
An additional consideration is the population growth rate, and the need of the incoming young population to find work. Orinoco Oil development, if it's designed to include as much local labor as possible, can also serve to absorb some of the work force. And of course the development requires construction of a large set of pipelines, oil upgraders, gas supply sources, and infrastructure, which can really put the economy back on a better course.
I can probably write a book about the potential outcomes, what needs to be considered to develop these oil resources, but I can close by saying the key to future development will be for the government to relax its taxation policy (because projects are not suffiently profitable under the current tax system unless relief is granted), and for the development of a mechanism to give foreign investors the equivalent of international arbitration while at the same giving Venezuela assurance it retains its sovereign rights. This is fairly easy to accomplish with a good set of lawyers and some good will.
Well, unless nuclear fusion harnessed, there will be no better alternative than oil. That is kind of the whole point of this web site. So that oil in the ground will continue to rise in value.
However, that is not always a great thing. You do want to develop your oil resources so you can pay for your various programs without running up too much debt. But perhaps more importantly, you don't want to look like an irresponsible tyrant or some outside entity may make up an excuse to invade your country to get that oil flowing again. (*cough*Iraq*Cough*)
Who knows . . . maybe Chavez realizes that his social programs are just creating too much dependence on government among his people? Thus, perhaps instead of looking like the bad guy by cutting off the programs, he will limit those programs by limiting the amount of oil revenue available to spend. Nah, I don't believe that but it might actually be a good accidental outcome.
Experience shows something will replace oil, I don't know what will, but I think it'll be a combination of efficiency and other products - I suspect it'll be something we don't think about now.
The US isn't about to invade Venezuela, it doesn't have to. Venezuela's oil production isn't that important anymore. And Iraq wasn't invaded for the oil, it was invaded mostly because several powerful lobbies combined to drive the invasion, and I don't think the oil lobby was that important. I suspect the Israel Lobby and the weapons manufacturers had a lot more to do with it. Heck, I'm not sure what drives this diseased behavior on the part of the US. What drives Murdoch and Fox news to back the neocons, unless it's Murdoch's keen interest in making money, and his ties to Israeli business interests, which happen to drive a lot of his profits? But that's just speculation on my part.
You seem to be grasping for hypothetical reasons why the Venezuelan government may be letting production go down - as if it were done on purpose. I, who happen to be very knowledgeable about the Venezuelan oil industry, happen to know your theories, which arise from a deep lack of understanding of the country and its industry, are not based on fact. What I see inside is quite different, a keen interest to develop their reserves - but on terms they are not willing to budge. They are testing the market, and the market is saying no.
his ties to Israeli business interests, which happen to drive a lot of his profits?
Do you have any links, sources or background info on that?
Thanks Robert!
It seems like we get quite a bit of US imports from Venezuela, but don't talk about Venezuela too often.
This is a chart of Venezuela's oil production, consumption, and exports, from Energy export Data Browser. It has been one of the US's top sources of imports in recent years.
Venezuela has huge deposits of extra heavy crude in the Orinoco Belt. I do not have data on production from it.
Given the rise in prices since the peak of production in '99, they must be earning a lot more foreign exchange from their current exports.
Does Venezuela need more foreign exchange than they are currently earning?
From Feb: Venezuela awards Orinoco Belt blocks - UPI.com
EIA says ca. 600 kb/d currently from Orinoco: Venezuela Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal
Merrill:
Venezuela does earn more now. The government has a stated goal to increase production (see "Siembra Petrolera Plan" at PDVSA's website). I'm sure Venezuelans feel they could use more money. As a matterr of fact, other than Norway and a few other super rich countries, I doubt there's any country in the world which would avoid taking an option to increase exports, cash flow and the people's well-being.
Also, your reference point is a little off the mark. If you consider the situation they faced in 1999, when production was higher but prices were much lower, I think they (Venezuelans) would say things really stank, and they sure needed to get better. Therefore, using 1999 as a reference point is a bit off the mark. It is as if I asked you, are you sure Americans are not happy with the Obama administration and the current state of the economy, when the country is doing so much better than it was doing in 1933?
Gail, the only ones who have accurate information about the Orinoco Oil region is PDVSA and Venezuela's government. There's also a little confusion regarding what is the Orinoco Oil Belt (or Faja del Orinoco). Some authorities do not classify the oil produced at Morichal, Jobo, and other fields as part of the Oil belt production. However, they are heavy oil fields located in the area, and the producing formation is the Oficina, which holds the bulk of the oil reserves in the Belt.
I could toss some numbers out, but I'm not sure my figures are right, because I hear too many different numbers, and sometimes I wonder if the figures are capacity versus actual production, whether production is cut due to OPEC quotas, and whether they are synthetic crude or the crude produced from the reservoir.
Chavez will soon be leaving office on term limits, and has just suffered a setback in the legislature. We will see how his vision stands up.
While many officials are corrupt, and Venezuela is a violent place, the bottom up reorganization, and general economic and political power achieved by most classes of Venezuelans will be hard to turn around.
One must realize, unlike Russia in 1918, or Cuba in 1959, where the governments were taken over and reorganized, Chavez, and Morales in Bolivia, are elected officials within a previous political system,
We shall see-the Venezuelans learn their lessons in the coup attempt, and distrust putting their fate with multinational corporations, aligned with global economic interests, rather than their own.
I agree with pasttense. There's no compelling reason for Chavez to invest big $$$ to deplete now when it will be more profitable to deplete later. What's the hurry?
We can denigrate Chavez all day long, but for this... we certainly have not seen the social inequity in revenue distributions that we've seen, literally for decades, in Saudi Arabia or Nigeria.
My neighbor with the Ford Expedition in his driveway might care if Chavez is late to the party, but I don't. And... if the Chinese have investment plans for Venezuela, Chavez will be viewed as clever, not shortsighted.
Will: Re: "...we certainly have not seen the social inequity in revenue distributions that we've seen, literally for decades, in Saudi Arabia..."
Are you aware that 100% of the oil revenue in the KSA has been controled by the people of the country via it's gov't for decades? Which isn't to say they might not have been shafted in the 50's and 60's. But that status ended long ago in the KSA.
"100% of the oil revenue in the KSA has been controled by the people of the country via it's gov't for decades?"
Can we really say that the Saud family represents the people of Arabia in any way? I know that there is a lot of social spending by the government but I doubt anyone without the Saud name has any real say in how things are done in that country.
If you think of the Saud family as a kind of closely held corporation it makes more sense to compare them to your averge kleptocracy rather than to a government held oil company such as in Norway.
El Presidente for Life won't be leaving office except toes up, after a junta IMHO. Of course the new guys are going to have the same old problems with decaying infrastructure and lack of ongoing investment, corruption, graft and theft Hugo had. There's an outside chance he'll lose a re-election bid against someone like this mayor, but I'm more worried for Carlos' health in the meantime.
Chavez will be leaving, and has respected the vote, and lost a referendum to change the limits.
One should not drink too much at the well of Faux News.
I stand corrected, the term limits have been removed. He had lost an earlier attempt.
You are right. There was an atempt to change the Constitution which was rejected. The term limit change was included in the package, so it was turned down too.
Later, there was a proposed constitutional amendment which was approved, to eliminate term limits. This means the president of Venezuela can run again in 2012.
Elections were held yesterday, and the results were mixed. The opposition managed to gain a fair share of the popular vote, and there are reports they will have more than 60 out of 165 seats in the National Assembly.
Next set of elections is in Brazil, where there's some movement to reverse Petrobras' nationalization. I think the Brazilians are feeling very empowered now that they found all those sub-salt oil reserves.
If I had a dilapidating national oil industry to refurbish, and I was a getting a lot of slagging, threatening, and big-stick-waving from a local imperial big-thug state which depended on my country's oil to keep it alive -- d'ya know, I might just look around for other, slightly more subtly-intelligent managers of another imperial big-thug state, who'd be glad to help me get my national oil industry back up to strength again, in return for re-routing most of my production to them.
But then of course, the first big-thug state would start making good on its threats to attack me and take over my country's oil industry by force.
Erm, that is -- if it was still actually, physically able to do that. But it's not doing too well in that game just now, is it, if the current 'success' in Iraq/Af/Pak/Iran is any indicator.
John Michael Greer has the future of the ex-united states of North America pretty well pegged, I'd say. And as that empire fragments and slips away into history, it's likely that Venezuela will still have inheritor powers around in the world only too anxious to help it with its oil industry -- and without brutal invasion and devastation as part of the deal, too.
In essence, the equation is very simple: Venezuela has oil. Many rivals will need that oil desperately for the rest of this century. And as things stand at present, no thug power anywhere on the planet can make a realistic -- key adjective! -- threat to invade and conquer Venezuela. So the oil is going to go to whoever talks best turkey with Venezuela's rulers. And should they remain socialistically inclined (which you can bet your boots most Venezuelans -- the poor majority, whenever they happen to be democratically asked -- will want them to remain) then Venezuela's oil-importing trading partners will go along with that, just to get the oil, without which they know that they'll go the same way as the US is going.
RG:
Your post has an unstated assumption of competence and forethought in the Chavez regime. After about his first year in power any hint of that seems to have faded away. Too bad because I really thought he was going to make a difference in Venezuela.
I an touched by your faith in the goodness of other countries that probably will soon be in a position to help the Venezuleans recapitalize thier oil industry; but I am much more amused by your failure to realistically predict what will happen;the next Chavez will try to rob aznd bully the next set of oil companies that cone in;and unless the US keeps them out, the countries whose capital went in will send thier military in behind thier capital.
Europeans can wax eliquent about us being the bully of the world, but the fact of the matter is they are able to act more civilized because we are doing THIER bullying for them.
If and when we are finished as leaders on the world stage, as British were finished after the big wars, the Chinese will probably be in the drivers seat.
History indicates that at THAT POINT , pacifist Europe will be whistling a VERY different tune.
I am simply amazed at how fast people can forget the realites of Imperial Japan, Nazi Germany, and Stalinist Russia, just to mention the most recent really big examples
That's one thing to say for being a conservative and a realist;we don't forget such things over night, or expect that for some unexplained reason they will never make new appearances on the world stage.
I'm touched by your faith in the goodness of the U.S. Unfortunately, with some notable exceptions, our history of bullying other peoples is pretty comparable to the worst of the 19th century imperialists. It is true that the Soviet Russians, the German Nazis and the Cambodian whatevers were highpoints of brutality, but we've tried pretty hard.
People who call themselves conservatives seem to easily forget the crimes against the people of Viet Nam and, more recently, Iraq. Then there was the Dominican Republic, and Haiti...need I go on?
Owning up to these failings of our own is the only way we can address the causes of them so we can honestly claim some moral high ground. It was only he outrage of the common American citizen that ended the madness of Vietnam. Where are those citizens today?
If you don't mind, I'll go on for you... since it's never done enough in most commentaries.
More countries where the US has intervened militarily, either without being attacked, or having been attacked trivially, or having made dubious claims of being attacked:
Mexico
Cuba
Philippines
Panama
Grenada
Bosnia
Serbia and Kosovo
Russia
Libya
Lebanon
Somalia
More countries where the US has intervened less directly either to overthrow a government or to finance wars that killed lots of people:
China
Indonesia
Iran
El Salvador
Nicaragua
Bolivia
Chile
Columbia
Congo
Angola
Israel and its neighbors
Greece
Afghanistan
Still not an exhaustive list in either category, and let's not forget the American Indians either.
This is fairly unrelated to the questions facing the Venezuelan oil industry. So let's say we agree the US is imperialist and the government has a tendency to make stupid moves which use violent force to achieve nothing other than waste money and soldiers' lives....so what are the options for Venezuela to develop its mega-heavy oil resources? This has little to do with American imperialism, other than the USA is the closest large oil importer.
Actually, I think it is tremendously related. Chavez political philosophy and platform is heavily based on rejection of US imperialism, and that list above has a tremendous influence on Chavez and Venezuela. It is the determination of a majority of the Venezuelan people not to belong to that list that bolsters their support for Chavez. After all, I probably should have included Venezuela on the list, for the failed coup against Chavez in '02 that the US warmly welcomed. The reasons I didn't are a) that the coup failed, and b) that US involvement is still controversial. Regardless of what the truth may be, Chavez and his followers are certainly convinced of US involvement. And he is certainly aware of the list I made above, and those things together no doubt have informed his decisions on refusing foreign investment. (To put it another way, Venezuela is a classic case of 'blowback'.)
As for the options open for Venezuela to develop its mega heavy oil resources, my personal hope is that it never happens. The impact on the global climate is not worth it for anyone, whether they live in Venezuela or elsewhere.
Venezuela isn't a classic clase of blowback. 9/11 is blowback. The emergence of the Sunni resistance in Iraq is blowback. The Taliban fighters in Afghanistan are blowback.
Nationalization policies and changes in the legal structure are not really related to "US imperialism". They are the result of advice Chavez received from Heinz Dieterich, Fidel Castro, and Bernard Mommer. They don't have a consensus, but they lean towards marxist philosophy.
Support for Chavez doesn't arise from anti imperialism, it arises from populist policies which raise the life standards of the poor. The Chavez government doesn't refuse foreign investment. Au contraire, it welcomes it, on its own terms. The government has signed numerous preliminary agreements with foreign multinationals, including Chevron, Repsol, ENI, Russians, Chinese, and others. All of these agreements involve capitalist structures and shareholdings. But they have failed to move forward in a big way due to glitches in the system, including high taxation levels and other reasons I'd rather not discuss.
Venezuela's heavy oil isn't that CO2 intensive, because it can be produced via primary means. The reservoir to gasoline tank CO2 emission load under primary development is quite comparable to light oil development. And I'm sure if you visit Caracas and tell them you hope they never develop their oil, they'll be very happy to tar and feather you, and drive you out of town on a rail. Maybe you can use your nearly religious zeal to convince them to hug their trees and eat dirt.
Your inability to see how these are related astounds me. Is it a mere co-incidence that Marxism goes along with policies that are popular with the poor?! And is it also a co-incidence that Marxism goes along with anti-imperialism (particularly US imperialism)?! I have had the misfortune to spend enough time interacting with anti-imperialist Marxists to know that they at least see all these things as related, and that the connections they draw have real implications for their decision making. As for 'blowback,' the Venezuelan case has quite a few similarities to Iran, which was the case for which the term 'blowback' was invented!
All oil is CO2 intensive in its end use.
Yes, I'm not naive enough to think you're wrong about this. This does not mean I have to withhold my opinion when you ask me to offer suggestions on how to develop those resources. I merely told you the reason I'm not interested in helping with the project.
I'm surprised at your hatefulness towards me. If anything, I would offer to help them with solar power, something I could do for them, if they wanted it (and I'm sure at least some would). I don't believe that wishing for a temporary improvement in economic conditions in Venezuela - temporary because it is likely to be wiped out by climate change in a generation - reflects a very deep form of respect or solidarity with the people there.
With that reasoning, all socialism can be ascribed to historic US policies in other countries. Venezuela was a democracy since 1958, during which time most other countries nearby had one or more military dictatorships. Colonel Chavez attempted a military coup and was imprisoned for it, but then was released and was, ironically, elected president in a democratic election. After that, he has done a lot to destroy the democratic institutions of Venezuela. A pity, since they were the oldest democracy in the region. They are worse off in almost every respect now, and they are cursed with oil which virtually guarantees they won't be able to pull together. The future of the country looks very bleak indeed.
It's an incredible leap of logic to say that anything I said limits the causes of 'socialism' to the US or its policies. That does not mean they were not a contributing factor to what's happened in Venezuela (and many other places) especially with regard to the 2002 coup attempt.
As someone who opposes socialism, you might want to study how the undemocratic expansion of imperial (not just US) power around the world, particularly in the 19th century, led to the rise of Marxism in former colonies around the world in the nearer past. The historical pattern is undeniable.
Thanks, jaggedben, for this whole set of replies. I was astonished at this whole thread when I read it last night.
lilith
Thanks, it's nice to be thanked. :-)
In that case, thanks from me too, Ben, for your sober and informed realism.
Maybe my inability to think like you and draw the same conclusions you do has to do with my education, experience, and knowledge. And I don't think you'll remotely get to know what I know. Attributing the current conditions in the Venezuelan oil industry to "US imperialism" is silly. And i'll leave it at that.
It's not hatefulness, it's frustration. I see too many people who form very solid opinions and yet they know very little about the subject. Most of your comments display such a naive and surreal position, frankly I debated whether to bother to respond or not. I just want to assure you, as you bask in your feel-good solar panel world, you haven't scratched the surface. Come back and see us in 30 years.
A lot of Canada's extremely heavy oil can be produced by primary means, too, but the recover rate is extremely low - less than 10% of total oil-in place, and the production rates are also very low, which tends to make the production uneconomic. The advantage of mining is that it recovers over 90% of the oil-in-place, and in-situ methods such as SAGD can recover 60-80%.
Regardless of how it is produced, heavy oil has to be upgraded to a lighter form to be usable in a refinery, which is a very energy-intensive process.
And, finally, the vast majority of the CO2 emissions caused by oil production occur when you burn it in your car. Oil sands production only adds about 7% to total emissions compared to conventional oil on a "well-to-wheels" basis.
10 % recovery factor is economic in a large sector within Venezuela's heavy oil belt. But field development is handicapped by the requirement to upgrade the oil into a saleable synthetic crude. Diluted sales are not a government objective.
"....9/11 is blowback...."
9/11 was an inside job; a false-flag operation by persons unknown (though some are suspected) within the US power 'elites'.
No-one who reviews the currently-accumulated body of evidence and analysis put together by the serious, principled truth-seekers can have much doubt about that now. Not if you look at the evidence with strict intellectual honesty and moral courage. (For many USAmericans who've made that excoriating realisation about their country, it's taken a good deal of those qualities; yet many admirable USAmericans have managed to do it.)
If you want a realistic picture of what your country's boss-class will do, in any given circumstances, you have to start from a position of knowing, cold-bloodedly, the worst that they've got up to in the past; the sort of things of which they're capable. 9/11 was a particularly hideous enormity, but not a black swan in US history, by any manner of means.
I go back to my previous thesis: The US imperialists have over-reached themselves in their efforts to secure decisive (hah! as if!) control of the world's main remaining petro-pools. This, together with the more or less ungoverned looting of the US and all its assets by the imperial gangster class in power in that unfortunate country, has more or less guaranteed that the future history envisaged for the people of North America in JMG's serialised blog-novel 'Star's Reach' (recommended highly) is now pretty well unavoidable,.
I have zero illusions about the gangsters running the Chinese empire being morally superior to their US -- or their English -- counterparts. But they do seem to be playing a subtler chess game; likewise the gics (gangsters-in-charge) running the Russian empire these days, after the Gorbachev/Yeltsin fiasco years.
One other word of suggestion here: to get a reliable idea of the current state of Venezuela's politics, and of its oil industry, probably its not too wise to go to the state/corporate propaganda system of its principle bullying enemy -- the USukisnato axis -- for your 'facts' and 'analysis'. Other, genuinely neutral sources, as far as that's realworld possible, are to be preferred. That rule of thumb means discounting virtually the entire mainstream-corporate media/politics circuses of the US and Britain, particularly the 'prestige' outlets like WP, NYT, and BBC: fundamentally unreliable, and offering pictures which are hopelessly skewed and inaccurate. If you haven't yet internalised that basic idea of Chomsky's principle of intellectual self-defence, then you're still being played for a sucker by the propaganda system of your rulers.
So how exactly do we actually know what's going in in Venezuela.....?
Helpful hint: if you want your manifesto to be read by people who don't already agree with your particular brand of conspiracy paranoia, don't start it with the words "9/11 was an inside job". Whether you're right or wrong, people will stop reading right there.
Hi Goodmanj!
Sure some of the still-deluded will stop right their. But they'll catch up with their savvier compadres eventually, if trailing behind.
A growing number of citizens in the US are paying more attention to the impressive and obviously sane and honourable people in the more convincing organisations within the truth movement. Those who actually bite the bullet and *review the evidence-body* as it now stands (key proviso) see clearly enough that empty smears about paranoia and conspiracy don't stand up at all any longer.
The evidence points persuasively to an inside job, a false flag. The gangster class in control in the US are well up to that kind of criminality. Some small clique of them evidently (that word again!) were behind the 9/11 atrocities.
So -- getting back to the main theme of this thread -- why on earth would that US imperial gic-class NOT lie, cheat, and apply the utmost, murderous gangster tactics to the awkward socialist hindering their previously pretty cosy strategic control of Venezuela's oil?
And why would anyone with all their buttons on take seriously the USuk mainstream corporate media as reliable sources of information about this state, which is being demonised by the USuk gics, because it's populist administration is refusing to hand over strategic control of their oil to foreign imperial gangsters?
Quite frankly, I have no idea about the current state of Venezuela's oil industry, because I believe that getting trustworthy information about it would entail quite a bit of digging outside the Western mainstream, and that happens to be an endeavour to which I give low priority right now.
But I'd be ashamed to be fooled by the obvious, hostile propaganda pouring from the gic-servant hacks in the Western corporate media into thinking that the industry was on its last legs.
If the Venezuelan government needs effective help in pulling up the industry again, without the racketeering-overlord strings which would come with US help, then it can sure as hell get that. So why wouldn't it, when it deems it necessary? Where, exactly, is the real problem with the industry, cited on the strength of really convincing evidence. (Damn! That pesky word AGAIN!)
There is no racketeering overlord help from the US coming. The oil industry doesn't work that way. Why isn't the Venezuelan government getting help? Because help means foreign investment and participation, and they are testing the market to see how the terms they set will work. Unfortunately for the government, the terms they poured seem to be too optimistic, and foreign investors are signing preliminary agreements, but are not moving forward to the final agreements and actual investment phase.
What exactly is the problem with the Venezuelan oil industry? The government fired a lot of professionals and trained people in 2003, has failed to develop the replacements, and changed the terms it uses, increasing taxes and eliminating international arbitration - actions which drive private investors away.
I realize you are not an industry professional, and even those who work in the US oil industry don't get all the nuances of working overseas, but the terms the Venezuelans put on the table are deal breakers. And because Venezuela lacks the money, and the professional workforce, to get things moving forward, the current trend is not sustainable. They will likely have to change terms, which will then drive foreign multinationals to invest. And this has nothing to do with the US government, nor the US media, nor any conspiracy to invade Venezuela, or the other stuff we hear. It's a simple money and risk management issue.
I an fully aware of the sins of Uncle Sam;they are legion, no doubt about it. But the key thing about my description of my self is "realist"in terms of the current discussion.
Only an idiot (pardon me, no personal insults are intended) could possibly believe that any truly big and powerful country will ever act in any other fashion than has the USA when once big enough and powerful enough to do so, if such actions arwe percieved to be in the interest of the country by tptb..
I might have also mentioned Napoleon, or the What's his name king of Belguim during the African colonial era, or Spain in the Americas , or Britian in the Americas, or the Romans.
The thing about this is that I am not the hypocrite;the hypocrites are the Europeans piously pretending to be morally superior to the rest of the world, when basically they are sheltering under and behind the American empire.Great power is only sour grapes to those who no longer possess it.
I do believe that if you holier than thou self righteousn types would look closely into the history of communist China prior to and during the Vietman era, and the history of the old USSR during that period, and give due consideration to Pol Pot and his record, you might just have to admit that in the world is a very nasty Darwinian place and that somebody is always on top and using thier muscle to stay there.
Since I was lucky enough to be born an American, I am glad that my country happens to be the top dog at the moment.I make no overarching claim for my country being morally superior to the rest of the world, but otoh I will stoutly and confidently defend our record compared to the record of ANY other country that has ever been a great and dominant power.
We ain't saints;I never claimed that we are ; but nearly all the whining about our domination of the world stage -for the moment- is pretty much niave sour grapes.
I am not the sort of person that most people associate with the word "conservative", as I hold to an older definition associated with hardnosed long term realism.
I for instance have posted many times here that social welfare schemes such as social security are both necessary and justified in the world we live in today.
The difference beteen me and a typical liberal in respect to such a scheme is that I have always insisted on remembering and stating that any such scheme, in practical terms, is necessarily destined to become a ponzi scheme due to the nature of politics.
I don't hide from the truth.In historical terms, a decade here and there amounts to no more than the blink of an eye.
My reading of the tea leaves of future history is that before the ones of us who are only middle aged are dead, the Chinese will be THE super power, and that the USA will be a regional power.
I expect the European folks posting here who have thier undies in such a bunch about the defacto American empire of the moment are going to fondly recall the good old days when they could send a few hundred symbolic troops along with the American forces that keep the sea lanes open and the oil flowing out of the Middle East to thier countries, and bitterly regret the passing of American dominance.
I haven't forgotten that the English did thier dead level best to starve my forbearers and drive them out of thier historical homelands.
I haven't forgotten much of anything , as a matter of fact, when it comes to the broad outlines of history.
I take pride in having an INCLUSIVE MEMORY, as opposed to a selective memory.
Its funny - when talking to Europeans, I often find myself defending the US. When I talk to Americans, I typically have to try to defend European thinking. I think there is an unfortunate lack of understanding.
You know, precisely because you are powerful and democratic, we criticize you, partly because you might be inclined to listen as you are friends and democrats, partly because we expect better from you. Invading Iraq, for instance, was stupid and has hurt just about everybody except for Iran. Actually, if you hadn't meddled with Saddam's war on Kuwait, he would have proceeded into Saudi, which actually would have been really good! You'd have had less problems with Afghanistan, likely would have avoided 9/11 and so on.
Sure, you might compare well with other historical powers, but times change and we are arguably much more moral/humane today. Or at least, media provides better coverage, which limits the brutality we can allow ourselves. Anyhow, you are not measured relative to others or relative to history, but relative to what you could be and what you could do.
You might have noticed that Europe criticize Israel as well. Why? Hamas is worse, yes, but Israel is democratic and powerful, so we expect better from Israel than from Hamas. We don't expect much from poor, uneducated, unemployed people under immense pressure, such as the Palestinians. But we expect Israel to behave reasonably well. They don't.
Also, Americans always go on about Europeans that benefit from American dominance. Sure, but you wouldn't really want it any other way, would you? If you did, you could just pull out, and we'd have to re-arm. The same with South Korea and Japan. Just withdraw, and South Korea and Japan would have the bomb within a year, and they would, in time, greatly expand their conventional military forces. Why criticize us for not stepping up when the point of your engagement is to keep us from doing just that?
And "starve your forbearers"? Puhleese! Completely irrelevant, even if true.
Jeppen, You are about half way there.
Maybe even all the waY, IF I READ YOUR COMMENT AS A LITLE TONGUE IN CHEEK OR OF THE DRY ENGLISH HUMOR VARIETY.
Nothing is ever irrevelant in history.The English "powers that were" at that time did whatever they felt like doing to a subjugated people, including forcibly removing food from the country during a famine.
Now to the best of my knowledge, the English have not been subjected to a selective breeding program since then, as we might breed cows or dogs to weed out undesirable behavior.
To suggest that England and /or Britian would have changed her ways very much if at all had she remained a super power is laughable.
But of course in an age with television and the internet, She would have found it necesary to wear a velvet glove over her mailed fist of course.
Rabbits remain rabbits from one generation to the next, as do wolves and naked apes.
Of course those who have won in the game of conquest would like to see the rules changed so that the world remains static-since they are therteby able to hold onto thier winnings of course.
Believe it or not, even as I type this, I am also able to say trhat I am an Anglophile.
Texans used to say that they were well aware that LBJ was a SOB;but also that he was THIER sob, and they loved him even though they knew him.
Texans tend to be realistic about such things sometimes.
"More countries where the US has intervened militarily, either without being attacked, or having been attacked trivially, or having made dubious claims of being attacked:
Mexico
Cuba
Philippines
Panama
Grenada
Bosnia
Serbia and Kosovo
Russia
Libya
Lebanon
Somalia
More countries where the US has intervened less directly either to overthrow a government or to finance wars that killed lots of people:
China
Indonesia
Iran
El Salvador
Nicaragua
Bolivia
Chile
Columbia
Congo
Angola
Israel and its neighbors
Greece
Afghanistan
Still not an exhaustive list in either category, and let's not forget the American Indians either."
Or Iraq??
Oldfarmer, it is easy to see how China operates. Just ask Tibet. Oops, guess you have to ask the "nation formerly known as autonomous Tibet". China will roll right over everyone in their way, including Russia (Russia will be sooner rather than later because of their tremendous oil reserves). The only thing holding them back today is the US, with us gone (or simply fully compromised mainly through economic leverage) they have no limits to their power or ambitions. The dragon will awake, and will want to eat - a lot.
Happy moon festival everyone. :)
(yes I know it was on the 22nd).
I don't hold any particular brief for China but they've had suzerainty over Tibet since the 1300s. Tell me how is the US superior vis a vis Hawaii over Tibet. And what evidence do you have that China will "roll over everyone in their way?" As others have pointed out it is the US that has rolled over too many people and places to count accurately. Since 1945 state the years the US has not been involved in a military action outside its own borders. Be interested if you can come up with any. And if you bring up China in Korea they warned everyone, approach the Yalu River and we're in it. US did and China entered the war.
I've often thought that if someone told you about a boy on the playground who was continually fighting someone but that he always had a good reason for it, you would probably still say hmmm... but he's the one who's AlWAYS in a fight.
.
China invaded Vietnam in 1979, although it didn't go particularly well.
http://en.wikipedia.org/wiki/Sino-Vietnamese_War
They did this because Vietnam invade Cambodia and vanquished the Chinese backed Khmer Rouge.
Of course the US, doesn't come off very well in this story either.
Ok patz, I'll bite. Name for me the place where the US since 1945 has conquered, vanquished the local population and leaders, drove their religion from the locale, destroyed their temples and outlawed their language and religious practices, and began depositing mass numbers of ethnically pure (as if there were such a thing) Americans to outnumber the natives? Suzerainty my aching ass, the Chinese argument is essentially that since the Mongols conquered BOTH empires, China has a right to Tibet. Nonsense.
Has the US done bad things? By whose measure? Has the US done great things? By whose measure? Would you rather be speaking German, or Japanese? If you have any Jewish blood in your veins (you might not even know it) would you be thrilled you'd be facing extermination? All these things happened, but revisionist history written by twits with their own agenda apparently trumps reality.
Hawaii was a kingdom, itself IMPOSED on the natives, not by their choice. King Kamehameha was aided by foreign powers in his CONQUEST of the islands as he unified them. So where does the bloody trail start? Were there natives there before the Polynesians arrived, who were vanquished? By the time the queen was deposed (essentially by her own Congress), who were the "natives" on the islands? Chinese, Japanese, Filipinos, English, Portuguese, Americans and others had been living there for decades or longer, had intermarried with the local population. Most of the indigenous population had died off. Pretty hard to make a perfect case in an imperfect world.
Meantime, one has only to look at Chinese intentions towards Taiwan, their intended hegemony over the Asian Pacific and their current saber rattling with Japan to understand they do indeed intend to flex their muscles. But why keep up on current events when you can imagine your own reality?
widely, I've come to the conclusion the US can be the bad guy quite often. It's no use to put a nice wrapper around it or use excuses. Do like I do, it was wrong, we screwed it up, and let's move on, and make sure we don't do it again.
For US mistakes to be bad, they don't have to involve all of the things you mention. Bombing Yugoslavia in 1999 was a war crime. I'm sure I can manage to get Clinton and Blair indicted if there were justice in this world. And if Nuremberg rules were used, those two can be executed for their evil deeds. The same goes for Bush and Blair when they invaded Iraq. That was an illegal war, and both can be considered good candidates for execution under Nuremberg rules. But they won't.
So as far as I'm concerned, the key is for us to realize we screw up, we've made mistakes, and then work hard to avoid doing it again.
However, I am very familiar with Latin America. I've met some of the players involved in person, and I can say there's a tendency in Latin America to blame the US, when the fault is inside, with the people who rule the country. And this problem was identified by Bolivar and other early liberation figures. They knew they had to get rid of Spain, but they knew the region was ill prepared to rule itself. In a sense, Latin America is like France during the revolution, which ended in the Napoleonic era - their democracy just didn't have the way to emerge at the time.
Fdoleze, here's the rub: The US bombed Yugoslavia to STOP an ongoing "war crime"! Should we have let the Serbians finish their ethnic cleansing? Of course THAT ethnic cleansing ostensibly needed to occur because of the Muslim invasions in the 14th century. Oldfarmer is right, without acknowledging the cultural and historical mileau it is impossible to gauge events properly with "timeline" history as (improperly) taught in school.
The issue with nascent democracies is they lack the maturity to develop properly. It does no good for America to say, "This is the right way to do it", because we had the proper cultural and historical mileau at the time to define our experiment. In England, Lloyds was placing bets that George Washington would crown himself king. They were astonished that he pulled a Cincinnatus and effectively resigned at the end of his office. Our primary advantage in this country is our orderly transition of power, following a rule of law. Many other countries do not have this, and possibly never will. Banana republics in South and Central America are the very definition of this. Don't doubt that the "natives" know what is going on, they are simply too embarrassed (or frightened) to say or do anything about it. Blame it on 500 years of Spanish oppression if you want to, but the facts on the ground are facts nonetheless.
As to Norte Americanos, my response to overly offended Hispanics is to have them please name for me the country in north or south America with the WORD "America" in its name. That usually shuts them up.
Widelyred, the rub is that the ongoing war crime was a Clinton/Blair lie. There was no such thing as an ongoing war crime the day the US and the UK started bombing. The US/UK bombing was a war crime precisely because they lied to start the war. And using the Nuremberg rules, Clinton, Blair, and the generals who knew what was going on should be executed by a firing squad after a trial, of course. But Nuremberg rules don't apply, and they'll get away with it.
Proof is found in the Slobodan Milosevic trial transcript in the Hague. Milosevic underwent a trial which lasted several years. It lasted so long, it can itself be considered a human right abuse. He died in jail, was never convicted. The reason they could not convict him was simple, the USA nor UK nor NATO could ever produce any proof the trial judges considered was valid and/or was sufficient for conviction. This in spite of US having full control of the ground after the end of the bombing campaign. Milosevic's trial had to be extended until he died, and if necessary it would have lasted 20 years, because if he were found innocent, it would automatically mean the US and UK bombing runs were to be considered war crimes.
The real reason the USA and UK bombed Yugoslavia in 1999 was Clinton's plan to show the Muslims he would bomb for them. He was taking the Israeli side in ongoing negotiations, and US reputation was getting a hard knock, when we add to the US bias for Israel the continuing harassment actions against Iraq. Clinton had a pretty good sense blowback would be coming America's way, and used the bombing for Muslims campaign as a ruse to try to improve the US image. In the end, Osama hit the US anyway, and today the Serbs have a very special place in their hearts for Americans - they realize they were cannon fodder used as chips in a much bigger game.
Fdol, I grant you know Venezuela from having been there and having friends there. I too have been there and have friends there, and completely agree with most of your Venezuela assessment here. However, I also have friends and have been to the former Yugoslavia and do NOT agree with your assessment above. The bodies in the mass graves are real bodies, not cannon fodder Serbians. I could care less about the monkey trial in the Hague, those shows resemble justice in no way whatsoever, they are simply political theater. Plenty of evidence was not admitted via political and lawyer maneuvering, therefore couldn't make it into the "transcript". Whether we actually had to bomb them at the time, when Clinton was facing upset Congressmen over dalliances with interns and lying about it, and life imitating art in a movie that coincidentally came out at the same time is a conversation for another time.
There were no large numbers of bodies in mass graves in Kosovo in 1999. Either you are confusing Kosovo with Bosnia, or you were lied to. If the US had proof there were bodies in mass graves in 1999 in Kosovo, it could have produced the evidence. It couldn't because there was no such thing. The Kosovo case is identical to Bush's "Iraq has WMD" lie. And yes, I can produce the evidence to have Clinton executed under Nuremberg rules. In my computer.
If anybody is curious, read Travesty. If you want a bit of arcana, please read this
http://www.nato.int/acad/fellow/98-00/nation.pdf
starting on page 27.
The incident in June at Slatina, which the author calls a "tense standoff", refers to General Clark's orders for NATO troops to fire on Russian troops which had arrived at Slatina from Bosnia - before NATO troops arrived from Macedonia. The order to fire on Russian vehicles blocking the base entrance was disregarded by the officer on site, who communicated with Blair, and had Blair call Clinton so the order could be countermanded. Russian generals had already been discussing a response, should the US troops fire on the Russian BMPs: they would launch a nuclear strike, using air burst nukes, on top of the US fleet in the Adriatic. General Clark, you see, is no hero, He's more of an idiot who almost started a nuclear war.
How do you judge Milosevic?
Milosevic? A thug. But so were Clinton and Bush. Bush in particular was a genius in the field, he managed to start TWO wars he didn't know how to finish off, tortured prisoners, and had US troops involved in some of the ugliest incidents since Viet Nam. And on top of that got the Ethiopians to start another war which has turned out into a mess (when they invaded Somalia).
I think Blair must have been a CIA agent, because I can't fathom why the guy would behave the way he did otherwise - or the CIA had some pretty damaging information about him, and this was used to blackmail him. I can see Clinton and Bush lying to start wars, because US politicians are incredibly stupid when it comes to starting wars for no good reason whatsoever. But Blair? Something weird was going on.
So in that company, Slobo was just one of the guys. He got rolled up because it was handy - Albright had convinced Clinton it would be good to change sides in the Balkans, back the Muslims, so that Clinton could defuse some of the anger his pro-Israel policy was causing. Clinton and Bush's policies, backing Israel unconditionally, led to 9/11, the move was worthless. So Kosovo was just another Wag the Dog crap war, invented for a reason the public was never told about, where US soldiers were sent to commit crimes "to save democracy and human rights", or whatever the bs du jour is about.
OFM, I'm usually inclined to agree with you, but my first hand experience has to agree with his case. I've lived in Venezuela - and not in a US corporate compound environment like many - and the sentiments are as described. But, there are two issues I haven't seen discussed:
1) The women, oh the women! Call me a chauvinist pig, but it is what it is. If I should be so obtuse and blunt, the Venezuelan women make N. American women want to go back and start all over.
2) Heavy oil and related oil sands development. Alberta firms are pioneering many heavy oil extraction technologies and Venezuela (China??) may be a low cost beneficiary of that technological investment. Maybe they did the math and it makes more sense to allow the technology to mature and come down in price while the price of oil rises?
Not to mention that Venezuela's population growth rate is 1.5% per annum with a total fertility rate of 2.5 children per woman.
http://www.nationmaster.com/country/ve-venezuela/peo-people
Not quite like Bangladesh but heading in the same direction.
Venezuela's population growth rate is right in line with that of Mexico, Colombia and Brazil and the trend is in the right direction. For a country with a large endowment of natural resources and adequate agricultural land the current population level and the growth trend don't seem particularly dire.
(chart from the Gas Trends databrowser)
The problem with rapid population growth and yes this is rapid is demographics.
http://www.indexmundi.com/venezuela/median_age.html 24
vs the US same source of 35 years Japan 46 years, Vietnam 27 years, China 34 years.
Certainly the US is a bit old but the population of Venezuela is to young on average its not a good mix for the best economic return per capita. The schools are strained jobs for younger people are sparse. Simply living becomes difficult. And of course politics become volatile as the young overwhelm the elder generations.
Thats not to say Venezuela did not have problems before the population boom politically but it does now because of demographics alone.
In a lot of ways Chavez just happens to be the person filling a position dictated by his countries shifting demographics and previous history. For the oil industry it may be a safe bet to assume that Venezuela is past peak in conventional oil production. The profitability of unconventional oil production for a state oil company is highly questionable at anything close to todays prices.
Running the oil production in runoff mode if you will is not exactly the worst thing that can be done.
Also I'll note that despite the claims made by Nigeria it seems they are also in the same boat with and increasingly obvious peak forming.
In general this is why I caution using the US and even the North Sea as a predictor of future world oil production I don't think they are good models for post peak production globally as simple profit/loss is not the driver for national reserve production.
I'd suggest that Mexico is probably a better example what you should see is systematic underinvestment with periodic injection of money if production falls to fast. The interesting thing is that by the time they actually invest a number of possible solutions to help production will exist and they should get at least some result.
Who knows whats going to happen in many of these countries when net exports can no longer keep the various layers of theft and graft satisfied.
Shorter Memmel--
The median age of Venezula is 24 vs the US (same source) of 35 years, Japan 46 years, Vietnam 27 years, and China 34 years. This normally means rapid population growth.
This strains schools and jobs for younger people are sparse. Simply living becomes difficult, and politics become volatile
The profitability of unconventional oil production for a state oil company is highly questionable
Running the oil production in runoff mode is not the worst thing that can be done.
I caution using the US and even the North Sea as a predictor of future world oil production as simple profit/loss does not drive national reserve production.
Mexico is probably a better example--systematic underinvestment with periodic injection of money if production falls too fast. By the time they invest, solutions to help production will exist.
Who knows what will happen in these countries when net exports can no longer keep theft and graft satisfied?
Thanks I'm a bit surprised no one has made the connection with Saudi Arabia.
http://www.indexmundi.com/saudi_arabia/median_age.html
And many of the oil producing nations for that matter.
http://www.indexmundi.com/g/r.aspx?c=xx&v=24
Tick tick tick...
(chart from the Gas Trends databrowser)
An interesting idea, but the data shows no correlation between a nation's oil production and the median age of its population.
Global median age of nations ranges between 15 and 42 years, with an average of 28.4 years.
Median age of oil-producing nations ranges between 17 and 42 years, with an average (eyeballed) around 27+/-2 years.
A graph of oil production per person vs median age of population for oil-producing nations shows no clear trend:
www.bit.ly/cOtBOn
Neither does raw birth rate:
www.bit.ly/axxfFg
Nice rebuttal on a typical baseless MML assertion.
Thanks Robert for pointing out that any increase in oil production takes huge investments. Venezuela obviously does not have money to the vast reserves of bitumen in the Orinoco Belt. And as you also pointed out few are willing to take the risk of investing in Venezuela because of the political risk.
It takes money, lots of money to increase oil production. As I posted a couple of weeks ago on Drumbeat, Abdulla Salem El-Badri, Secretary-General OPEC says it will take 250 billion dollars to increase production from the current level of 29 mb/d to 41 mb/d.
But what investors in Venezuela need is not security of demand but security that their assets will not be stolen. And as long as Chavez is president they will not have that. I look for Venezuela's oil production to continue to decline.
Ron P.
Any links, Ron P., as to exactly what assets were 'stolen', or name just one?
As far as I know he has pressured major oil companies to accept new arrangements, that surely they weren't happy about, but most of the oil companies accepted nonetheless with few exceptions.
The ones that weren't happy with new arrangements and rejected were compensated to the tune of what their own tax declarations stated as the worth of their assets.
Oil producing nations wanting a bigger say and better deals over their resources is certainly not just limited to Venezuela.
Nice post Robert, thanks.
Everything you say about oil also applies to natural gas. Venezuela has the largest reserves of natural gas in Latin America but a quick look shows what a difficult time they are having.
Since 2007 they have even been importing natural gas from neighboring Colombia. According to the EIA, fully 70% of their natural gas production is reinjected into oil fields. All this while they are having a severe energy crisis!
Given their current political situation, it is difficult to imagine that their various gas export pipeline and LNG projects will be finished on schedule. (Venezuela is supposed to send gas back to Colombia in the same pipeline starting in 2011 -- unlikely.) It remains to be seen whether they can get the Gran Mariscal #1 train up and running by 2013 as currently planned. So far, none of the three LNG trains listed below have made it past the planning phase. Who would lend them the money for construction?
Yet, 30 miles across the water, tiny Trinidad is South America's LNG powerhouse:
Clearly, the oil and gas industry in Venezuela is not going to revive until policies on capital investment change and are believed by those who have the money.
Thirty years in the future, however, perhaps Bolivarian scholars may rewrite history to say how smart Chavez was to leave Venezuela's fossil fuel patrimony in the ground until prices had climbed to such levels that Venezuela's leader could set whatever terms he wanted. Time will tell.
Jon
PS__ I have a much longer post on South America Enters the LNG World if anyone is interested.
Chavez may be cunning but he is not smart. It would be more accurate to say that leaving Venezuela's fossil fuel in the ground is an unintended consequence of Chavez's rapacious policies. The potentially long-term positive effects of his short-term goose-killing are purely accidental. Chavez's time horizon is that of an eight-year old.
I agree completely. That's what I (too) subtly suggested with "rewrite history".
Folks who can read Spanish comfortably might find "Petróleo y poder", by Andrés Sosa Pietri, interesting. Sosa Pietri was head of PDVSA for a while, including while Chávez attempted a Coup d'Etat. He also pushed PDVSA's entry into the US market. What is interesting is that there is nothing new about Chávez mucking up PDVSA by sticking his hand in the till; the administration of President Carlos Andrés Pérez was forever doing the same, plus using PDVSA as a place for the politically deserving to find jobs.
Warning: Sosa Pietri is a large-ego uppercrustian praising himself. The book is interesting and valuable in spite of this.
Some of the raided money has gone into long term productive investments.
Tacoma (renamed Piar) hydroelectric dam - 2,160 MW, 12,100GWh/yr, 13% of domestic demand
Caruachi hydroelectric dam - 2,160 MW (started before Chavez, finished under Chavez)
La Vueltosa hydroelectric dam - 514 MW
plus a massive expansion of the FF generation to offset drought years
Also, significant railroad and subway expansions.
China can supply the capital and expertise if Western oil contractors are unwilling to.
Alan
I would not worry about Venezuela, and South America in general, as it is the current bright spot, as far as economic and political progress is concerned.
And that have learned the colonial lessons from the past, and are going foreword:
http://en.wikipedia.org/wiki/Union_of_South_American_Nations
The socialists of pre-90-ies got burnt by their support for the Eastern Bloc. Current socialists are defending Chavez much the same way, and will get burnt the same way. That's the upside of failure - it is instructive.
Your analysis is accurate, but it won't be instructive. They'll just deny and move on. "I never supported the Khmer Rouge".
I'm not sure jeppen's analysis is accurate.
I thought I read the US standard tactic, especially post WWII, was to make it impossible for countries in the US's sphere of influence to stand alone or with each other, so they had no choice but to go to the USSR, which then gave the US the excuse to go in with full force.
All the central and south American countries wanted to stand alone under their own home-grown democratically elected socialism, and they were not allowed to.
hightrekker, the Wikipedia article about UNASUR or whatever you want to call it requires an edit. UNASUR is not a functioning trade entity, nor is there political unity of any sort. Latin America is making some advances, but I would hardly call it a bright spot. Venezuela suffers from hyper inflation, Colombia is engaged in a Civil war, the crime rate in Latin America is much higher than it should be, and governments tend to be inmature.
Not if they don't have it, and for the XHO as it turns out, they do not (capital they have, it is expertise that is in short supply).
Energyecon, they don't have the capital either. Do realize how much it costs to develop a field with a 400,000 BOPD 25 year plateau when the oil is 8 degrees API?
Alan, as soon as you hear about China building a heavy oil upgrader in Venezuela, please let us know.
I suspect the Chinese companies will be just as interested in having certain investment guarantees and tax breaks. Meanwhile, China will lend money to Venezuela. But many investors do buy Venezuela's bonds, and this doesn't mean they're willing to invest in an upgrader.
Diverting heavy Venezuelan crude from US gulf refineries that are nearby to the Chinese refining industry, which is build around light crude on the other side of the world, is not a viable business model.
China and Chavez may get a lot of political mileage on all the announcements, but I don't see it coming to much.
Alan, I used to live in Venezuela. Today I follow a number of Venezuelan bloggers, and work with several Venezuelans in Houston.
I don't know where you get your information, but I can tell you that the people I know would wonder what you've been smoking.
Venezuela's electrical power infrastructure has not been significantly updated since Chavez came to power. Most of the country suffers from daily power outages, between 2 and 6 hours per day and that's if they're lucky. Many observers expect this to get worse after yesterday's elections since they need to redivert power back to productive industries, such as the oil and aluminum sectors.
http://english.eluniversal.com/2010/09/10/en_ing_esp_electricity-crisis-...
http://www.msnbc.msn.com/id/34827034/
http://english.eluniversal.com/2010/08/24/en_eco_esp_electricity-crisis-...
http://www.cleanskies.com/articles/electricity-crisis-plagues-oil-rich-v...
Sounds good, the longer he screws up the oil industry the longer the Amazon can avoid being destroyed, because fundamentally we do not need oil and hopefully by the time Venezuela decides to destroy the Amazon for some dubious reasons to further humanity or "raise" standards of living, the world will be mostly off oil (we could power a COMPLETE transition to electric transportation simply using the energy that is WASTED in the inefficient oil refining process, and completely eliminate crude from the ground in the process, except for applications like making plastics and tires) -- we could have done this DECADES ago were it not for oil industry manipulation and crooked politicians the world over looking to maximize the wealth they steal from the middle class.
Bacteria in a petri dish is all we are, no matter how many silver linings you want to put around it. Oil is EVIL.
When you say oil = evil, I hear man = evil.
Oil is not evil, though unfettered combustion of oil (and poorly managed extraction, eg, BP Gulf and tainted, expanding Alberta wastelands) is detrimental to the habitat we call "home".
Abuse = evil is not the same thing as saying man = evil...
Well see, now we are getting all philosophical and psychological as they say here in Bama (jibba, jabba). Perhaps I should say, all man is potentially evil, and it is up to the good men to ensure the good in man.
Sounds good, the longer he screws up the oil industry the longer the Amazon can avoid being destroyed,
Actually, the reverse is probably the bigger risk. He has already started cutting maintenance at U.S. refineries. Do you think environmental protection is going to get a lot of priority when he is scrambling for revenues? I think they will continue to cut corners and will continue to reap the fallout from that.
I sometimes wonder what the situation would have been like had it been PDVSA who had the blowout in the Gulf.
Good counter. Again oil is not evil. It is a thing. Man is the only good or evil. Well I guess a grizzly is not being holy if he eats you, but maybe you deserve it if he does. How would I know?
@TFHG
au contraire mon frere
You never heard the story about the famous atheist in the woods? He was confronted by a huge, snarling grizzly bear. He quickly dropped to his knees and fervently prayed (for the first time in his life of course) to be saved. Being a famous atheist who had led many away from religion, he knew it would be a bit much for God to save him directly, so he asked that God convert the bear to Christianity. Immediately the bear dropped to ITS knees, clasped his hands together and said, "I thank you Lord for this bountiful meal you have just granted me".
"Being a famous atheist who had led many away from religion,"
That wouldn't be Richard Dawkins of course because he's pushed many away from SCIENCE and TO religion with his small minded psedo-scientific rants.
Richard Dawkins' small minded pseudo-scientific rants eh? Would you be so kind as to to cite one of them please?
To be clear, one might be able to accuse Dawkins of many things, however pseudo-scientific rants is probably not one of them, unless you are also accusing Oxford University of being a less than reputable institute of higher learning, considering that Dr. Dawkins held the post of that University's Professor for Public Understanding of Science, from 1995 until 2008.
I await your citation with bated breath!
Richard Dawkins - Beware the Believers
http://www.youtube.com/watch?v=eaGgpGLxLQw
While we are at it, I'd also like to see some evidence for this:
I follow this discussion quite closely and it is clear to me that while some are bothered by the aggressive approach of Dawkins, Hitchens, Harris, etc, broadly speaking the shift in support for their position has been epic.
The atheists were probably always there, just feel more comfortable coming out of the closet now. Meanwhile didn't anyone appreciate my joke? Tough crowd...
I liked the joke, but had heard it before.
Null:
I'm agnostic, maybe atheist. I've read his books, don't find them rants at all. I can't really help myself, I have no faith at all in the existence of a god, gods, a few gods, or anything supernatural. I do realize there are things we can't explain, and there are lots of things we will never explain. But I just can't make myself take the easy way out, and say "well, it's done by a superbeing who created all of this".
"Again oil is not evil. It is a thing."
Well of course, I was hoping people would be able to read between the lines and understand that what I meant was that oil brings out all the bad qualities of humans as individuals and as a society: greed, corruption, war, environmental destruction, lies..... you name it, oil brings it out. As a species we would be SOOOOO much better off if there never even was such a thing as oil in the ground. We would have developed ways of getting energy without it and society would be much more equitable (and the alternative technologies would now be cheaper than oil, ironically, as economies of scale would have occurred a hundred years ago, but they STILL haven't happened yet)
Couldn't disagree with you more Null, although your name suits you. Malthus' predictions would already have occurred if we didn't have the tremendous leverage that oil's energy density has given us. Economies of scale don't trump laws of physics, as ethanol proponents are discovering to their dismay. Show me what else (other than nuclear) gives you 5+ million BTU's in 42 gallons. Pie in the sky is indeed a null hypothesis.
So now we have ~7b on the planet, and when we hit the inevitable malthusian wall, the splatter will be truly epic.
Is that pie in the sky I smell, or sh!t hitting the fan?
Null, the heavy oil field known as the Orinoco Oil Belt isn't anywhere near the Amazon jungle. It's located just north of the Orinoco river (the river tends to flow just North of the Guayana shield - which doesn't have any oil whatsoever.
The area slated for development by the government is forest used to grow wood for the paper pulp industry, and other wood products, agricultural land, and some of it is just scrub and sparse woods. A portion is under a heavily forested national park, but there are no plans to develop it at this time.
I'm sure some people feel they have no need for oil. That's fine, don't use it. But the question is, what do Venezuelans think? I happen to know quite a few of themm, and they think the oil should be developed. There are differences of opinion as to how it should be developed, the pace, etc. But I've yet to find one who thinks it's a good idea to leave it underground.
I know you don't have the space here to explain to us all the ways you can make the world stop using oil cold turkey. And I'm sure you don't have the foggiest idea of how Venezuelans feel. But I would be curious, where did you get the idea oil is evil? I got the sense you're flaming.
Don't see how Venezuela can destroy the Amazon unless they plan to take over Peru and/or Brazil first. Why don't you look at map before posting nonsense like that?
How much of Venezuela's remaining reserves to be developed are light and/or sweet? I understand quite a bit of their reserves are extra heavy, so I would foresee challenges with bringing this oil to market at a competitive price.
So how much potential for growth in light/sweet development do they actually have?
Will - Not sure of the exact numbers but the sweet/light stuff is in the minority. But the challenge of dealing with the heavy stuff is being met head long by the Chinese. About 2 years ago the Chinese cut a deal with Vz: China will build 4 tankers designed to haul the heavy stuff as well as 3 new refineries in China special built to crack it. I forget the exact terms but I think the deal called for an initial delivery of 250,000 bopd that's ramped up over time. For decades the Gulf Coast refineries thought this oil (which they can't handle very well at the moment) would be their's when the time came. Not a safe bet now.
I would bet there are a lot of other deals cut between the two countries that haven't be advertised. About a year ago the Chinese were kicking the tires at a huge shut down refinery in the Caribbean. Haven't heard if they cut a deal or not. Would make sense to refine closer to Vz. They could ship product to China more efficiently and also market to the US if the price is right. They could even do a product swap: products refined in Asia that are shipped to the US for their products from the GOM. Save a lot of transport costs.
Thanks Rock. I do see Chinese heavy oil refineries showing up in a google search just now, as well as the PDVSA agreements.
Were you thinking of the Valero Aruba plant? There was some talk of PetroChina moving in via a joint venture, though that seems to have gone by the wayside;
http://www.reuters.com/article/idUSN1610806920100916
That refinery in the caribbean would have been the Valero refinery on Aruba. I have actually done a project in that refinery, a particulary dirty nasty place. They did handle some heavy sour stuff.
Valero is in the middle of maintenance for a possible restart of the refinery, so it appears the two sides could never come to an agreement.
http://in.reuters.com/article/idINWEN988220100916
http://uk.reuters.com/article/idUKN0510533120100105
slatz
Rockman: Quite a bit off the mark with the comment. The oil to be developed is mostly heavy and extra heavy. The challenge isn't being met by the Chinese. For example, the Chinese didn't even bid in the latest bid round (Repsol and Chevron consortia bid). Nor have they signed agreements such as ENI and the Russian consortium signed in 2009.
The heavy stuff can't be hauled unless it's diluted. I don't have reliable figures to offer, but I do know something about the level of activity, and the Chinese are not as active as you may think. The oil requires development, which includes wells, plants, pipelines, and upgraders under the current government plans. And I don't think the Chinese are building an upgrader yet.
I think you have it right and ROCKMAN in reverse.
The Chinese and Venezuelans are advertising it. That is the point, make it look like this is some powerful new alliance. But that's about all it is, in my view: political posturing.
There is zero chance that China would build new refineries to ship low quality oil around the world. It makes little economic sense.
China has been rapidly expanding their refining sector and diversifying away from their own light Daiqing resources.
But it will always make sense for them to acquire gradually heavier crudes from sources that are closer to them, and so cost less to ship.
China would also be nuts to invest billions of dollars on refineries suited to match this one crude source. If there were supply problems they would be screwed.
Yes, they could invest in regional refining to sell product into the US. But this is a small, risky, low-margin venture - and it is not clear the the beneficiary wouldn't be the US.
I thought that's why they'd upgrade it as near as possible to the source. Shipping fully upgraded valuable diesel and naphtha around the world makes a lot of economic sense. They might even ship it to Iran, just to amuse the irony police.
True, but if they did this outside of Venezuela, they would just be competing with anyone else who thinks it is commercially viable.
If they did it inside, they would just be assuming the country risk that other investors are avoiding.
And then maybe when Chavez is replaced, Venezuela would then confiscate the Chinese stuff and ask the investors US back.
Now, that would be a crime for your irony police. And nothing the Chinese Navy is going to be able to do about for quite some time.
Wilyread, diesel and naphtha are not the bulk of the end products coming out of an upgrader - as they are being built nowadays. I've looked at the econommics of integrated projects in Venezuela for many years, and I've looked at how to couple the upgraders into the project, the extent of the upgrading a project should use, and so on. I can't disclose the information in detail, but I think anybody who has spent some time looking at this usually concludes making diesel isn't the best option. Coker naphtha is of course a byproduct which can be stabilized with hydrogen, but that's more useful if used as diluent to help increase the amount of heavy oil being produced. The best option is to ship to the USA and leverage the fact that Mexico's production is down, and the Canadians are slowing down their projects for a while.
The Chinese are investing some in refining capacity to handle heavier crudes. And let's consider what this takes - a coker and vessels to hydrogenate the cracked material coming out of the coker. So if you front end an existing light oil refinery with the upgrader section, have the hydrogen supply, and can ship coke and sulfur, then you got yourself a refinery like Chalmette or Citgo Lake Charles. And those can take almost anything.
One word
NG
Well a bit more
Running the coker ?
Btw as a chemist not a chemical engineer running a coker off syngas hydrogen depleted from the coke is one area I'm fascinated with. A carbon monoxide fueled coker.
Memme: Look up "Long Lake Heavy Oil Upgrader" using Google. It's part of an integrated project in Canada, and it's up and runnning. There are others coming our way, and they do include a lot of energy efficiency technology.
We're looking at lots of tricks, but those are confidential and you got to be a club member to get the information. Some of the ideas are pretty crazy, I think most will fail not because the process itself has a glitch, but because the equipment will be too hard to maintain and/or operate. Some will work, and the industry will look quite different in 30 years.
Hehehe. I've got the blueprints for the Long Lake project in my desk drawer, so I guess that makes me a member of the "club". If you want to see them, get lost. I signed all kinds of confidentiality agreements to get them.
They are interesting, but you realize that there are lots of other options (some of which I also have in my desk drawer.) The ones that win out will be the result of a Darwinian process where the best ideas triumph.
I don't know which ones will turn out to be best, but I'm confident that most of the people here have no idea they even exist.
I also think the Venezuelans have no idea they exist, even though some of their former experts helped develop them. So, I wouldn't look forward to any increase in Venezuelan oil production in the foreseeable future. They really need those ideas, because without them they have no hope.
Rocky, they do have hope. I can lay out a development using the technology that's already available in Venezuela, and get 400,000 BOPD out of the ground AND MARKETED using an upgrader with a 6-drum coker. I can't do it with the current tax load and terms, but those can be changed by the government if they feel like it.
The Venezuelans do have a fair idea these new technologies exist, by the way. But they are trying to get their own proprietary processes off the ground. And that's all I can say about that. :-)
Venezuela has been producing a lot of oil for a very long time--in 1929 it was the world's largest exporter and second to the USA as a producer.
http://en.wikipedia.org/wiki/History_of_Venezuelan_Oil_Industry
It's not surprising that after eighty years raising major production is quite difficult and heaping the blame on Chavez 'socialism' seems gratuitous.
State-owned Petrobras under socialist Lula da Silva just raised $70 billion from stock sales for investment in its ultradeep oil.
Perhaps US oil companies have neglected the oil infrastructue and poorly managed declining Texas, Alaska and California oil fields? Looking at the corporate reports it seems that Big Oil is dumping its aging US oil properties in favor of natural gas.
Sexy new finds attract big capital and old fields don't.
In a Peak Oil future relying on fickle markets is bad policy. The world needs to take control of the oil system to spend whatever is required to develop unconventional oil and maintain existing reserves by EOR.
This is not palatable to nationalist politicians,oil producing country populations or oil companies who want the freedom to maximize profit but it will maintain world oil markets even as depletion takes hold.
It's not surprising that after eighty years raising major production is quite difficult and heaping the blame on Chavez 'socialism' seems gratuitous.
Never figured you for a Chavez apologist, but let's examine the facts. Look at the graph Gail posted up top. Production was rising until he became president; after that it has been in steady decline. So there is no argument there. You simply imply that it might not be his policies to blame.
That belies a gross ignorance of the oil industry, and Venezuelan oil in particular. That heavy oil takes a lot of money to extract and process. Chavez either needed to keep a high level of foreign investment, or he needed to reinvest a lot of the gross revenue back into the business. Instead, he stole foreign assets, which means he has a lot more difficulty getting foreign investments. Second, he cannibalized the gross revenues that were needed to keep the industry producing. So there is certainly a smoking gun to support the idea that his policies are what has driven production into the ground.
Perhaps US oil companies have neglected the oil infrastructue and poorly managed declining Texas, Alaska and California oil fields?
Look at the relative decline rate of the U.S. oil industry versus that of Venezuela after Chavez took power. I think you will notice the difference.
Remember that his stated goal here is to increase oil production. He needs those revenues for his ambitious social programs. Had he managed the golden goose, he could have kept the funds flowing for years to come. Instead, once the goose was dead he began to target other industries. Here he goes after "Big Milk:"
http://www.consumerenergyreport.com/2008/02/13/chavez-targets-big-milk/
That's just the sort of thing he has to do as his revenues dry up because of mismanagement. I don't consider him more than a petty thief; after he steals one thing and spends the money he looks around for something else to steal.
Here he is skimping on maintenance in U.S. refineries in an effort to increase returns to PVDSA:
http://www.consumerenergyreport.com/2008/01/18/chavez-had-me-fooled/
How long do you think he can get away with that?
Robert,
While I think your arguments about reinvestment are valid, I'm not sure it's valid to say that he is no "more than a petty thief". The level of economic inequity in S America in general, and Venezuela in particular, is pretty high. I think it's fair to say that some of his social and economic policies make sense, despite his gross mismanagement. It's even possible that some of his treatment of investors is appropriate, given the history.
Do you know enough social and economic history of Venezuela to judge?
While I think your arguments about reinvestment are valid, I'm not sure it's valid to say that he is no "more than a petty thief".
I say that based on the fact that he has expropriated many industries in the name of economic justice. As I linked down the page, do you think the milk industry was really withholding milk from the people?
Chavez Target 'Big Milk'
I think Chavez looks around for revenues, and if he can come up with a reasonable sounding excuse he grabs them because he needs the revenue. Whether there has been economic injustice in Venezuela doesn't change the fact that when he seizes assets that others have paid for, that is theft.
Then let's have a look at how he is managing the industries he is expropriating. Let's look outside the oil industry, in the name of economic justice:
Rotten Food Complicates Chávez's Reign
do you think the milk industry was really withholding milk from the people?
No, I suspect the main problem is that price controls create shortages. Nevertheless, I believe there is no question Chavez has been the target of serious conspiracies in the past, so he may be flailing randomly, but I suspect he's not paranoid (as in: you're not paranoid if someone really is out to get you...).
Whether there has been economic injustice in Venezuela doesn't change the fact that when he seizes assets that others have paid for, that is theft.
I think that's simplistic. There have been times, for instance, when land ownership patterns were the result of wholesale appropriation of lands somewhere in the past, and land reform was both just and more economically efficient.
let's have a look at how he is managing the industries he is expropriating
Again, I agree that Chavez is guilty of gross mismanagement.
Still, the level of economic inequity in S America in general, and Venezuela in particular, is pretty high. Some of his social and economic policies may make sense. It's even possible that some of his treatment of investors is appropriate, given the history.
Do you know enough social and economic history of Venezuela to judge?
Do you know enough social and economic history of Venezuela to judge?
But your whole contention here is "Because of the social and economic history, then seizing a Nestle milk plant that they bought and paid for is not necessarily theft." I disagree. Regardless of any social and economic injustices, unless Nestle actually seized that plant from someone else, taking a factory that they own is theft.
Consider slavery in the U.S. Terrible social and economic injustice. Now, if the government comes and seizes my house to give it to the descendant of a slave -- in the name of that economic injustice -- that doesn't make it any less of a theft.
Realize that I am speaking about this from personal experience. I worked for ConocoPhillips when Chavez seized $4 billion of our assets. We had been very responsible operators in Venezuela, paying our taxes, taking our environmental responsibility seriously, and employing a lot of local people. We had invested major dollars in the country, and our oil production there was on the rise (as was Chavez's take for the government). I simply don't view that seizure as anything other than theft. If someone wants to argue that based on previous social injustice it is OK to seize property as in this case, then nobody is ever going to invest in a country where social injustice took place.
your whole contention here is "Because of the social and economic history, then seizing a Nestle milk plant that they bought and paid for is not necessarily theft."
No, I wasn't talking about the Nestle plant. I don't know anything about Nestle. While I would argue that a milk plant seizure isn't necessarily theft, because it's certainly possible that Nestle obtained the plant inappropriately (you don't know the history of these plants either, right?), I think that's pretty unlikely, so I wouldn't want the discussion to be distracted by the milk example.
Consider slavery in the U.S.
That's not a very good example. Slavery in the US ended 145 years ago, so the chain of ownership and responsibility has generally gotten pretty muddy, in part because few of the original parties still exist. A much better example is Nazi appropriation of Jewish art: there are clear examples where it has been appropriate to sieze property from one person and give it to another to address a previous injustice. Would you agree that there have been land-reform projects in some countries that were appropriate? If you don't know the answer to that question, could there be a larger context that would be valuable to know about before you make broad judgements about someone like Chavez?
Realize that I am speaking about this from personal experience.
Well, perhaps you do know enough to form a judgement. Nevertheless, I wonder:
1) Are you confident that there is no history before your employment that would make a difference? Could ConocoPhillips or it's corporate predecessors have obtained lease or contract terms in the past that were not fair to Venezuela?
2) Expropriation of foreign and domestic assets may get a lot of attention, but they aren't the only things Chavez has done in office. Are you confident that you have the kind of broad knowledge of the social and economic history and structure of Venezuela that is needed to dismiss Chavez as only a petty thief, with no redeeming value?
I think that's pretty unlikely, so I wouldn't want the discussion to be distracted by the milk example.
The issue here is whether he is a thief. I am giving you another example of him grabbing things.
If you don't know the answer to that question, could there be a larger context that would be valuable to know about before you make broad judgements about someone like Chavez?
I have seen Chavez in action for long enough to be able to make broad judgments about him. I have seen him act the clown on the world stage for years.
Could ConocoPhillips or it's corporate predecessors have obtained lease or contract terms in the past that were not fair to Venezuela?
What does that even mean? How do you define what is fair to Venezuela? What's fair to one regime may not seem fair to another, but if seizing their assets is your remedy, you are a thief. To me, this is black and white. We aren't talking about Nazis plundering art here. ConocoPhillips brought equipment into the country, put cash into the country, and employed people in the country. That equipment is now owned by Chavez, and COP wasn't compensated in any way.
Are you confident that you have the kind of broad knowledge of the social and economic history and structure of Venezuela that is needed to dismiss Chavez as a petty thief, with no redeeming value?
Even thieves can have redeeming value. If I rob a bank and give the money to the poor, do I have redeeming value? Does it make me less of a thief if I am convinced that what I am doing is a legitimate redistribution of wealth?
RR - It is common and necessary for governments to seize property - eg eminent domain law, to adjudicate issues of title, to address contracts where one party took unfair advantage, to address social injustice.
In the US people have lost title to real property when their title appeared clear and there was no way for them to know there was a cloud on the title. Yet there was someone they had no notice of that had equal claim. Usually there was a fraudulent transfer at some point in the past with these cases.
People routinely lose real estate to squatter's rights laws and adverse possession. Many people in the US have lost property when eg unbeknownst to them someone on their yacht was found to possess drugs. In each case there is a valid policy behind the judicial transfer of property rights.
Anyway, what is important in this case is whether the rule of law was followed. If it was, it was not stealing. (It was not necessarily correct or just either, but I don't know the facts). It is not necessarily black and white.
The issue here is whether he is a thief.
That seems simplistic. He looks like a thief. OTOH, I'm aware that US news reporting about the rest of the world, and Venezuela in particular, is astonishingly poor. For instance, who in the US understands that the 1979 uprising in Iran was a reaction to the US helping to overthrow a democracy in Iran in 1954? Those Iranian demonstrators have often been condemned as petty terrorists, when they considered themselves nationalists, recovering their self-determination. Who in the US understands that the US helped overthrow many governments in Central and S America over many decades, some of them democracies?
Also, the question is, is it fair to say that "I don't consider him more than a petty thief"? I've seen a lot of reporting in the US that describes Chavez in terms that would be unrecognizable to anyone in S. America.
I have seen him act the clown on the world stage for years.
We've seen many people act the clown, including George Bush and Bill Clinton, but we understand that doesn't define them.
Could ConocoPhillips or it's corporate predecessors have obtained lease or contract terms in the past that were not fair to Venezuela? What does that even mean? How do you define what is fair to Venezuela?
Robert, that's silly. I don't have examples at my fingertips, but it wouldn't be hard to come up with theoretical examples. Let's say, for example, that after the US overthrew the government of a country, that a new US sponsored government gave lease terms that lasted 99 years, and retained for the local government only 1% of net profits?
Does it make me less of a thief if I am convinced that what I am doing is a legitimate redistribution of wealth?
Probably. How many admiring movies have been made about Robin Hood? OTOH, how many far-right activists in the US say that any progressive tax is thievery?? Let's not be simplistic, and black and white about it.
Finally, my question is, what about the rest of his record? Is it fair to say that he's nothing "more than a petty thief"?
Robert, that's silly. I don't have examples at my fingertips, but it wouldn't be hard to come up with theoretical examples. Let's say, for example, that after the US overthrew the government of a country, that a new US sponsored government gave lease terms that lasted 99 years, and retained for the local government only 1% of net profits?
Of course that's not the way it went though. You want to use hypotheticals to argue that what Chavez did might not be classified as theft. Yet even in the example you gave, if a new government came in and said "we are no longer honoring these contracts" then that's one thing. If they turn around then and say "And by the way, we are taking your equipment and capital investments" then it is theft.
Finally, my question is, what about the rest of his record? Is it fair to say that he's nothing "more than a petty thief"?
We can use lots of adjectives to describe anyone, and plenty more come to mind for him. Not many of them good. Of course his issue isn't just with the U.S. Who can forget the Spanish King telling him to shut up after Chavez went on a tirade?
http://afp.google.com/article/ALeqM5jRV9BQppSHTkw7DzwfFauINrYcCg
And Chavez's response to the incident was very telling of his character. Probably more than anything, the adjective that comes to mind is clownish. And yes, I certainly agree that other leaders have acted like clowns, ours included. The media in the U.S. is allowed to freely make fun on them without having their broadcasting license revoked.
Robert,
We may have beaten this topic to death.
I simply wanted to make these points:
1) Venezuela, and many S American countries, have very high levels of corruption and very high differences between the rich and the poor. The poor in S. America countries are not being given an opportunity to pursue happiness. This, of course, harms the whole country in the long-term, but the elites in these countries pursue their short term interest.
2) Both the US government and many US corporations (including some oil companies) have behaved very badly in S America, including a lot of theft. This is generally not well known in the US.
3) S America is not well understood by people in the US. Heck, that's an understatement: people in the US are abysmally ignorant of SA and the rest of the world.
Given all of these, I suspect there is more to the story of Hugo Chavez than his mismanagement of the oil industry.
Nick, you are right. There's a lot to it. You guys could start by reading Bolivar's speech at Angostura.
I like the Castro method of nationalization: Ask the corporations to assess the value of their properties for "tax purposes." Then seize the properties and pay them what they themselves valued the properties at.
oh brother. And what would you do with the nationalized properties?
Hey, I thought it was a neat trick to nationalize an industry without having to hear the whining of the former owners about unjust compensation.
I don't know where you got the idea. I'll confess I have been introduced to Fidel Castro - but I'm not going to tell you who I am. Just take it at face value that, at the time he nationalized things in Cuba, he wasn't really that sophisticated a thinker, and he'll tell you himself. There are better ways to nationalize an industry. And today Castro realizes nationalization isn't necessarily the answer. I know he's having a bit of a hard time facing this fact, and is jerking around with his words. But he DID say the Cuban model doesn't work, and Raul IS firing 1 million government workers and telling them to become entrepeneurs or get hired by private industry, because the Cuban government does'nt have the means to keep them employed anymore.
Also the trick to have industry self appraise prior to nationalization is something we have discussed for many years - it's not Castro's idea - and the property owners ARE still whining. Why do you think the US keeps a US embargo on Cuba, do you REALLY think it's because the US loves democracy?
Here in Maine there is often someone who freezes to death in their own apartment in a cold winter. Usually someone poor and elderly. Maine is primarily heated with fuel oil.
When oil went to $147/barrel the state heat aid to the poor, which is good only to a fixed dollar amount and isn't much to begin with, was good for about 2-3 weeks of heat in some homes. The state & Fed gov passed some emergency funding, but the situation was serious.
Chavez stepped in and began a generous aid program via CITGO.
Call him a thief, a clown, a political posture-er if you must, but he made a difference here, when our own gov was arguing about what to do.
At the least he is not a simple thief.
Call him a thief, a clown, a political posture-er if you must, but he made a difference here, when our own gov was arguing about what to do.
He has also done everything in his power to keep oil prices as high as possible, citing $100 oil as a fair price many times. How do you think that impacts the poor and elderly?
These things aren't simple.
The middle class, and OECD countries, consume much more oil per capita than poor in their own countries, or the rest of the world. For instance, the bottom quintile of the US population uses much less than the upper quintiles. Many poor just don't have cars at all.
Americans over 65 have the same average income as Americans under 65 (including Social Security, of course).
It's conceivable that $100 oil may actually help the poor and elderly, on balance. If it doesn't, it doesn't hurt them as much as one might think. That's why I get frustrated when people suggest that keeping oil & gasoline prices is good for the poor: I think they'll be helped most by whatever will move us the fastest to transition away from oil & all FFs.
--------------------------------------------
Actually, $100 oil is another example of Chavez's bad judgement: it will, in the longrun, reduce Venezuela's total income by accelerating the transition from oil.
The point of course is "How could the Venezuelan government afford to assist the poor in Venezuela or Maine unless the price of oil everyone who can afford to pay remains relatively high?" Citing a desire for higher rather than lower export prices as evidence of lack of compassion is a red herring, and exhibits a poor understanding of the real situation.
I'd recommend reading some documentation of expat ownership treatment of central and south american indigenous labour in the banana plantations for the history of this and similar issues.
Robert. Were the wages paid to local labour in Venezuela comparable to the wages paid to the same skills in the US? Why not?
The U.S. government offers farm subsidies to keep the price of grain high, and then offers food stamps to poor Americans to keep them from starving to death. How is this any different than what Chavez is doing?
Now, I don't think Chavez has any kind of compassion for our us in New England: it's just blatant political maneuvering. But then again, you might say the same of U.S. food subsidy programs.
Citing a desire for higher rather than lower export prices as evidence of lack of compassion is a red herring, and exhibits a poor understanding of the real situation.
No, it's just an answer to someone who cited his donations in the NE as evidence that he is trying to help the poor, even in the U.S. If he had his way with oil prices, a lot of the poor would be priced out of the oil market. As someone else alluded to, the poor in the NE are just pawns in his political games.
Robert. Were the wages paid to local labour in Venezuela comparable to the wages paid to the same skills in the US? Why not?
Anywhere you go work, a company is going to pay something akin to prevailing wages in the region. You don't go to India and offer to pay people an annual salary equivalent to 20 times their normal earnings - even if that's what they would earn in another country. It's the same for someone coming to the U.S. If the prevailing wage in the country of origin is much higher, the firm doesn't come in and pay prevailing wage of the home country. There are many obvious reasons for that; one is that you can totally wreck the local labor market. Imagine small business owners in the country trying to compete with that.
The question you should ask is how we paid people relative to prevailing wages. The answer is that we paid significantly better than prevailing wages. A lot more than people make since Chavez took over.
In my experience, the locals were paid only a fraction of the ex-pat wages. We had a whole team of Venezuelan electricians working for less than one (mostly useless and bombastic) ex-pat electrician equivalent.
The gentes experience with Americans (and don't call people from the US "Americans" because that drives them nuts! We are Norte Americanos) has been typically the ugly American. 9/10's of the Americans are just fine and good people and then you get the 1/10 that is the jerk. I had to clean the clock of one such clown for being a complete ignorant a-hole and I think his buddies wanted to help me. The same jerk was fired from the job not that much later.
What really drove the Americans nuts is I tried to learn the language and talk to the crews in Spanish. One gringo came up to me and said "Speak English here, this is an American project". Keep in mind, this was in the Cardon refinery near Punto Fijo.
The other elephant in the room not discussed so far is the illegal proxy appropriation of Venezuela's key assets by the IMF. I was there when the IMF loaned Venezuela money under the condition of macro economic reforms (some which were valid such as raising the price of gasoline). It could be argued that Chavez e amigos were only taking back what was paid to US nationals via IMF funds and left the country with the credit card bill. It is common knowledge these days that the IMF and World Bank are vehicles of imperial appropriation by other means.
Your comments about IMF/WB are socialist conspiracy theories. If you want to get help with restructuring your bankrupt economy, you better be prepared to promise to get more sound economic habits!
BC EE, can't generalize. I have been an expat in several countries. In some instances, I supervised personnel whose yearly budget was higher than mine. I use the word yearly budget because in some countries there are so many benefits required by law (or company tradition), the wage base is much higher than many would suspect.
Venezuelan professionals used to make a salary quite comparable to US professionals when the benefits were included (I think surveys such as SPE's fail to capture this because those answering the quiz don't even know how much it costs to provide them with benefits).
Unionized labor is cheaper, but efficiency is a lot lower. In general, a US gulf coast oil industry worker, working in the US Gulf Coast, is the most efficient oil field worker in the universe, as far as i can see. The same guy going expat isn't as cost-effective. The best solution is to use nationals at all levels - except for two-three guys rototed in to make sure there's fresh blood and there's no corruption. It can be done, many expat managers are too lazy or don't know how to get it done. And some are so xenophobic they honestly think the nationals are too dumb to train. Screening those guys out is really important.
It's called brand marketing. They do spend quite a bit of money helping the poor elsewhere. But this doesn't mean the oil industry in Venezuela is making progress as required by government goals and objectives. It is not. The industry is failing to execute as the President expects it to perform. And in Venezuela today it's not a good idea to let the President down. He has certain objectives in mind which require cash flow, and the cash flow won't be there in the future unless the oil industry kicks into a higher gear.
I think there is going to be some ear pulling in the near future as the election energy fades, and the country returns to normalcy, and people in the government see the production figures are not what they're supposed to be.
He's a complex thief?
The world has a lot of gray rather than black and white.
Certainly. And you'd be hard pressed as a nation to spend oil money without doing ANY good. But Chavez is a big, fat, net negative for Venezuela. If this isn't clear to you now, you can read about it in the history books later.
Not disputing your main point, but ...
And you'd be hard pressed as a nation to spend oil money without doing ANY good
Nigeria, Angola, and Yemen seem to have managed that trick nicely...
If they understood this, they would be quite one-sided. Your portrayal of events is one line of historical thought, but there are others that should be considered more correct. Mossadeq, the "democratically elected prime minister" started to collect dictatorial powers already in 1952. He got himself the ability to rule by decree, dissolved the parliament, removed the constitutional guarantee for a secret vote and organized an election in which he got 99.9% of the votes. The "coup by CIA" can and should be described as an indigenous restoration of the constitution, in which the Shah was the head of state in the democratic monarchy of Iran. The CIA involvement is overblown.
The mullah coup was partly a reaction to subsequent brutal shah rule, but also a reaction to the shah's progressive, western oriented (and brutal) policies that challenged the old religious and economic elites, as well as conservative islamic culture. Sure, you can portray the reaction to western-oriented policies as "nationalist", and the mullahs did, of course. But it would be more correct to call the reaction religious and conservative. Social freedom doesn't have a nationality, really.
Btw, Ataturk wasn't overthrown, so his quite brutal transformation of Turkey is widely viewed as great. He's the father of modern Turkey. The shah lost, and as the victors write history ...
Your portrayal of events is one line of historical thought, but there are others that should be considered more correct.
What source are you relying on? I think if you read Yergen's Pulitzer-winning history of the oil industry ("The Prize"), you'll get something much closer to what I said. Other generally accepted sources I've read have agreed.
I agree with your 2nd paragraph. Nevertheless, AFAIK there's general agreement that the 1954 government was a substantial move in the direction of real democracy, and that the US participated in a serious way in reversing that move back to a traditional autocracy, for it's own interests. There's also no question that the US was the Shah's sponsor, and that he was a "client government" for the US.
As best I can tell, the US's involvement was an enormous mistake, in which it chose power politics rather than allowing a natural evolution to native democracy. The US lost an enormous amount of credibility - it could no longer credibly say that it was a force for democracy in the region. A peaceful homegrown democratic evolution would have ultimately produced a government that was far more rational and stable than the current one, and safeguarded US interests far better. Now we face an Iran that can plausibly portray itself as threatened by a hostile US (which has, after all, invaded countries on both the East and West of Iran, as well as Iran historically). This has, among other things, created a serious threat of nuclear weapons proliferation.
The Wikipedia article on Mosaddegh supports this. From the article:
"In March 2000, Secretary of State Madeleine Albright stated her regret that Mosaddegh was ousted: "The Eisenhower administration believed its actions were justified for strategic reasons. But the coup was clearly a setback for Iran's political development and it is easy to see now why many Iranians continue to resent this intervention by America.""
I can't point you to a source - I've read a lot about this and don't keep track much. Apropos wikipedia, it seems to change back and forth a bit on this subject. Right now, it emphasise the involvement and evilness of the US a bit more than last I checked.
I agree that it would have been better for the US to keep out, and that's typically been the case. It would've probably been better to let the Soviets occupy Afghanistan in peace as well. Communism is an improvement over tribalism. But that's easy to say in retrospect. At the time, it was important to counter any socialist influences. It's easier to be laid back now, when communism has collapsed.
At the time, it was important to counter any socialist influences.
There was no ideological element to Eisenhower's decisions: it was purely oil-based realpolitik. Similarly, it would have been the same if it was czar Nicholas' grandson, or post-USSR Putin sending troops into Afghanistan.
I don't agree, but I guess, in this forum, non-oil-based explanations have little sway.
If democratic ideology was important, Eisenhower would have not helped to overthrow a nascent democracy and install an autocracy.
Our behavior in Iran in that period permanently lowered our credibility as advocates for democratic ideology.
Again, Secretary of State Madeleine Albright: "The Eisenhower administration believed its actions were justified for strategic reasons. But the coup was clearly a setback for Iran's political development and it is easy to see now why many Iranians continue to resent this intervention by America.""
And, that's putting the very best face on it. It's pretty obvious that the nationalization of British oil interests was an extremely important factor.
So, you're saying Albright's "strategic reasons" is equal to your "purely oil-based realpolitik"?
Basically.
She's referring to Eisenhower's stated reason for the intervention, to keep USSR/Russia out of the ME. That was, of course, a complex thing, but oil was very important: who else was Carter talking to when he established the Carter Doctrine??
Clearly, the UK's desire to reverse oil nationalization was also very important: British Petroleum was a key national strategic asset for the UK.
Yes, the Albright quote is not comprehensive, but it anchors this discussion in the public record, and clarifies that Eisenhower was not acting out of idealogical purity, but out of "strategic" motivations.
One of the strategic aims was to keep the Soviets from warm water ports. It has to do with keeping their fleet bottled up, using ice-bound ports (or with the ability to blockade the outlet). Iran going communist gave the Soviets a way out. I think it was a mistake to do what Eisenhower did, but overall he was a pretty decent president. Much better then Bush, that's for sure.
Most or all of this actually happened in 1953 (after it was clear that there was an effort to overthrow Mossedegh). The referendum that got 99.9% of the vote was to dissolve parliament, not elect Mossedegh.
That's a fairly laughable version of the history. The CIA evidently had to browbeat the timid Shah into signing the decree removing Mossedegh. If the CIA involvement has been overblown, that's due to the CIA itself overblowing it.
Robert:
I understand your story very well, but legally it isn't theft. The change from the previous structure to the Joint Venture structure was legislated, and approved by the sovereign. You got to be very careful with these terms, because we should never, ever, atempt to deny a country its sovereign right to take a property.
Countries should also understand that we in the oil industry don't want to deny them their sovereign rights, all the industry needs is to have the assurance that, if the asset is taken, then compensation will be paid, the terms of compensation will be based on the decisions of an arbitration panel located outside the country in question, and the panel's decision will be enforceable - meaning there is a mechanism to get the money back. This is getting to the point that I may advice clients not to invest in the US anymore, as it is a cause for concern given the political climate in Washington after the BP incident.
I'm sure Conoco-Phillips has the personnel they need to have their claims heard in the international arbitration case you have filed.
"Remember that his stated goal here is to increase oil production."
First, Chavez is a politician so I wouldn't take his words at face value. Also, it has to be asked why Chavez would want to feed the nation that would like to see him deposed from power.
Second, your assumption is Chavez and Venezuelans have the same priorities as Americans -- to make as much money as possible in the shortest amount of time. Believe it or not, there are many people in the world, in fact billions of people, who don't give much priority to making money beyond subsistence. You don't even have to go outside of the USA to see this. So the fact Venezuela hasn't developed its oil reserves is not particularly shocking.
From a purely economic rewards point of view, one has to ask what possible investment could give better returns than keeping oil in the ground? Personally I can't see any.
Also, it has to be asked why Chavez would want to feed the nation that would like to see him deposed from power.
That's simple. He needs the money.
So the fact Venezuela hasn't developed its oil reserves is not particularly shocking.
That whole line of reasoning is horribly flawed. First, this isn't about making as much money as you can. Chavez initiated social programs that need to be paid for. By seizing industries, he was able to infuse cash into those industries, but it was a short-sighted move that now leaves him without a goose that laid golden eggs. Or at least a goose that is now producing at far less than what he needs to pay for his programs. Further, they clearly want to develop those reserves (and they are always exaggerating their production numbers), so the notion that this is some brilliant move on Chavez's part to save the oil for future generations just doesn't add up.
From a purely economic rewards point of view, one has to ask what possible investment could give better returns than keeping oil in the ground?
That depends on your perspective. They have some of the largest reserves in the world, which could be used (ala Norway) to lift the citizens up. If you are a government in need of funds to develop social programs, then leaving it in the ground doesn't much help you.
"That's simple. He needs the money."
Well, apparently Chavez and the Venezuelan people don't agree with you. Even the prospect of Chinese money or Indian money hasn't motivated Venezuela enough to increase oil production.
It appears to me your main complaint is Venezuela's confiscation of American property in Venezuela. Certainly that is counter-productive and something I disapprove of, but in the end Venezuela is a sovereign nation and foreigners simply have to accept the risks of doing business in another country. It's not like Venezuela's behavior is unprecedented in Latin American history.
Well, apparently Chavez and the Venezuelan people don't agree with you. Even the prospect of Chinese money or Indian money hasn't motivated Venezuela enough to increase oil production.
No, you are very confused. Chavez desperately wants to develop those oil reserves. I can show you numerous stories where he is trying to entice foreign investors back in. I documented some of that here:
http://www.consumerenergyreport.com/2008/02/06/brother-can-you-spare-cha...
So the notion that they aren't motivated to increase oil production is completely false. They want to increase oil production, but they also want all the revenue. You can't have that, or you won't be able to increase oil production. Chavez is learning that, so his first option is to try to get foreign firms to come back. China or Russia may strike up a deal with him, but I hate to see what will happen when he nationalizes their investments.
"So the notion that they aren't motivated to increase oil production is completely false. They want to increase oil production, but they also want all the revenue. You can't have that, or you won't be able to increase oil production. Chavez is learning that, so his first option is to try to get foreign firms to come back."
Viewing this in a larger context, I still maintain my cultural explanation of Venezuela's behavior. Just look at Mexico which needs to make massive investments both onshore and offshore to fight declining production. To do so, they will need the expertise of foreign firms, especially for offshore drilling. Yet Mexico refuses to bring in foreign companies. Another example is Bolivia and its lithium deposits. Again, just as the Mexicans refuse to compromise, so too the Bolivians.
This is not a "new" experience for Venezuela and Chavez. They know the game. You say they are being unrealistic or irrationally stubborn in their demands. I say that's just the culture of the region -- the money is not worth the compromises they need to make to get the necessary expertise.
Yet Mexico refuses to bring in foreign companies.
But that's not the case with Venezuela. Chavez wants them in there to develop the reserves. The problem is that he also wants all the revenue, but his past has now caught up with him. Foreign investors are much more hesitant to invest money into Venezuela because they know that they can put capital in the ground, and then Chavez can make new demands and ultimately seize their assets if they don't comply.
This is incorrect. Mexico tried to bring in foreign companies to provide the tech necessary to the industry. It was the PRI that opposed it, spreading a large amount of false information to prevent it.
NAOM
Mexican constitution prohibits foreign ownership or production sharing.
Please be more specific.
NAOM
How's this?
From this source. Or this one might be even more to your liking as it gives very specific examples. It also has an extensive bibliography.
Having found the site, here are the rules for Venezuela.
Yes, that is what I was talking about. They tried to make changes that would bring in the needed help but were faced with a barraged of FUD from the PRI that made it impossible. That is not the same as 'Mexico refusing', they are trying to but are faced with opposition trying to make out that the oil industry will be sold off to foreigners, which does not go down well and is a far cry from the truth. I was trying to give Avon a nudge towards making a clearer comment in response.
NAOM
OPEN LETTER TO THE PEOPLE OF MEXICO
published at Alrroya, April 2010
There comes a time in the progress of society when emotions must be tamed.
Your love of legend and fantasy of cultural uniqueness are stealing food from your table and mortgaging your children's prospect of survival. We face the same terrible dilemma in the United States, albeit with more wealth and fewer children in danger of penury. But the principle is the same, and America's folly will hit Mexico hardest of all.
As in your country, the US has politicians and academics who argue that the future need not be feared. On the implicit article of faith that American business will somehow build something out of nothing and recover its "cycle," ambitious plans are afoot to expand the role of our Federal government. How we will pay for new debt, new spending, new hand-outs and new health care entitlements is a sugar-coated bedtime story for fools, whose chants of "Yes We Can" cannot be examined too closely because it consists of mysterious social optimism. Optimism is always mysterious if it assumes too much largesse at too little cost.
Political slogans and election campaigns cannot produce wealth, and new US Government borrowing cannot reduce the burden of old debt. No one profits by rescuing state-guaranteed agencies like Fannie Mae and Freddie Mac, whose subprime antics in housing made possible the worst financial crash since the Great Depression, and whose uncured insolvency threatens another, far worse panic.
In all its glory and triumph, NASA has never earned a penny of profit. Our victorious armies and diplomats likewise laid waste to trillions of dollars and failed to win a single dinar, ruble, pound, mark, dong, or sheckel of net US revenue from those we fought, bribed, threatened, manipulated, defended, or destroyed.
Now, if that were our only national American sin, having wasted US blood and treasure on the mayhem of worthless collateralized debt, tourism in outer space, and pointless prosecution of foreign wars, the United States might not be economically or politically wounded today. Your neighbor to the north has instead been crippled by Socialism, exactly the same poison Mexicans drank unmixed and straight.
Passionate appeals to our charity, equality, and duty to community led the world's freest and richest nation into bankruptcy, a bit slower than Mexico, but just as surely. The US is adding more than $1 trillion of new government debt each year into the distant future. It is unpayable and unsustainable. Following in Mexico's financial footsteps, the United States now faces a watershed cascade of agency and muni defaults and, ultimately, currency devaluation.
If it happens, Mexico will be hit hardest of all. Mexican migrant workers will earn less, gutting remittances. Your 3,000 maquiladoras, employing 1 million workers, will die for lack of orders and US commercial credit.
When your government asks for debt relief again, or new loans, the US answer will be no. As incredible as it may seem, the United States is losing its power to rescue Mexico from its silly pretense at progress. You'd be better off asking Russia or China for help.
And help you will certainly need, because Pemex faces imminent collapse. Last year, the state-owned oil monopoly funded 60 percent of your Mexican government budget, plus at least $1 billion in graft and another $1 billion to union officials who do no work.
I suppose you could continue to believe, as a collective national delusion, that Pemex has a rich history of achievement. Nothing could be farther from factual reality. Pemex depends and relies on US contractors and consultants to do the work of "Mexican" drilling and exploration.
Your constitution forbids foreign ownership of Mexican oil fields, production sharing, oilfield concessions, or oil exploration contractors as such. Consequently, you pay Pemex twice to pretend that they are supervising foreign contractors who do as little as possible, because those foreign contractors have no incentive to invest capital of their own. If you doubt that Pemex bureaucrats eat twice from your table, ask Carlos Slim to explain why he is a "partner" with Pemex in the Chicontepec project that produced no new oil.
This letter contains a simple plea to the good people of Mexico. The jig is up, muchachos. You can't depend on the United States. You have to provide for yourselves from now on.
In 1938, Pemex was created by expropriating the oilfield assets and pipelines of Royal Dutch Shell. It's time to forgive and forget. The only hope you have for national survival is to beg Shell to save you, by offering a reasonable production sharing agreement in the ultradeep Perdido Fold Belt. Pemex will never drill it, yet it holds a 3+ billion barrel oil reservoir on the Mexican side of the US maritime border, adjacent to the Shell Regional Host, newly built, only eight miles away. Shell has money and proven deepwater skill to bring your share of Perdido online in a reasonably short time, perhaps 3 or 4 years. Half of a free pie is better than none.
The choice is yours. To starve, or ask Shell to trust Mexico again. You will have to grant an unbreakable promise not to cheat them again, and the only way to prove that is to amend the Mexican constitution, ending the obese gold-plated Pemex monopoly.
Socialism and union-jobs-for-life have no moral claim on your children's future except the sad old myth of "proletarian solidarity" that brought Petróleos Mexicanos nothing but the shame of institutional corruption and incompetence.
Don't like Shell? - okay. Talk to Chevron.
The comparisons with the US are silly. US military spending is far larger than "welfare", and badly managed private banks brought us to our current financial problems.
I'm afraid you've been reading the wrong sources: misinformation from think tanks subsidized by corporations that care only about short term, narrow interests.
"The billionaire brothers Charles and David Koch are waging a war against Obama. He and his brother are lifelong libertarians and have quietly given more than a hundred million dollars to right-wing causes."
http://www.newyorker.com/reporting/2010/08/30/100830fa_fact_mayer?curren...
Widelyread, just a small point, there are a couple of inaccuracies in the "rules for Venezuela" you posted. Overall the document is right, but it's better to get a quality law firm to understand the fine print.
That's is a pretty specific refutation of an inaccurate point made by you.
I think the ball is in your court.
Ten seconds in Google got me this:
http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=1068&cont...
http://www.fpif.org/articles/mexicos_oil_referendum
http://www.ensec.org/index.php?option=com_content&view=article&id=224:oi...
Are you replying to me or someone else? Since I made no point, but merely quoted informed sources, I guess I'm off the hook, but just want to hear it from you. :)
I was replying to NAOM, much like you were. Just wound up below you as I probably hit "Save" too slow.
You're off the hook.
Viewing this in a larger context, Colombia, Peru, and Brazil don't seem to have a problem using foreign investors under terms the investors find attractive enough to invest.
Venezuela's problem is very simple, they have a huge oil resource, over 1.3 trillion barrels in place. The surface is easy to work, the weather is fine, it's reasonably safe to work in the area. The government has already signed preliminary deals with four different entities to produce an incremental 1.2 million barrels per day of crude. The oil from these projects would help offset decline elsewhere, and increase the country's production to a level the government finds a desirable goal. They have posted the information in their websites, and continue to make statements they do want to move forward.
But behind the scenes, the fine print isn't moving at the required pace because investors can't agree on all that fine print. Taxes and international arbitration being the main sticking points. If those are solved, a good dose of cash can solve the rest of their problems. And the cash will show up - the companies which signed the preliminary agreements already stated their intent to invest.
So my friends, this can be boiled to a very simple scene: two sides staring at each other, waiting for the other to blink and sign the paperwork. And I think big oil (and this includes the Chinese) has the patience to wait for Venezuela to blink.
Sorry John, it's not cultural. Colombia, Brazil, Peru, and other countries have no problem inviting and getting foreign investment. It's political. The Venezuelan government is marxist, it's averse to private property, and its high level decision makers were convinced the hydrocarbons in the ground can be extracted under the terms they offer - the terms are there, available for any investor who does want to get in. And there are qualified people to help them get started with the planning effort and so on.
But there's insufficient activity because the foreign investors are not budging yet. Either oil prices go way up, or the terms have to change. if they're not, then production will gradually decline until the government does change terms.
Mexico is an interesting case, they do need foreign invesment, but they could get away with service contracts to achieve it. The key is to write the contracts to allow the investor to make a profit and book the reserves. This can be done if they tweak the constitution, but I guess they are too tied down with their politics to do so. Latin American countries are a result of their history, and they have a very poor record. Maybe Brazil will escape the trap and move on up, although I have yet to see how Dilma performs in the future. I got a queasy feeling she's about to pee on her food.
I wouldn't put President Chavez and the Venezuelan people together this way. The people are not a monobloc glued to Chavez and his policies. I suspect you're not aware of election results. Look them up.
"They have some of the largest reserves in the world, which could be used (ala Norway) to lift the citizens up."
By the way, I don't know what the Norwegians are doing with all that oil money, but it's not lifting up the citizens as far as I could tell when I visited Oslo. Everything is very expensive. The bus from my hotel to the airport (approx 4 miles) was $10. A cab for the same distance was $40. You have to pay to use the public restrooms (do young people hang out in restrooms??) although in their defense this was not unique to Norway. And the roads have tolls.
According to this week's Economist, the Norwegians pay over $3.00 / gallon in tax on gasoline.
It seems to me you miss the point big time. If you want to understand Norway look at:
-life expectancy
-education
-infant mortality
-poverty statistics
-national budget
-unemployment
-retirement benefits
You might find that Norwegians are some of the best-off people in the world. Their management of hydrocarbon reserves have made a big difference to them. Bus and cab fares don't really say much about national strength. By the way ask yourself why gasoline costs so much there.
Price of goods and services in a foreign currency is a terrible measure of "citizen uplift": distributing wealth among the people has never made things *cheaper* -- in fact, if not carefully managed it does exactly the opposite.
The fact that a tourist can't afford stuff in Norway says as much about the tourist's home country as it does about Norway.
The real question is, are the Norwegians able to afford the good stuff in life? And as far as I can tell, they are.
At last report, the Norwegian government had $449 billion in its Petroleum Fund, which is used to pay for government pensions. That works out to over $90,000 for every man, woman, and child in Norway.
The problem is that all the oil money Norway makes from oil drives up prices. They try to control it by investing the Petroleum Fund in other countries, not Norway, but it drives up prices regardless. And the amount of money the government spends on free social services for its citizens also drives up prices.
It's great if you're Norwegian, less great if you're a tourist. If you want to travel cheaply, go to a country with no resources and no social services. There are lots of those.
Expensive for you means that their currency is stronger than the dollar, which means their economy is doing quite well relative to ours.
Try staring at this for a bit:
John, it's a bit different for them, because they earn their wages in Norwegian kroner. Norway is ranked in the top three places for quality of life in all surveys I know. Using your personal experience isn't very useful. I too visited Norway for business, and I learned not to spend on anything I couldn't charge in my expense account.
If a country is to really profit from its natural resources, either the population has to be really small, which Venezuela's isn't, or it has to have a very disciplined government, which Venezuela hasn't. In other cases, natural resources just fuel corruption and socialism, which both lower the GDP and growth of a country.
In reality, any reasonably populous country's largest assets are its working population and the environment in which they produce (the degree of economic freedom, broadly speaking).
Norway has done most stuff right. They save most of the oil income. They tax gasoline heavily, so the don't squander their wealth. They have little corruption (14:th place) and very good enforcement of property rights.
Venezuela, on the other hand: Gasoline is almost given away with subsidies. The oil income is used at once. Corruption is extreme, even though Chavez has promised for the last 10 years to fight it. Of course he can't fight it - the more arbitrary regulation he introduce, and the less property rights are respected, the more corruption he gets.
Never figured you for a Chavez apologist..
Neither did I!
But just how much do you think Venezuela with a $342 billion dollars of GDP (slightly larger than the GDP of Greece, slighly less than annual sales of Exxon at $344 billion dollars)can boost its extra-heavy oil production?
Canada has a GDP of $1.3 trillion has managed to produce a 1.3 mbpd oil sands industry after many decades.
http://finapps.forbes.com/finapps/jsp/finance/compinfo/CIAtAGlance.jsp?t...
Extracting that Orinoco stuff hasn't been figured out very well--I hear they use Moyno pumps to move that sulfurous molasses with the viscosity of chocolate syrup(10000 cps).
A lot of oil producing countries are not that rich.
We need a worldwide system for boosting unconventional oil production which is concentrated in Venezuela, Canada and the US(oil shale).
But just how much do you think Venezuela with a $342 billion dollars of GDP (slightly larger than the GDP of Greece, slighly less than annual sales of Exxon at $344 billion dollars)can boost its extra-heavy oil production?
They could boost it a lot had they not driven out the foreign capital. Now they realize they need it and are begging them to come back. But the answer to the question is that they could boost production by a lot, had Chavez not gone on his short-sighted expropriation mission.
According to the EIA, in 1970 Venezuela produced 3,708,000 barrels of oil (C+C) per day. That is as far back as their published records go. Venezuela hit a low point in 1985 of 1,677,000 barrels per day. But by 1997, the last non-Chavez year, they had increased production to 3,280,000 barrels per day, a gain of 95.6 percent. The average for the first six months of 2010 has been 2,118,000 bp/d, a decline of 35.4 percent since the last non-Chavez year.
Ron P.
Majorian, I usually try to be tactful, but this sure sounds crazy. What does the Petrobras share issue have to do with "the world needs to take control of the oil system to spend whatever is required".
I mean, being somewhat old and experienced, I would love to see "whatever money" being spent, my fees would go way up and that's fine with me, seeing that I'm a capitalist and I'm trying to buy me a fancy condo on the beach. But this statement sure sounds crazy.
The market sees spanking new offshore Brazil as a prospective El Dorado but ignores old producers like Venezuela and the US which requires investment to coax out the final 10% of oil in place. The same applies to
oil sands, extra-heavy oil and oil shale.
It's impossible to imagine our world without a somewhat steady supply of ~ 10 million tons of oil per day.
Almost all the oil we see is in tired old oil reserves or weird oil-like mineral deposits in a couple dozen countries.
We've already seen the effect high oil prices have on the world economy.
We've also seen that high prices don't translate into greatly increased production (geology trumps the profit motive).
My view is that there is a minimum level of oil below which the world market system will no longer operate.
At that point much of the world looks a lot like Somalia
and the OECD will helplessly languish as in the Great Depression. There will be no money for new technology or
anything else.
My 'crazy' proposal for an international system for producing unconventional(up to a trillion barrels)and EOR oil(500 billion barrels) could keep the world economy, which runs off the world trade in oil, turning for another century until new renewable technologies are in place.
I guess all that unconventional resource can be moved when the price goes up. Do you mean you want to create a World Oil Authority to produce oil? Sounds kinda marxist.
It could be worse. What about Evo Morales in Bolivia? I would rather have Chavez running amok with Venezuelan oil industry than have Evo run amok with the blow industry. I say this not because I want the stuff but rather in fear of the evil and terror that the substance plays a role in. Did you see the coca veneer guitar that Condi got when she visited as Sec of State?
I missed that photo but Evo always plays that kind of games on his visitors. When the Queen of Spain Doña Sofía went to Bolivia she was greeted with a maté gourd filled with powdered coca leaves to drink.
Morales, like a lot of indigenous Bolivia, is a former coco farmer.
It is rather playful.
He came to power over the privatization of water.
From the looks of things, especially with term limits removed in last year's referendum, Chavez might remain in office and continue his policies for a long time to come. But let's say that he had a sudden change of heart, or someone else took power with a better approach to the industry. How long would it take for Venezuela's oil production to turn around? First the country would have to rebuild trust among investors, which itself could take years. The heavy brand of oil in Venezuela is particularly challenging. I would imagine that it could take 20 years or more for Venezuela's oil production to recover.
Are there good precedents? The Soviet Union's production fell off a cliff around 1990 due to political reasons, though not the same reasons as in Venezuela, but recovered.
Pepper, it depends on this and that. If by turn around you mean reverse the production decline for real, I think that could be done fairly fast - say three years (because it takes time to move the steel and cement, build locations, get the rigs in, lay the pipelines, and so on).
If you mean take it to say 3.5 million BPD, I'd say 10 years. In 20 years, it could go to 5 million BPD with a slow development pace. If you want to get hysterical, it could go to 20 million BPD, but that would leave the place looking like Baku. Don't forget, Venezuela has about 1.3 trillion (that's US 12 zeroes trillion)barrels in place in the Orinoco Oil belt, and most of that is untouched. Virgin, just a few appraisal wells, and zero production.
The four investor groups commited to put the money to produce 1.2 million BOPD are already chosen, with preliminary agreements (Chevron, Repsol, ENI, Russian Consortium). They are waiting for the fine print to shift their way. And they seem to be keen enough to move forward fast if the fine print does shift.
The Left Right Paradigm is Over: Its You vs. Corporations
More at the link. Maybe Venezuela is ahead of us. Let's see how this Tea Party vs. Wall Street thing works out.
Who is us?
Well, this is the US version of TOD. I think it's obvious.
I suppose you don't understand Venezuela very well. They're not ahead of "us". They're a poor country with a government trying to implement a marxist style revolution, with 30 % anual inflation, a slightly falling GDP, and a fairly serious brain drain.
I was just telling you what the previous commenter meant by "us." Try to notice who you are replying to.
I meant ahead of the US in the sense that Chavez is supported by an anti-establishment base that favors reducing the power of the former social, governmental and business elite of Venezuela, along with controling or ousting foreign companies and workers.
It would appear that the Tea Party is also essentially anti-establishment, while the leadership of the Democratic and Republican parties represents the social, governmental, and business elite of the US. Chavez seems to resemble Peron more than Lenin.
Merrill, I guess it's all in the beholder's eyes. Foreign companies haven't been ousted, the government forced a conversion of the legal structure or vehicles whereby companies could invest. The companies working here before stayed except for a few. They keep their investments under the new Joint Venture structure. Foreign company workers are indeed less, and they have a lot less influence on operations. This can be said to have caused a deterioration of the JV performance because PDVSA's management and technical cadres were decimated during and after the 2002-3 strike.
The government is supported by a diverse population. Some indeed favor reducing the power of the former elite - they are keen on becoming the new elite. Some are poor people who see a government more focused on their problems to some extent (but not to the extent that in recent elections the poor voted in large numbers for the opposition in states such as Zulia, which is an oil producing region).
I don't really get where this leads you to conclude that Venezuela is ahead of the USA or what's the link to the Tea Party about. I don't see the Tea Party as much of anything. I'm a US citizen, but I've spent a lot of time overseas, so I got a tendency to disconnect from you guys who live at home, and I'm somewhat alienated now, maybe I'm missing something, but they seem to be a bunch of yahoos who don't even know why they're mad, other than they get egged on by xenophobic and jingoistic commentary on the radio and Fox News. Maybe I'm wrong, but hopefully they won't get very far, if that Fox News crowd really takes control of the country, I'm not going back to the US.
I think you are misinterpreting the nature of the Tea Party. There is really nothing anti-corporate in their message. The individual Tea Partiers are a loose coalition of libertarians, religious conservatives, racists (e.g. those who just don't believe the US should have a black president), gun nuts, and some of the newly unemployed who are looking for scapegoats. By themselves they would never agree on enough to be as potent a political force as they are (much of the left is in that situation, btw). The reason they are having an impact is that corporate media (led by FOX News, of course), is giving them plenty of support simply by covering them and repeating their messages, and because they are being surreptitiously bankrolled by corporate interests like the Kochs. (See the New Yorker article.)
You're not wrong that many of the Tea Partiers see themselves as anti-establishment, but what they fail to realize is that corporations are the establishment. The interests that are helping them are making a very deliberate attempt to channel the Tea Partiers anger at government, so as to gut government regulation of corporations. The Tea Party's message simply doesn't reflect the "You vs. the corporations" thinking in your link, at all. The Tea Party's message is "You vs. the Government, You Vs. the darker people, You vs. the Gays and Atheists", and so on. The message is anything that deflects attention from the actual corporate power structure that is holding sway in this country and paralyzing Washington.
My best hope for the Tea Party is that the libertarian wing (people who are against the wars) will eventually get fed up with the more fascist elements involved (like those attempting to repeal the First Ammedment for the backers of the not-quite-a-mosque a few blocks away from the World Trade center site), and that this will break up the movement and prevent a truly fascist party from either forming or taking over the Republican mantle. (Some in the Republican establishment are already showing signs that they are uneasy about some of the elements that have been let loose. After all, fascists aren't necessarily friendlier to any given corporation than socialists.)
"Let's see how this Tea Party vs. Wall Street thing works out."
Thought the tea party was a wholly owned subsidiary of Wall St.
FreedomWorks, actually, so the connection to Wall Street is infused with plausible deniability.
1) The original article argues that Venezuela's oil industry is failing due to lack of reinvestment, but it doesn't present any numbers to back that up, only includes links to other data-free articles.
Others here have shown graphs indicating lower production and exports in the past year ... but we're in the midst of an economic crisis, the same thing is happening in almost every oil-producing country.
Lower production isn't enough to prove mismanagement, nor is anecdote: we need to see data on the money the Venezuelan state oil company is spending on exploration, drilling, and other improvements.
2) Some have speculated that Chavez is "crazy like a fox", deliberately lowering production to save oil for the future. I doubt it. His political support comes from one thing and one thing only: redistributing oil wealth to the people. If he lowers production now, he won't be in power to enjoy the future benefits.
Also, Venezuela has a reserves-to-production ratio in excess of 100 years. No politician ever kept his office by thinking *that* far into the future.
Lower production isn't enough to prove mismanagement, nor is anecdote: we need to see data on the money the Venezuelan state oil company is spending on exploration, drilling, and other improvements.
But that presumes that unless you know everything, then you know nothing. We know that production has dropped sharply, per numerous energy reporting agencies. Global demand is still very high, so economic crisis doesn't hold as an excuse. Show me another country that has had a drop like Venezuela's in the past couple of years (unless they have hit peak).
Second, we know with a high degree of certainty that revenues have been diverted. In fact, I highlighted a story from a Citgo refinery a couple of years ago where they were cutting preventative maintenance in order to bring more money in to PDVSA. We know that service companies aren't getting paid (which is another signal that money is not being reinvested). The entire reason that companies were driven out is that they wouldn't succumb to very high taxes imposed upon them. Those high taxes were needed by Chavez to fund his programs. So it isn't reasonable to presume that after those firms had their assets expropriated, that revenues weren't diverted.
I don't know what you know about the oil industry, but it is a relatively low profit margin business. The reason for that a large amount of the gross revenues have to be reinvested back into the business. If those gross revenues start to get diverted, it is inevitable that production will decrease faster than it otherwise would for multiple reasons (like delaying preventative maintenance, which will ultimately cause downtime).
But that presumes that unless you know everything, then you know nothing.
Nope, I'd just be happy knowing *something* -- something beyond anecdotes. The Citgo example is useful, but is it representative of the whole Venezuelan industry?
Show me another country that has had a drop like Venezuela's in the past couple of years (unless they have hit peak).
Whether the world or any individual nation has "hit peak" is difficult to pin down, viz many long debates on this forum. Just to be specific, let's look at all countries with a reserves-to-production ratio of 50+ years. It's not a great measure of "hitting peak", but it does identify countries where scarcity has the least impact on production.
You see the same general pattern if you look at '06-'09. So at least half a dozen countries have production drops as large as Venezuela's. Is local politics responsible for each of these separately, or should we apply Occam's Razor?
Data source: BP statistical review of world energy, 2010
Goodmanj, have to be careful with those figures, there are OPEC quota restrictions built into a lot of those cut backs.
All I can say is the government in Venezuela has clearly stated goals to increase production. And I can assure you, the oil resources are in the ground to produce a lot of oil. Lots and lots of oil. So much oil many of you would be surprised to understand the figures. Therefore production potential is much higher than current production. It doesn't take a genius to say so if we consider the R/P ratio.
Goodmanj, have to be careful with those figures, there are OPEC quota restrictions built into a lot of those cut backs.
... but not all of them. And Venezuela is a member of OPEC too. Not that they always toe the OPEC line, but neither do several other countries on my list.
But anyway, that just proves the point that production numbers alone don't prove that Venezuela's oil industry is failing due to lack of reinvestment.
Two years from now, if and when the economy is back on the upswing, if every other major oil nation is producing like mad to meet rising demand and Venezuela continues to fall... *then* we can say something definite.
But anyway, that just proves the point that production numbers alone don't prove that Venezuela's oil industry is failing due to lack of reinvestment.
No, it doesn't. For every country you mentioned, we know why oil production rose or fell. In Venezuela, they actually consumed more oil from 2008 to 2009, and global demand only fell by 1.7% (per the BP report). So we have a case in which Venezuela is strapped for cash, local demand is growing, global demand cooled slightly, and yet production is falling -- despite huge oil reserves. Adding to that is the fact -- and it is a fact -- that money that would have normally been reinvested into the business has been siphoned away. And their stated goal again and again is to increase production, so they can pull more money in (also why Chavez is always saying oil prices should be $100/bbl).
If you want to believe that something else is in play here; that production is down because demand is soft or because they are voluntarily keeping production down -- you are entitled to your opinion. But the case in Venezuela goes well beyond anecdotes.
Two years from now, if and when the economy is back on the upswing, if every other major oil nation is producing like mad to meet rising demand and Venezuela continues to fall... *then* we can say something definite.
We already have that data point. If you look at the BP report, production fell from 2005-2008 in the face of strong demand and record high oil prices. Yet cash-strapped Venezuela didn't crank up the production. It "continued to fall."
In Venezuela, they actually consumed more oil from 2008 to 2009
production fell from 2005-2008 in the face of strong demand
Okay, *now* we're getting somewhere. For the record, I wasn't claiming that you were wrong, rather that your argument was unsupported by your data. You're now starting to include the sort of information that actually proves your point.
OK, so I guess we agree production numbers are falling. I happen to know something about the OPEC policy, how it's applied, and so on. Venezuela's production isn't falling due to OPEC cut backs - although they do have an impact. The oil is being produced, and there is insufficient investment to make up for the production decline.
I think it would help you to understand the way it's evolving if you see the government production goals. Search using google under "Siembra Petrolera". Eventually you should see some files showing government production goals. You can also find statements in the media regarding their goals for individual mega-projects. There are quite a few of those. But they're not moving forward as originally planned. I can't discuss all the details here, but it will help you if you do realize I'm fairly well plugged in. I just can't discuss everything I know.
No worries, Canada to the rescue. . . except that rising Canadian net oil exports have not even been sufficient to offset the decline in net exports from Venezuela. Their combined net exports are down by about one mbpd* since the late Nineties (BP).
*880,000 bpd (per EIA)
Chavez is interested in maintaining power, and his vehicle for achieving that is the revenue stream from hydrocarbon production. He is keenly interested in seeing oil production increased, in particular the XHO from the Orinoco and the multiple projects recently announced.
Underinvestment may be directly noted from the failure of the state to pay the service companies that are critical to maintain and expand production. As they would not work without being paid, they were nationalized. Year over year production is down ~7%, but see for yourselves.
Data: PDVSA 2009 Annual Report
http://www.pdvsa.com/interface.sp/database/fichero/free/5889/1049.PDF
http://www.newsweek.com/2009/07/18/brain-drain.html
Wow - this puts some of RR's comments in perspective.
Hugo Chavez is obviously a terrorist just like that terrorist Sadam Hussein who was running his oil industry into the ground before the U.S. intervened, and just like that terrorist Ahmadinejad who ... wait a minute is there a connection here? Axis of Evil, YES, now we see; terrorists are bad at economics! Wow, who knew, must be something in their genes. We should test this idea by putting some terrorists in charge of an oil company and see if they run it into the ground. No, wait that would be dangerous wouldn't it? I mean suppose they polluted the whole Gulf of Mexico with their careless terrorist tactics. Now that's a crime.
Now, at last, we understand the inverse dependency of more oil production and people who should not be running their own country. Obviously Venezuela needs the U.S. help just like Iraq did under Sadam and just like Iran does. These countries are obviously not well run like the United States who burned up most their oil by 1970. No no, let the U.S. run Venezuela and the the World will see oil extraction at its frenzied best.
What were the Venezuelans thinking anyway when they elected that economics challenged Chavez? Then, on top of that, the U.S. tries to help those poor people out by overthrowing Chavez and he gets even more popular! Don't those Venezuelans know about all those nice military dictators the U.S. helped them find to rule their country in the past? Chavez illegally overthrew the illegal dictators that the U.S. illegally put their; it's all so ... SO ILLEGAL. Things were so much easier before Chavez. A few people down their get rich and what does the U.S. ask in return? Just a little bit, a few million barrels a day, that's all and it only that oil spoiling subterranean Venezuela.
While I am fiercely against U.S involvment anywhere, can you please direct me to any proof you may have of America's involvement in overthrowing Chavez? Or are you just spouting propaganda? If so I'll excuss it, but if you honestly believe the US tried to overthrow Chavez please produce some proof.
And please not that edited clip from Oliver Stone's movie. Since if you actually took the time to read that leaked document it specifically says they adviced people against overthrowing Chavez, and refuse to provide any assistance in any coup attempt. But journalistic integrity is not needed when your creating a documentary. Just like they didn't tell you that the main opposition to Chavez was not an ex model, but rather a farely intellegent individual that got 40% of the vote. Seriously, as I consider myself a person on the left, I find leftist propaganda when it comes to Chavez inexcusable.
Lastly, people's assumption that Chavez is not destroying his country like Canada is with the oil sands, simply do some research and check to see what kind of oil is leaking into lake Maracaibo (or however you spell it). It was leaking more oil for the water mass then the big oil spill in the gulf of mexico, and it is still leaking heavily. This doesn't excuse my countries abuse of the oil sands, but Chavez is doing far worse and at the same time taking less oil out.
Stop excusing this idiot, and trying to make it sound like he is smart or some socialist savior of the common man. He is destroying his country, and if you take the time to go down there you would see it. The opposition got 52% of the vote for the national assembly but things were so gerrymandered that if you were lucky enough to vote in a chavista stronghold you would have gotten up to twice the number of representation for your vote then people in a none chavista territory got. So the end result was opposition got 40% of the seats for 52% of the votes. He cares nothing for the people, he only cares about his power.
I thought this was a smart, open-minded community, that wouldn't be fooled too easily by mainstream media and instead is capable of looking for independent resources. We do that with regards to peak oil. Nevertheless, we seem to be bigoted and retarded at times when it comes to countries such as Venezuela and Iran, to name a few. Disappointing, really. The drivel is no different from what we can expect from the Washington Post or Fox Network.
Be specific. We're discussing Venezuela, not Iran. What is it you agree or disagree with?
"proof you may have of America's involvement in overthrowing Chavez"
Well, the US in fact FAILED to permanently overthrow Chavez, so it would indeed be hard to find "proof" of their involvement in actually overthrowing him.
But the involvement of the US in the attempted coup plot was widely reported. Here's the first thing that pops up from a quick google search under "us attempt to overthrow chavez."
www.guardian.co.uk/world/2002/apr/21/usa.venezuela
"Venezuela coup linked to Bush team"
"The failed coup in Venezuela was closely tied to senior officials in the US government, The Observer has established. They have long histories in the 'dirty wars' of the 1980s, and links to death squads working in Central America at that time.
Washington's involvement in the turbulent events that briefly removed left-wing leader Hugo Chavez from power last weekend resurrects fears about US ambitions in the hemisphere.
It also also deepens doubts about policy in the region being made by appointees to the Bush administration, all of whom owe their careers to serving in the dirty wars under President Reagan.
One of them, Elliot Abrams, who gave a nod to the attempted Venezuelan coup, has a conviction for misleading Congress over the infamous Iran-Contra affair."
There are some 82,000 other hits for that search, and browsing through the first few pages, most seem to support at least the probability of US involvement.
Presumably any evidence presented suggesting US involvement will not be seen as "proof" to you, though, since you have already decided and will not be persuaded otherwise.
No one is excusing Chavez; for all I know every thing in the R.R. post could be true. What I am saying in the comment above is that Chavez is a kind of blow-back for previous U.S. policies over the last 50 years as Ahmadinejad is blow-back for the overthrow of Mosaddegh. The United States has intervened during Chavez's administration (PDF) but the Blowback comes not from the Chavez code related activities but from support of the most brutal dictators like Perez, to whom the U.S. awarded the Legion of Merit. The people of Venezuela during this time were dirt poor except a few, who with the help of the U.S., enriched themselves.
It is not just U.S. interventions in Venezuela but all over Latin America that brought about this blow-back. Chavez receives support from many countries and all that is blow-back for U.S. policies. Likewise, the U.S. overthrew a Democracy in Cuba, installed a brutal dictator; an action that led directly to the Revolution and Castro. When will the U.S. learn? Now we hear this whining from the U.S. government and oil companies about Chavez and Ahmadinejad but who made them possible?
What I find ironic about R.R.'s post is the statement that we should look at Norway for how it can be done. The people of Venezuela do not have a standard of living like Norway because of the United States. We can only theorize why the U.S. chose such a brutal and careless approach to Latin America but in the case of Venezuela we can make a good guess. I suggest that the U.S. repressed Venezuela so that the Venezuelan economy and standard of living would not develop and become a consumer of its own Petroleum thus reducing its exports. I think the model for Venezuela could have been what is happening in Brazil as we speak. Brazil is a rising power that could challenge the U.S. hegemony, at least what there is left of it, in the future and that is what the U.S. fears the most.
Venezuela would work a lot better if Venezuelans realized it's up to them to fix their problems, and they really do need to stop pointing fingers at the US.
Venezuelans don't have a standard of living like Norway because they have a much larger population than Norway, its oil production is lower than Norway's, and it has never developed a significant economy other than oil and the mineral industry. And it didn't do so because that's the way Venezuelans make decisions.
I've been observing the Chavez government for over 10 years, and its decisions regarding economic development outside of the oil industry are very similar to those taken by previous governments. Gasoline is still subsidized, Venezuelans continue to shop in Miami via a subsidized exchange rate, local industry is peanuts because it can't compete with the outside world, and labor law and regulations are a nightmare which convince potential investors to clear out two days after they check in at the Marriott in Caracas.
So there we are, as it turns out the pre-Chavez oligarchs, and the Chavez socialists are making the same mistakes over and over.
The model for Venezuela is whatever they want to make. I don't think Latin America enters into the American conscience at all, and to the US Brazil is a place where girls put bananas on their heads during carnival.
You are right; only the people in Venezuela can fix the problem and they are lucky to have the wealth of their natural resources. It is tough though and we see the U.S. trying to intervene once again during the Bush years, not to fix it, but to restore the old status quo. I try to imagine what it would be like if my country, the U.S., was in Venezuela's place. I don not think we would do any better.
Even now in the U.S. the state of the economy is causing a lack of faith in the government and deservedly so; the U.S. has had poor to mediocre leadership for almost 5 decades but especially since 1980 and it really shows. The government has become increasingly corrupt as politicians patrons are the corporations so they no longer serve the people. Poor leadership begets worse leadership as reactionary movements, like the Tea Party, get a political foothold. Why should we expect Venezuela to do better? The United States has seen to it that Venezuela had poor leadership during its peak oil production years. Venezuela is broken and the United States broke it.
I guess we don't agree. Venezuela isn't broken yet. And the US didn't break it.
I repeat, "its the US's fault" is a credo preached by Latin Americans who can't face the harsh reality: their leaders tend to be missing a bolt or two. If you want to, blame geography, the nature of Spanish culture after they fought the moors for 600 years, the catholic church, cro-magnon culture, the US, or whatever. But their culture is what it is, and it has very little to do with the US, other than they play baseball in Venezuela instead of righteous sports like soccer, and they seem to have a really silly need to drink whisky when they have much better rum available.
There's enough variety in outcomes to tell me indeed theirs is a problem they can solve. Costa Rica is located in that mental and social swamp they call central america, it seems to do well.
And then there's Brazil. Many give Lula the credit, but a lot of the credit should also go to the people who came before him, and those who surround him (even Dilma the Colorless, who may have peaked before she gets the presidency). So what happened in Brazil? They got the right combination of people and events to start pulling out of the hole they themselves created. And they may yet find a way to fall back. After all, isn't the US falling now after it reached its glory? And what's causing the fall? Americans suppporting leaders in the White House and the Senate who aren't worth a wooden nickel.
Its just a matter of Googling a few things to find out what is happening. It is not a mystery or a secret. The U,S. has done the same thing everywhere, look at Iran and Iraq if you need non-Spanish culture examples.
I've done the googling, and I don't find any basis for your claims. Venezuela's problems is home-brewn.
Also, I think it strange to blame the US for everything wherever it has been meddling. A meddling US doesn't force the Iranian people to install and sustain a theocracy, for instance. Btw, try to count the successes instead. South Korea, Japan, Europe, Taiwan, Chile, Turkey ... In fact, if you look at a map of political freedom of the world, the American continents seems to be in very good shape.
You really need to read some history. According to documents released by the Clinton administration, the U.S. is directly responsible for the murder of 5,000 people in Chile during the Coup; success I guess. There are 21 countries that Kissinger cannot travel to as he is wanted as a war criminal because of this. Today we have an attempted Coup by the Military and Police in Ecuador. It appears to be supported by Columbia with the blessing of the U.S.
Incident in Ecuador was a labor complaint by police, who went on strike to protest resuced benefits. It worsened into riots and a serious disturbance when Correa went to see the strikers and essentially insulted them. It was pretty silly to go into a large gruop of armed striking police to give them the finger, when his escort was so small. Correa is an impulsive autocrat, it showed in his speech from the hospital window.
A meddling US doesn't force the Iranian people to install and sustain a theocracy, for instance.
New democracies are very fragile, and outside influences can have outside effects.
OTOH, I agree that every country needs to take responsibility for itself. On the 3rd hand, the US (and Europe) needs to take responsibility for it's actions too, and there's quite a bit of history that needs to be more widely known.
I am a US citizen, but I spend a lot of time overseas. So I don't use the USA as a yardstick. I don't think it's intelligent for humanity to look at the US, and make decisions based on what the US does, or did. Discussions which go back to comparisons with the US tend to be provincial, and are just a sign of people becoming culturally isolated.
I do want to keep this focused on the Venezuelan oil industry topic (although I confess I got myself in a tizzy discussing Kosovo and other irrelevancies). And if we focus on the oil industry, it is indeed in trouble.
However, this trouble means little to the world, other that in the future Venezuela will probably produce less oil than the Venezuelan government expects, and the industry will be a lot less profitable than both the government and foreign investors expect. So this is mostly Venezuela's problem. It can also spill a bit into Colombia, because Venezuela will be a smaller market for their products. And it may be a problem for Cuba and other countries which have grown used to Venezuelan subsidies. But it's not really such a big deal.
Anybody who likes to dabble in peak oil should consider the Venezuelan extra heavy oil reserves to be there, mostly virgin, producible, most of it stranded for a while.
But don't treat Venezuela as if it were a single country. Venezuela has so much oil, the figures have to be massaged: You need to break it up, West of Caracas, East of Caracas - which shows two peaks for the two zones above and below the Carapita. And finally the Orinoco Oil Belt should be treated as a separate "country". As I mentioned to Gail, there are some production accounting issues because there are fields in between the old post Carapita production belt and the Orinoco oil belt, in the Oficina formation, and those tend to be classified in and out of the Belt depending on the author's whim.
As an outsider looking in, Venezuela is doing two things to economically diversify.
One is develop the hydropower at Guri and other dams on the Caroni River and associated steel and aluminum industries nearby. About 16 GW of hydropower.
The other is to improve the rail system in the interior and increase the viability of agriculture and interior settlements that way.
Other policies may discourage this economic development.
What does it look like from the inside ?
Alan
Alan,
The Guri dam was already built, quite a few years ago. The rail system is being built. It has been an ongoing project for quite a few years. And it's not going to be extensive because Venezuela has so many mountains. The line runs mostly parallel to an existing expressway. I don't know where you got those two items, but they sure sound they came from a goofy website.
The government has invested in some projects, but this is indeed discouraged by other government policies. If you can read Spanish, please visit the aporrea.org website. This is a very far left leaning site, which is increasingly critical of the government. Some of the writers are hard core bona fide communists who are outraged about government actions in recent years.
Classical economists would tell you there are two very harmful policies, which are fine if you are a populist with very deep pockets, but they are fairly incompetent if you got to move a country forward: gasoline prices are heavily subsidized, and the exchange rate is controlled so that people have been able to go shop for imported goods they really couldn't afford if the exchange rate was more sensible.
The second one of course does a pretty good job destroying Venezuelan industry and agriculture's ability to compete with imports. The really sad thing is the gasoline subsidies are helping those with cars drive all over the place and create huge traffic jams - which means people riding buses can't move around.
And the exchange rate policies, you think about it. Until early this year, it was cheaper to fly to Miami and buy in the top of the line stores, than to buy a locally made product, if you got the US dollars via the controlled government currency market. And many people got them. Some of them even made profits laundering Colombian drug money, which would be used to buy Bolivars in the uncontrolled or parallel market, to later exchange the same bolivars for the government issued dollars (an operation which yielded a 200 % profit).