The Washington Post: Venezuelan Oil Losing Share of Key U.S. Market

By Juan Forero
Washington Post Foreign Service
Saturday, May 12, 2007; Page D01

CARACAS, Venezuela — When the state oil company recently took over the last privately run oil fields in Venezuela, President Hugo Chávez declared it a victory against Washington and a giant leap toward a new energy policy that would diversify the market for Venezuelan crude to include rising powers like China.

“Down with the American Empire!” shouted Chávez, who often warns that he’ll shut off the oil spigot to the United States if the Bush administration invades Venezuela or hatches an assassination plot against him.

But new study of trade and oil consumption data shows that Venezuela appears ever more dependent on selling its oil to the country Chávez calls “the cruelest, most terrible, most cynical, most murderous empire that has existed.” And U.S. government energy trade data show the United States is slightly less dependent on Venezuela, which at one time challenged Canada, Mexico and Saudi Arabia as the No. 1 provider of foreign oil but now tussles with up-and-coming Nigeria for the fourth spot.

“Venezuela is losing its privileged position,” said Alberto Quiros, an energy consultant and former executive at Royal Dutch/Shell and at Venezuela’s state oil company, Petróleos de Venezuela S.A. (PDVSA). “The United States’ needs have increased and Venezuela’s ability to supply has decreased.”

The old energy order is, to be sure, being turned upside down in Venezuela by a government intent on showering billions of oil proceeds on social programs as part of Chávez’s efforts to transform Venezuela into a model of what he calls 21st-century socialism. Venezuela has taken operational control from Exxon Mobil, Chevron and four other multi-national oil companies of a 4,500-square-mile, oven-hot swath of scrub grass that may contain the largest oil deposit in the world, and multinationals operating in the country are bracing for more change.

Yet the country’s once-vaunted oil industry has seen its production and capacity to produce decline over the last decade, according to oil analysts and statistics from the U.S. Energy Department and the International Energy Agency in Paris.

The world’s fourth-largest oil exporter a decade ago, Venezuela is now seventh, according to the BP Statistical Review of World Energy. The 1.1 million barrels of crude that Venezuela exports to the United States every day amount to less than 11 percent of American imports, down from 17.3 percent in 1996. By contrast, the No. 1 supplier to the American market, Canada, is now sending more than 1.8 million barrels a day and topped 2 million barrels daily in November.

During most of Chávez’s eight years in office, more than 60 percent of the country’s total crude exports have gone to the United States, up from 50 percent throughout much of the 1990s, according to Ramón Espinasa, a former chief economist at PDVSA who is now a consultant in Washington. The trend is due to growing U.S. demand, Venezuela’s rising consumption and what oil analysts say is the state’s inability to diversify its base of clients to include big consumers.

But in an ideologically drawn battle, one marked by constant verbal slings, Chávez has promised to veer sales away from the United States.

He often says that PDVSA is considering selling Citgo, its refining and retail arm in the United States, which processes and sells the extra-heavy brand of crude mined in Venezuela. His government has also increased sales to China, with 300,000 barrels a day now headed there, Rafael Ramirez, the energy minister and PDVSA’s president, said in an interview this month.

With a goal of providing 800,000 barrels daily to China as early as 2009, Ramirez said China National Petroleum Corp. will work with Venezuela to explore for oil and create a transport company to ship crude. He said the Chinese government also has approved a plan to build three refineries to process Venezuelan crude.

“We have a position we have not considered abandoning — supplying the United States,” he said. “But we also have plans for an expansion and a necessary diversification, which is common among all oil producers.”

Ramirez said that PDVSA, a behemoth that he said employs 45,000 workers, is in solid shape. PDVSA had profits of $5.5 billion last year on domestic revenue of $55.7 billion. He said Venezuela put $6 billion back into PDVSA last year and plans another $10 billion this year. The idea is to invest $70 billion by 2012, Ramirez said, when Venezuela says it will produce 5.8 million barrels a day.

Energy experts like David Mares, who recently authored a detailed, 97-page study of PDVSA for Rice University’s Baker Institute, say the plan lacks credibility because investment has for years fallen far short of the $8 billion or so needed to improve production and exploration. The number of rigs drilling wells has dropped from more than 110 in the mid-1990s to 76 in February, according to Baker Hughes, which keeps worldwide data on rig activity.

So a country less capable of producing oil, analysts say, is more tied to the United States, where refineries wholly or partly owned by PDVSA refine Venezuela’s molasses-like oil. The installations exist nowhere else, which makes some analysts skeptical that Venezuela is exporting as much to China as it claims.

“It’s a reasonable policy for the Venezuelan state to diversify clients, but the point is that the American client is very close,” said Teodoro Petkoff, a newspaper editor and former government minister who opposes many of Chávez’s policies. “It’s three months by tanker to China, five days to the East Coast of the United States, so the American client is too important for Venezuela.”

Still, last year the U.S. Government Accountability Office prepared a report at the request of Sen. Richard G. Lugar (R-Ind.), now the ranking minority member of the Foreign Relations Committee, to determine the ramifications of a sudden end to Venezuelan oil supplies.

“If they decide to cut oil, that’s not the worst thing that could happen to the United States,” said a senior Republican aide in Congress familiar with the issue. “The big issue about Venezuela is, what happens if something happens in the Strait of Hormuz and we can’t get oil from the Middle East? What happens if the demand rises suddenly in India and China, and then Venezuela decides to cut off oil?”

The United States, which consumes 20 million barrels a day, nearly a quarter of the world’s total, has not formulated a policy to deal with such a possibility. Bush administration officials stress that Venezuela will remain an important supplier, and analysts and even Venezuelan officials agree. They note that American production is falling and so are production capabilities in regions like the North Sea and Mexico that have long supplied oil to the United States.

Chávez seems to concur.

When Bush traveled to Brazil in March and signed an agreement to jointly produce ethanol with the Brazilians, it prompted a quick reaction from Chávez, who called the plan “true craziness.” The Venezuelan president had long supported expanding ethanol production, but he said the American proposal would trigger a famine because so much farmland would be dedicated to producing crops to make the fuel.

What he didn’t say was that the pact was also a sign that the United States was considering a renewable substitute for gasoline. “Bush’s plan is impossible,” Chávez said.

http://www.washingtonpost.com/wp-dyn/content/article/2007/05/11/AR2007051102166.html?nav=wpisrc=_business/special/3

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