Venezuela's Oil Production On The Brink Of Collapse

Tyler Durden's picture

Authored by Nick Cunningham via OilPrice.com,

Desperation is spreading in Venezuela as violent protests continue to paralyze the country, further damaging the country’s shattered economy. Venezuela’s already-decrepit oil industry is deteriorating by the day, and an outright implosion is no longer out of the question.

The inflation rate, according to the IMF, will balloon to 720 percent this year. Food shortages have been common for quite some time, but are deepening and wearing down the population. Three out of four people surveyed by the WSJ reported involuntary weight loss last year. Hospitals have completely broken down.

Venezuela has been crippled by protests since late March, with more than three dozen people having been killed over the past two months, and there is no sign of improvement. This meltdown is taking a toll on Venezuela’s oil production, the last thing keeping the country from becoming a failed state. Venezuela’s oil production has been declining for more than a decade, mainly because oil revenues are used to finance the government, leaving little for state-owned PDVSA to reinvest in its operations.

But things are getting worse. The cash shortage is accelerating the decline. As of April, oil production stood at 1.956 million barrels per day (mb/d), down 10 percent from last year, and down more than 17 percent from 2015 levels - and output continues to trend downward. James Williams, energy economist at WTRG Economics, told Marketwatch in March that he expects Venezuela to lose another 200,000 to 300,000 bpd this year, another 10 to 15 percent decline from 1Q2017 levels.

The problem is downstream as well, as the shortage of refined products worsens. Three out of Venezuela’s four oil refineries are operating significantly below capacity because of the inability to find spare parts for maintenance, according to Reuters. The Paraguana Refining Center, for example, is only producing 409,000 bpd compared to its nameplate capacity of 955,000 bpd. PDVSA’s third largest refinery, which has a capacity of 187,000 bpd, is operating “at minimum levels due to problems at two of its three distillation units,” Reuters says.

With cash drying up, PDVSA is also struggling to import lighter fuels that are necessary to blend with the country’s heavy oil. Some ships are sitting off the Venezuelan coast because of unpaid bills. Meanwhile, because of obligations to creditors, PDVSA is sending crude abroad, leaving little for domestic refining.

But PDVSA’s financial and operational problems have a compounding effect. Falling production at refineries mean more gasoline needs to be imported from abroad, putting a tighter squeeze on state finances, which in turn leaves even less for everything else the country needs, from food to healthcare.

The possibility of all hell breaking loose is not zero. The WSJ reports that Venezuelan security forces are at their breaking point. Young, underpaid members of the national police are often not given food or water while on duty, and are asked to constantly beat back rapidly escalating protests in scorching heat, around the clock. Also, police and soldiers are not immune to the food shortages and economic collapse that the rest of the country is suffering through. The loyalty of the security services to the President no longer appears rock solid.

PDVSA and the national government avoided a debt default a few weeks ago, but with obligations looming later this year and a dwindling pile of cash with which to draw upon, the problem is not going away.

As far as the oil sector goes, the best case scenario for Venezuela is steady, if rapid, decline in production – a loss of 200,000 to 300,000 bpd this year. But the darker scenario is a much more sudden disruption if the country implodes. There is no way of knowing if this will happen, but analysts are growing increasingly concerned about the possibility. “Oil production continues its downward drift due to service provider cuts, power shortages, inability to obtain imports and irregular salary payments,” Helima Croft, commodities strategist at RBC Capital Markets, wrote in a recent report. “The oil question is whether current conditions could set the stage for the type of industrial action that cut exports by nearly 80 percent in the early 2000s.”

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nmewn's picture

They should let Maduros crony-socialists run it!  ;-)

Looney's picture

 

Food Shortages is a good way to fight Morbid Obesity.  ;-)

Looney

knukles's picture

Like we say out here in Kalifornia; "They'd fuck up a gold rush."

38BWD22's picture

 

 

Let America take note!  

Even Sean Penn (and the rest of the Lefty Whackos) don't visit their Socialist Paradise anymore.

The Democrats and snowflakes would wind up doing something similar in the USA.

 

EDIT: Why would VENEZUELANS be streaming here to Peru if things weren't so bad there?

knukles's picture

Peru has better weed?  Cuter girls?  Oh, I know, cooler places to hang out.  Right?

Talkin' about countries, hows come we don't hear anything anymore about why we should be more like Denmark or Sweden?

38BWD22's picture

 

 

Weed?  I have no idea!

My Peruvian girl is cuter than any Venezolana...  Though Venezuelan girls are fmaous for their beauty.  I guess it all depends on taste.

Ameru itself is a pretty cool place to hang out, there is good coffee very close by.

*  *  *

Yeah, where ARE all the blabbermouths re how great Scandinavia is now, bwa ha...

MalteseFalcon's picture

Gotta get the price of oil up soon.

Before we run out of it.

Dave's picture

Denmark and Sweden? Might have something to do with immigration. I'm just sayin'.

cokito's picture

Fuc…Idiota. So you think the Trompeta’s crony-capitalism would do better. Look at the US Vs China :-))))

Looney's picture

 

Bernie for President... of Venezuela!  ;-)

Looney

silverer's picture

Think much would be different? Hmm...maybe just blame a different set of people? lol

GunnerySgtHartman's picture

Yes!  Ship the college snowflakes down there with Bernie.  They'll fix EVERYTHING!!!!

VWAndy's picture

 Yea never underestimate the power of the drum circle. lol

silverer's picture

Lol! It's paradise I tell ya!

Village-idiot's picture

Yep. Those ANTIFA idiots will really show them how to riot!

No, wait! The ANTIFA idiots are mostly communists who will support Maduro.

Well, at least they'll get first-hand knowledge of the end result of socialism/communism.

Dave's picture

It would be an improvment. Maduro is a complete imbicile. He should quit and go back to driving a bus where he came from.

LawsofPhysics's picture

< yawn > so what?  Who really needs consumable calories and reduced hydrocarbons (oil) anyway?  Are these things of any real value?

VWAndy's picture

 Another spot on post. You the man LoP!

VWAndy's picture

 Fischer Tropsch folks. We own the carbon cycle.

marathonman's picture

It takes capital and time.  Venezuela has neither.

Wang Dang SP's picture

Hermano, puede usted ahorrar diez bolivar?

38BWD22's picture

 

 

Ja ja, lamento informle que diez bolivares vale nada mas que papel higienico.  Quizas menos, porque es un poco tosco...

marathonman's picture

No qiero bolivares,  Qiero oro.  (said in my hazy broken high school Spammish)

38BWD22's picture

 

 

That's more than good enough for government work, ha ha.

silverer's picture

It's a good thing the greedy government reinvested in its oil recovery infrastructure and didn't run off with all the money. Oh, wait...

nmewn's picture

...not even one square of toilet paper allowed onto the street. 

Amazing. 

VWAndy's picture

 They should be using the Bulivars its about all its good for.

38BWD22's picture

 

 

Bolivares are too rough & scratchy.  So, worth less than regular TP.

VWAndy's picture

 Yes but think how good it would feel to wipe your butt with the fiat.

38BWD22's picture

 

 

One time would be enough, mi amigo.

But I would have to take a picture, or else "it never happened".  And, by definition, it would be a shitty picture.

silverer's picture

The left hand's connected to the backside,
And the backside's connected to the brown side,
And the brown side's connected to your insides,
Now hear the word of the Lord...

Village-idiot's picture

They did exactly what all socialists/communists do, they no idea of how real economics work.

(Lots of education but with no experience or common sense.)

Tachyon5321's picture

Solar is the answer.... LOL

nmewn's picture

And windmills!

Because nothing says Forward! thinking like centuries old technology!   ;-)

A. Boaty's picture

Internal combustion engine = 19th century tech.

VWAndy's picture

 Its pretty effective and will continue to be the most effective for as far as I can see. As stupid as our cars are now its still the only real choice for transportation.

Village-idiot's picture

No, no, steam engines work much better.

Internal combustion engines only work with the right fuel.

Steam engines can use almost anything that'll burn.

The problem is they'll need (those evil) capitalists to build it.

A. Boaty's picture

That explains why no one uses knives today.

A. Boaty's picture

Solar and wind grow faster than any other energy source. They may not replace fossil fuels soon, but they will stay competitive, and increasingly so.

GunnerySgtHartman's picture

If they are competitive, why do they keep getting subsidies?  Why won't the proponents say, "We're competitive; we don't need subsidies anymore"?

TuPhat's picture

You are right, Boaty, they compete for federal handouts much better than fossil fuels.  Without my tax dollars to keep them going they would not be in business.  That includes the moron Musk.  I wish the wind and solar usurpers would stop wasting valuable resources.

daveO's picture

End the FED, end the fraud.

VWAndy's picture

 Yep petrodollar games.

A. Boaty's picture

Let's talk about subsidies:

G20.gov annual subsidies for fossil fuel = $444 billion

USA.gov annual subsidies for fossil fuel = $20 billion

Posthttps://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opini...

Solar and wind get bigger tax breaks on a percentage basis, but in absolute dollars, fossil fuels get more by orders of magnitude.

When will Big Oil say "We're competitive; we don't need subsidies anymore"?

GunnerySgtHartman's picture

NONE of them should be getting any.  Make them ALL stand on their own two feet!

A. Boaty's picture

I agree. Get governments out of the energy business. Then we'll see market forces choose the best energy technology.

VWAndy's picture

 If they had to stand on a level field F/T fuels made locally from trash sewage and coal would be the big winner imo. Hands down for several good reasons.