The Venezuelan economy may be in far worse shape than officially announced, and in a weaker position to face the present sharp fall in oil export revenue.
BY RAMON ESPINASA
There is a large discrepancy between Venezuela’s official production figures and the substantially lower production data reported by international agencies. In addition, domestic
petroleum consumption has likely been much higher than officially reported. The debate around the production, domestic consumption and export figures is important for at least four reasons.
First, these figures constitute the basis for the assessment of the performance of Petróleos de Venezuela (PDVSA), particularly on how the company has evolved since late 2002-early 2003 strike that brought operations to a halt and in which the government fired half the industry’s labor force.
Second, since crude oil production may be lower and domestic petroleum consumption much higher, petroleum export volumes could be considerably lower than reported, with implications for both oil export revenue and determining which markets are effectively supplied and by how much.
Third, oil export revenue figures are calculated on the basis of the official export volume figures; thus, official oil export revenue estimates may be grossly overestimated. If so, the actual amount of funds available to the government could be just a small percentage of the official reported revenues. Stated differently, the Venezuelan economy may be in far worse shape than officially announced, and in a weaker position to face the present sharp fall in oil export revenue.
Fourth, Venezuela’s exports to markets other than the United States, the Caribbean and Central America are lower than Venezuela’s official figures state. In addition, the latest oil provided by Venezuela under government-to-government agreements was sold at a discount, with payments financed over a 25-year period. As a result, Venezuela has become ever more dependent on its exports to the United States as a source of export cash revenue. The bottom line is that official figures for the last decade may overstate export volumes by as much as 55 percent. PDVSA exports, excluding the strategic associations1, may be overestimated by as much as 75 percent. (…)
According to IEA, crude production in Venezuela has declined to 2.36 million barrels per day (MBD) in 2008, down from 3.18 in 1997. That is a drop of 0.82 MBD or 26 percent. On the other hand, according to official figures, production in 2008 is slightly higher than in 1997, 3.27 vs. 3.16 MBD. The gap between IEA and official figures becomes larger after 2002, with the data diverging widely after the 2002-2003 PDVSA strike. Official figures show production bouncing back to the pre-strike levels after 2003 and remaining there. IEA figures show that production recovers slightly in 2004-2005, but never returns to the pre-strike levels and declines in the years 2006-2008. According to the IEA, total crude oil production in 2008 was as low as in 2003, the year of the strike.
The difference between both sets of data grows ever larger after 2002, to reach a maximum of 0.91 MBD in 2008 — 29 percent of the total amount of oil that Venezuela claims to have produced. (…)
The IEA produces public monthly data for the most important world oil producers, including Venezuela. Venezuela’s official sources, however, do not produce public monthly data. (…)
According to the IEA, PDVSA’s production, excluding that of the strategic associations, never recovered to the pre-strike levels and has declined steadily since then. It declined to 1.82 MBD in December 2008 from 2.35 MBD in June 2003, an average annual decline of 4.8 percent. PDVSA’s production ten and half years ago, in June 1998, was 3.17 MBD. Thus it has declined 43 percent over this period. (…)
It is difficult to believe that after being decimated by the strike, PDVSA was able to recover and sustain its production levels. There is no evidence that the technical expertise and knowledge that the corporation lost has been restored. On the contrary, the remaining PDVSA oil-industry engineers and skilled workers are being stretched thin, as they have had to take responsibility for the production formerly carried out by private companies through operational contracts10 and by the strategic associations. Operational contracts were awarded to private companies to reactivate less profitable marginal fields to expand PDVSA’s operational capacity during the expansion plan throughout the 1990s. The fields operated by private companies were brought under PDVSA’s de facto control as of April 2006.
Furthermore, as mentioned above, PDVSA’s management has been forced to assume an ever increasing number of non-oil related activities, such as the different social programs (misiones) administered directly by PDVSA and the program for the procurement and distribution of food (PDVAL), among others.
On top of all that, the national telecommunications company, CANTV, the regional electricity company, Electricidad de Caracas, expropriated in 2006, and the cement corporations CEMEX, Lafarge, and Holcim, expropriated in 2007, have been managed by PDVSA. All this has been at the expense of PDVSA’s own core responsibilities.
The 2002-2004 gap between the official and the IEA production figures for PDVSA of some 0.4 MBD, or 15 percent of the official figure, increases to 0.92 MBD or 33 percent of the official production figure by 2008.
EXPORTS: WIDER GAP
The gap between estimated and official export figures is even wider than the gap between estimated and official production figures. Official petroleum exports in 2008 are roughly similar to the 1997 figure. But the exports calculated here (annual production according to the IEA minus estimated domestic consumption) decline from 2.95 MBD in 1997 to 1.71 MBD in 2008, a drop of 1.24 MBD or 42 percent.
The official export figures show the same pattern as the production data — the official export figures recover after 2003 to levels above the pre-strike levels. The 2005 and 2006 export figures are higher than in 2001. The 2004 and 2007 export figures are similar to the figure for 2002. Official export volume in 2008 is exactly the same as in 1997.
By contrast, the estimated exports for all four years, 2004-2008, show a decline from 2001 and 2002. Estimated exports drop faster compared to the IEA production figures than the drop in the official figures, due to the sharp increase in estimated domestic consumption compared to official domestic consumption figures. The estimated and official total export figures for the period 1997-2008 are shown in Figure 8.
Until 2000, the difference between the estimated and the official export figures is minor, below 0.2 MBD or 8 percent of the official figure. The gap begins to widen between 2001 and 2003, when it increases more than twofold, up to almost 0.50 MBD or 17 percent the official figure. Between 2004 and 2008 the gap opens wider, increasing twofold again to reach 1.24 MBD or 42 percent the official export figure by 2008.
ESTIMATED VS OFFICIAL EXPORTS
Domestic consumption of oil products is supplied exclusively from PDVSA’s own production. As mentioned earlier, all of the strategic associations’ output is exported. Given the increases in domestic demand, PDVSA’s own exports have fallen more sharply than total exports.
PDVSA’s estimated petroleum exports declined from 2.95 MBD in 1997 to 1.20MBD in 2008, a drop of 1.75 MBD or 60 percent. Official PDVSA petroleum exports have declined from 2.93 MBD down to 2.44 MBD, a drop of 0.49 MBD or 17 percent. PDVSA’s exports declined faster than total exports and have never recovered to pre-strike levels. Estimated and official PDVSA petroleum exports for the period 1997-2008 are shown in Figure 9.
By 2008, the difference between estimated and official PDVSA exports of 1.24 MBD represented 50 percent of the official PDVSA export figure.
ESTIMATED MONTHLY EXPORTS
Using the estimates above, one can also estimate the monthly total exports of crude oil and products. Because domestic consumption of oil products is supplied solely by PDVSA, it is also possible to calculate PDVSA’s own exports separately from those of the strategic associations.
Figure 10 shows total estimated monthly exports and PDVSA’s exports since August 2000, using the IEA’s data on the strategic associations’ production. Estimated total exports at the end of 2008 were 1.69 MBD, and PDVSA’s exports were 1.16 MBD. PDVSA exports declined steadily after the strike, from 1.95 MBD in June 2003 to 1.16 MBD in December 2008, a drop of 0.79 MBD or 41 percent in five years. PDVSA’s own exports have been falling at a rate of 9.5 percent per year as production has declined and domestic consumption has increased. Total exports remain roughly constant up to mid-2005, when the strategic associations came onstream. After 2005 they declined at the same pace as PDVSA’s own exports. (…)
The Venezuelan oil sector experienced a massive loss of knowledge and technical know-how as a consequence of the 2002-2003 strike, when the bulk of the managers, engineers and skilled workers left the company. This loss, together with the diversion of an ever larger amount of financial and human resources away from PDVSA’s core activities, has translated into a sustained drop in production and exports. The magnitude of the damage is such that this trend is irreversible in the medium term if the current institutional arrangements endure.
Ramón Espinasa was chief economist at Petróleos de Venezuela, S.A. (PDVSA) in Caracas until 1999. Currently, he is a full-time consultant in the energy division of the infrastructure and environment sector at the Inter-American Development Bank (IADB) in Washington, D.C. Before joining the IADB, Dr. Espinasa was a full-time consultant in the office of public policy and competitiveness at the Andean Development Corporation (CAF) in Caracas, Venezuela, as well as a consultant at the International Bank for Reconstruction and Development (IBRD-World Bank) in Washington, D.C. In addition, he has been an adjunct professor at Georgetown University in Washington, D.C., and professor at the Universidad Católica Ándres Bello in Venezuela.
This column is based on an excerpt of The Performance of the Venezuelan Oil Sector 1997-2008: Official vs. International and Estimated Figures, a policy paper from the Energy Cooperation and Security in the Hemisphere Task Force of the University of Miami’s Center for Hemispheric Policy. Republished with permission of the center.