3 Million Barrels Per Day Could Go Offline In 2018

Authored by Nick Cunningham via OilPrice.com,

Venezuela’s oil production has been falling for years, but 2018 could mark a new, darker chapter for the South American nation.

 

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Late last year, Venezuela’s government defaulted on millions of dollars’ worth of debt, with larger and more significant payments maturing this year. The ability to service billions in debt payments this year is almost certainly out of the question, although the size of the default this year remains to be seen.

The cash crunch that Venezuela has suffered through has worsened substantially over time, and the country’s oil sector has paid the price. Venezuela produced over 3.5 million barrels per day (mb/d) in the late 1990s, but output has been falling for much of the past two decades, although often at a gradual pace. The declines really started to accelerate in the past two years.

 

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(Click to enlarge)

But 2018 could be even worse. A year ago, Venezuela produced between 2.0 and 2.2 mb/d, depending on whose data one uses. By the end of 2017, production really began to plunge, dipping to just 1.7 mb/d in December, according to S&P Global Platts. That is the lowest figure since the 1980s, aside from a brief period in 2003 when a strike knocked output offline.

Worryingly for Venezuela, the monthly declines are accelerating. A year ago, monthly declines typically ran somewhere between 10,000 bpd and 30,000 bpd. By the third quarter, those monthly dips ballooned to around 40,000 bpd, month-on-month. But Between November and December, output fell by massive 100,000 bpd, according to S&P Global Platts. Argus Media says the losses are even larger than that, with production falling by 151,000 bpd in December to 1.686 mb/d.

The scary part is that the situation is probably only going to grow worse. Venezuelan President Nicolas Maduro removed the head of PDVSA in November, putting a general in charge at the state-owned oil company. The move was probably made to placate the military, but it also jeopardized the operations of the oil company. S&P Global Platts says that the general in charge, Manuel Quevedo, purged the company of officials at the end of the year. The move, ostensibly to root out corruption, will likely hollow out some of the technical talent that helps keep oil operations running, such as they are.

Compounding that problem is labor unrest on the ground. S&P Global Platts says that protests and resignations of refinery personnel are mushrooming because the poor state of PDVSA’s assets are leading staff to worry about safety.

"The Venezuelan economy could collapse at any moment," said Torbjorn Kjus, oil market analyst with Norway's DNB Bank, according to S&P Global Platts. "We could envisage scenarios spanning from outright civil war to a state coup, to a general strike or even just one more year of strangulating slow death for the economy. Neither of these outcomes bodes well for Venezuelan oil production."

Just about every oil analyst agrees that production will continue to fall at a significant rate, but there is disagreement over the magnitude of decline. The Rapidan Group puts losses at 300,000 to 400,000 bpd in 2018. That’s plausible, but to the extent that projections like these are off, they could vastly understate the declines underway.

Ed Morse of Citi says that Venezuela’s production could fall below 1 mb/d, which would essentially be a loss of 700,000 bpd by the end of the year.

There are plenty of reasons why these more dire scenarios could play out. More credit defaults are likely. Venezuela is locked out of the bond markets, which means it will have trouble finding cash. PDVSA’s oil and refining assets are in a decrepit state and are only deteriorating. The quality of Venezuela’s oil exports are also worsening, and some refiners around the world are rejecting shipments. The lack of cash means that PDVSA will struggle to import the diluent needed to mix with its heavy oil. And rock bottom morale and increasing worker unrest could cripple operations.

The losses from Venezuela, combined with potential outages in Iraq, Libya and Nigeria, could reach 3 mb/d in 2018, Citi said.

Comments

Teja FullHedge1 Fri, 01/12/2018 - 12:25 Permalink

What I am fearing is what crisis hit dictatorships usually do - start a war. Venezuela could try to annex the Dutch islands of Aruba, Bonaire and Curacao, only some dozend miles off its coast.

Not that I would be particularly sad regarding those offshore money criminal hubs, but plan to be travelling there soon, so a war would be rather inconvenient...

In reply to by FullHedge1

directaction NoDebt Fri, 01/12/2018 - 11:19 Permalink

Venezuela's oil production has been flat and of poor quality for several decades. This is due to geology and has nothing to do with their internal politics.

Oil reserve depletion is hitting everywhere. Every few years a former oil exporter becomes a net liquid energy importer. Last year it was Mexico. Next year it will be some other nation.

What this means is that Western Civilization, an oil-based construct, will soon end.    

In reply to by NoDebt

Jo A-S directaction Fri, 01/12/2018 - 12:11 Permalink

And there's me thinking that fracking was bringing more oil on line........  And, that, as oil became harder to obtain, other oil sources were found due to new technology.

 

I will agree, though, that oil dependence needs to be reduced.  Transport could be done more on hydrogen or, local commuting, electricity.  And electricity become more dependent on nuclear.....

In reply to by directaction

adr Fri, 01/12/2018 - 10:56 Permalink

SO what. Considering the state of the country, the world is saving millions of barrels a day that the Venezuelans would have been using.

I guess the .1% want $120 oil and $9 gasoline to bend the Goy over the log again.

Line up for your fourth in a generation sheering sheep.

Ben Tornilloed wesson Fri, 01/12/2018 - 11:06 Permalink

How is this anti-Venezuelan propaganda?  It is simply a statement of FACT of what has happened to their production and projections of what could happen this year.  

Are you suggesting that the drop in production didn't REALLY happen?  Are you suggesting that Venezuelan refiners and producing infrastructure is NOT deteriorating?   WTF ARE you suggesting?

In reply to by wesson

Ben Tornilloed wesson Fri, 01/12/2018 - 12:20 Permalink

Wait, you didn't say this was anti-venezuelan propaganda?  

Your statement of WHY they are in decline doesn't fucking pertain to the article asshat.   Venezuela produced 1.7 MMBOPD last year and will probably lose half that this year.  WHY is irrelevant at this point, except as it pertains to my long oil position. 

In reply to by wesson

MusicIsYou Fri, 01/12/2018 - 10:59 Permalink

 Well because oil is not infinite in that a certain percentage has to stay in ground to sustain earth's magnetic field, I can imagine oil price is going to increase. Of course all you locusts don't realize you can't keep taking and taking.

Easyp Fri, 01/12/2018 - 11:01 Permalink

They produce heavy high sulphur oil so good riddance to it.

What about the people?  Well naturally those Socialists will have carefully invested the oil cash earned since the revolution in a sovereign wealth fund so they can draw on that for a few years yet?

 

Hubbs Fri, 01/12/2018 - 11:08 Permalink

It will be very unfortunate, but alas instructive, to see what happens when the money runs out and Maduro's goons (military) are no longer being paid. I try to draw analogies with Kim who runs a starving nation but remains in control-somehow. Then I take a look at Mugagbe in Zimbabwe.

MrBoompi Fri, 01/12/2018 - 11:09 Permalink

If they want their oil to flow again, they will need to play ball with the Western banking and oil cartels.  Which basically means they lose control of their country's largest asset.  When you try to go rogue, you pay the price.  Just ask John Perkins about it.  The only type of socialism the oligarchs tolerate is the kind where only they get to decide who benefits and who doesn't from a country's natural resources.  It's not the type of socialism that helps the down-trodden masses.

paint it red c… Fri, 01/12/2018 - 11:21 Permalink

Not going to happen. V needs the cash possibly more than any country in the world. China or Russia or both will be all over it with expertise profiting politically and financially.

Secret Weapon Fri, 01/12/2018 - 11:34 Permalink

If the U.S. does not do something drastic about the systemic corruption  within the government and the corporate sector, it will share the same fate as Venezuela with one significant difference.  It will be much more violent.

tahoebumsmith Fri, 01/12/2018 - 11:37 Permalink

What worries me is the oil inventories are now being supplemented by the US and Canada which are producing it in ways that will literally destroy our future water resources. Fracking is not a good way to produce oil if your at all concerned about future water supplies and tar sand production is just as bad . It's great that the US is competitive  again in the oil industry but ruining our more important resource "water" in the process is not good for future generations. I would rather see Venezuela succeed in oil production then watch are valuable water aqua firs destroyed so US oil companies and Wall St. Can line their pockets on the backs of our children. They are already leaving them with huge debts that can never be repaid at the very least they should leave them some fresh water.