Venezuela is Part Nation/Part Disaster/All Tragedy

Obviously in Miami, I meet, know, and do business with a lot of Venezuelans. I’ve been reluctant to read anything about the country on the fear that the news will be bad. Well, even so, there are people doing business successfully in Venezuela, and Venezuelans finding opportunities outside of Venezuela. If you’d like to see how, don’t be shy about contacting us.

Venezuela’s President Maduro wants to raise oil prices to $70 – and fast. His plan, announced on Venezuelan television this week, is to somehow stabilize oil prices despite weak demand and near record production from Saudi Arabia, Russia, and Iran over the past several months. Maduro has a phone and he is using it (when the electricity works) to call every OPEC oil minister and some non-OPEC oil ministers to talk about cutting production. Not only is this strategy going to fail (the most important producing countries are not incentivized to freeze or cut production now), but Venezuela’s oil problems run much deeper.

Venezuela’s great paradox is that it holds the worlds’ largest known oil reserves yet cannot feed its own citizens or keep the lights on in its major cities. Riots around the country are laying bare the effects of corruption and decades of socialist policies. Venezuela’s oil production has been declining for years, going from 3.3 million barrels a day in 1997 to about 1.9 million barrels a day in 2016. Venezuela cannot afford to produce the oil it needs to sell. It costs approximately $18 to produce a barrel of oil in Venezuela, but not all of that cost is due to Chavez and Maduro’s policies. Most of Venezuela’s reserves consist of oil that is expensive to recover, making it less valuable (when still in the ground) and more difficult to exploit.

Venezuela became a major oil producer when easily recoverable oil was discovered in Lake Maracaibo in 1914. Venezuela knew it had heavy oil in the Orinoco Belt, but this oil is difficult and expensive to retrieve. In 2006, the national oil company started accessing it, meaning that Venezuela’s recoverable oil reserves rival Saudi Arabia’s. However, production from the Orinoco Belt is still extremely costly.

Oil production from tar sands is one of the more expensive forms of oil production today. The procedures used to extract oil from the tar sands are expensive. Moreover, once extracted, the heavy oil must be blended for most uses. When the average price of oil was in the upper $20/barrel range, Venezuela was losing money with each sale.

Read Forbes article here: