Venezuela output dwindles after decades of mismanagement by socialist regimes
BY KEJAL VYAS AND GINETTE GONZÁLEZ
LINK -  WSJ (paywall)

Venezuela’s oil industry— rich in reserves, a crucial Allied resource in World War II, a founding member of OPEC— is grinding toward a halt.

Venezuela has greater oil stores than any other country. But after years of corruption, mismanagement and more recently U.S. sanctions, its oil output has dropped to a tenth of what it was two decades ago.

From Lake Maracaibo in the west to the Orinoco oil belt in the east, abandoned wells rust in the sun as looters scavenge the metal. The last drilling rig still working in Venezuela shut down in August. The country is on course, by the end of this year, to be pumping little more oil than the state of Wyoming.

The last oil drilling rig that was working in Venezuela shut down last month.


Abandoned pump jacks litter oil fields in Venezuela’s Zulia state.

A man is pushed home from a Caracas hospital because its ambulances had no fuel.



“Twenty percent of the world’s oil is in Venezuela, but what good is it if we can’t monetize it?” said Carlos Mendoza, an ambassador under the late socialist president Hugo Chávez, who enjoyed an oil bonanza when prices were high but starved the industry of investment and maintenance funds.

“We’re entering a post-oil era,” Mr. Mendoza said.

While petroleum is under stress world-wide from climate- change concerns and the rise of wind and solar power, what is happening to oil in Venezuela goes far beyond the global industry’s troubles. It is an existential crisis for a country long dependent on oil for nearly all of its hard-currency earnings.

This year, Venezuela’s oil income will probably fall below the limited funds coming in from other sources such as gold mining and overseas workers’ remittances, said Luis Vicente León, an economist and pollster.

For the long-suffering citizenry, the prospect is for more misery, in a place where 96% of people already live below the poverty line, according to a study by three universities. Five million Venezuelans have fled over the past five years, by a United Nations count.

On Margarita Island, where Juana Herrera lives, there is no gasoline to power her car. Venezuelan refineries are so decrepit they produce almost no propane, meaning her family can’t use their gas stoves. The cooking-fuel shortage is a problem for four of five households in the country, said Julio Cubas, head of the Observatory on Public Services, a nonprofit that studies Venezuelans’ access to basic utilities.

Ms. Herrera, 55, relies on wood. “It’s like the community on this island is just slowly dying away,” she said.

Similar stories can be heard across the Caribbean nation as the refineries’ near-paralysis, which is partly due to a lack of imported supplies, ripples across to other industries from food to transportation.

David Bermudez, an egg wholesaler in the southern state of Bolivar, said deliveries he used to receive from farms every two days now arrive only every two weeks, as farmers hoard scarce motor fuel. The result is to deprive residents of the mostly rural state of what is normally a low-cost protein source.

Calls for comment from the Venezuelan Information Ministry and state oil giant Petróleos de Venezuela SA, known as PdVSA, weren’t returned.

Diosdado Cabello, an ally of President Nicolás Maduro widely seen as the country’s second-most-powerful politician, said in a television appearance Wednesday: “Venezuela hasn’t received formal income from the oil industry since October.” He praised the government’s resilience. “This battle isn’t easy,” Mr. Cabello said. “But the other option was just giving up.”

Attached File


Chevron Corp. is the last American oil giant still operating in Venezuela, the rest having left after Mr. Chávez rewrote contracts more than a dozen years ago. Chevron now is forced to wind down most of its operations by Dec. 1, when a waiver from the U.S. sanctions that bar firms from doing business with the Venezuelan government expires and the Trump administration aims to ratchet up pressure on Mr. Chávez’s socialist successor, Mr. Maduro.

The U.S. decision also applies to four oil-service companies that have played important roles in helping Venezuela pump its crude: Schlumberger Ltd., Halliburton Co., Baker Hughes Inc. and Weatherford International Ltd.

At the start of this year, 25 drilling rigs were still searching for new oil deposits in Venezuela, according to Baker Hughes. In August, Nabors Industries, a contractor to Chevron, pulled out the last rig.

As recently as 18 months ago, Venezuela was producing nearly a million barrels of crude a day. Now the figure is around 300,000 barrels, and some analysts foresee it sliding to just 200,000 daily barrels by the end of this year.

That would leave the government with perhaps $4 billion in annual oil revenue, an amount it took in every two weeks in the last boom year of 2012, said Giorgio Cunto, an economist with Ecoanalitica, a consulting firm in Caracas.

The collapse has had little effect on world oil markets because others in the Organization of the Petroleum Exporting Countries compensate for Venezuela’s shrunken output. U.S. refineries, which had been Venezuela’s biggest buyer, aren’t hurt by its falloff because of the sharp rise in U.S. oil production in recent years.

Once a big producer
While U.S. sanctions have undoubtedly made matters worse for the Venezuelan industry, economists say most of the fault lies with the two decades of incompetence and graft under the Chávez and Maduro governments, which included making foreign business partners unwelcome.

Venezuela’s oil story began in 1922 with the country’s first successful well. Before long, Venezuela was the world’s second- largest oil producer, after the U.S. In 1960, Oil Minister Pablo Pérez Alfonzo spearheaded the founding of OPEC.

Venezuela was developing and attracting European immigrants by the 1970s, a decade when its government nationalized the oil industry. But the country also had large pockets of poverty and a corrupt ruling class.

When Mr. Chávez, a revolution- minded former army captain, rose to power in 1999, vowing to close the wealth gap in Venezuelan society with socialist policies, he put an end to the operational independence enjoyed by PdVSA.

It had earned a reputation for efficiency. Mr. Chávez fired its top management after an industry strike aimed at toppling his leadership. He began using the company to build housing, distribute chicken to slum dwellers and organize Socialist Party rallies. Venezuela kept gasoline virtually free for its citizens. It also sold cut-rate oil to leftist allies in the region such as Cuba.

In 2006, Mr. Chávez ripped up contracts with foreign companies that were doing much of the oil-field work, forcing them to cede majority operational and financial control of projects to PdVSA. One by one, firms such as Exxon Mobil quit the country. Investment declined, and so did output.

At first, few in Venezuela noticed or cared. Oil’s price, driven by a rising Chinese economy, was surging. The price spike bought the government a bounty, which Mr. Chávez spent on programs such as food and other subsidies rather than maintaining the oil industry. By the time he succumbed to cancer in 2013, oil output was about half the level of when he took over.

Billions in oil revenue were diverted into discretionary funds controlled by the president with little accounting. Unchecked spending allowed regime insiders to plunder the state coffers and enrich themselves. The graft spawned a leftist bourgeoisie in Venezuela that splurged on luxuries from opulent Miami lofts to castles in Spain.

At one joint venture, managers stole hundreds of millions of dollars by routinely inflating the cost of oil-field supplies such as office equipment by more than 100-fold, according to charging documents and purchasing invoices reviewed by The Wall Street Journal. The operator of a company that supplied office equipment pleaded guilty and was sentenced to house arrest.

The years of theft, combined with subsidy spending and neglect of infrastructure, have left Venezuela’s economy with little to show for the more than $1 trillion in oil revenue it collected in 22 years of socialist rule. Nearly a third was lost to malfeasance, former allies of the government have told the Journal.

The party ended when global oil prices abruptly started dropping in the autumn of 2014. Venezuela’s economy went into freefall. The government tightened political control to stay in power, sidelining the country’s legislature and having protesters beaten, arrested or shot.

What little of the oil industry survived the self-inflicted wounds has come under sanctions by the Trump administration over the past two years. The goal of the U.S. administration, which recognizes opposition leader Juan Guaidó as the legitimate president of Venezuela, is to choke off revenue to push from power a Maduro regime widely accused of both electoral fraud and human- rights abuses.

American officials promise tougher sanctions. One option is to further hamper Venezuela’s ability to exchange crude oil for diesel and other refined fuels. Despite the short supply of these products in the country, the Maduro regime still ships cut-rate oil products to allies such as Cuba, said Elliott Abrams, special U.S. envoy for Venezuela.

“Maduro has consistently shown he does not care about the lives of Venezuelans,” Mr. Abrams said. “If there is a diesel shortage, the easy way to alleviate it is to end the colonial relationship between Cuba and Venezuela.”

Millions of barrels of Venezuelan crude oil produced over past months are stuck in maxed-out storage facilities or tankers on the sea, with few buyers willing to risk defying the U.S. ban on Venezuelan oil trading. Iran sent Venezuela 1.5 million barrels of motor fuel this spring and summer in defiance of the ban, but that was only enough for a few weeks of demand. Venezuela’s oil refineries once turned its crude oil into 600,000 barrels of gasoline a day, meeting local demand and sending about half for export. Today they struggle to turn out 30,000 to 40,000 barrels a day, according to the refinery workers’ union.

U.S. sanctions have hampered the refineries’ ability to import needed chemicals and components. Venezuelan drivers now wait in line, sometimes for days, to fill up.

“Permanent anguish, that’s what I feel,” said Irelis Martinez, a 63-year-old pensioner in Caracas, who blames the shortages in part on American sanctions. “You just pray that all sides can come to some solution. With more and more blockades, the only ones that I see suffering are average Venezuelans like me,” she said.

Mr. Maduro calls himself the victim of imperialist aggression and blames the U.S. for destabilizing the state oil company. “Donald Trump has waged a war on PdVSA,” he said in a recent TV address.

Ending free gasoline
With so little oil income coming in, Mr. Maduro has done something his predecessors didn’t dare. In June, the government started charging almost market prices for gasoline. The price went to $2 a gallon overnight, a shock in a country where free gas was seen as practically a birthright.

Caracas, where traffic for decades was among the worst in the hemisphere, now has relatively unclogged highways and roads. Rush hour is a thing of the past.

Earlier this year, the Maduro administration acknowledged some errors in its oil management and unveiled plans to overhaul the industry, promising greater control and better profit-sharing terms for foreign companies. Given U.S. sanctions that bar companies from any country from working in Venezuela, the changes have had little effect.

Gilberto Morillo, a former PdVSA director, waxed nostalgic about how oil was once a ticket to modernity and stability.

“A hundred years ago, we started from zero,” he said. “And now it’s like we have to restart the path, with an unproductive country in ruins.'

And this is what the Democrats are leading this country into.

So. The moral of the story is - socialism fucks everything up.

Attached File

This is our future here.

Communism could find a way to have a sand shortage in a desert.

Yup.  Commienism can take a cornucopia like oil, and turn it into starvation.

Sounds like a safe bet.

After all, it's not like they've ever broken promises before...

Socialism and corruption.  Look at the Democratic Republic of Congo, it's considered one of the wealthiest countries in the world in terms of natural resources, yet it's a 3rd world shithole.

"rewrote contracts" is an odd way of saying "stole all their company assets in the country"

Monetize it? Shouldn't they just be giving it away?

Pretty much any government.  Didn't our government lose money running a whore house?

I thought they had so much oil, a town was literally knee deep in oil?

This is what communism does why is anybody surprised?

No guns. People are starving.  Natural resources unable to be tapped because the communist party instilled people that have no clue what they’re doing in charge.

They can’t fucking grow food, what made them think they could run drilling or refinery?

Someone should show this info to antifa...

And yet there are several people even here who think America is invincible and will always be the tip of the turd regardless of who is in charge because of our heavenly blessed geography and natural resources.

I disagree. Socialism can ruin anything.

They don’t have anybody that knows how. They ran off the producers and anybody who know how to run shit.

It’s fascinating how quick it happened. Communism is great at destroying a nation in under a decade.

I quit reading after I saw the climate change .

Everything will be free under commienism!

Except smart people that now how to get oil out of the ground. Those guys are pricey.

Nobody has ever successfully farmed western staples at scale in the tropics.

You can grow tree crops, tropical fruit and nuts and stuff like that, and aquacultures/rice paddies, but anything involving a plow typically fails spectacularly in short order.

In the tropics >90% of the biomass is above the surface. In places where mechanized agriculture works well it's <50%.

Central planning always ends in disaster, but in the tropics it happens a lot faster.

They just need more socialism..... And solar panels.

They now import most of their food when they once supplied most of it in country. Central planning at its best. They literally seized all the farms and gave the land “to the people”

Well the people can’t grow or livestock anything. Brilliant.

What did Obama say about Biden? "Don't underestimate Joe's ability to fuck things up."

Canada and the US could both become the next Venezuela.

Both Canada and the US have governments with destructive socialist policies.

China enters the picture to get that oil pumping in 5...4...3...2..

The article speaks of the Venezuelan reserves without mentioning the low grade of crude they produce.

The vast majority of Venezuelas reserves are of extra heavy crude oil. Asphalt basically. At today’s market it is almost useless. It had to be refined locally when the markets were better to be profitable. And it had to be done by foreign companies to get it done.

We should send them all the commies in the this country.  That should help, right?  

Actually they would probably rear up like a striking cobra. Hiss at you, probably spit at you a bunch of times and say.

"Not true ssssssssssocialism. They ssssssssshould be using wind and ssssolar power insssssssssstead!"

Dual victory

1)  Proof of socialism's success by proving that planned central economies never work!
2)  Demand is down meaning less carbon emissions!  Slowed down globular climate change.

Apparently they haven't nationalized the distilleries. Diplomatico Mantuano rum is still pretty tasty.

Oil wells play out.  They must be re-worked, fracked, or new wells drilled.  Nobody is doing much of this the last 3 years, so stand by for the "supply gap" when the global economy rebounds from the China Virus.

Yeah, how many companies are willing to take that risk a second time?

Just for experimental purposes they should try to make Venezuela great again.  They get to start w/ an already commie country that is a tropical paradise and has 20% of the world oil reserves.  Surely they could do it right there.

Brazil seems to make it work w/ soybeans and corn(granted they are working around the edges).  Why would you want to raise field crops in an environment better suited to raise higher value tropical produce w/ a year around growing season(and a underemployed population) anyway?

This post explains it all.

Here is liberal Joe Kennedy still going on about “our friends, the Venezuelan government!”

Better Dead Than Red

This was a great article, thanks for sharing. I was always a little hazy on how exactly they had fucked up their economy so badly.

They’re just not doing it right...

TC

P.S.—Communism isn’t supposed to work. It’s simply a tool used to subjugate a population without an excessively destructive civil war. It allows the Elites to strip mine a country without interference from pesky freemen.

It is the frog in the pan writ large. We’re in the middle of a Communist revolution in the US and we 30 million assault rifle owners are sitting it out.

Many state houses should be in flames right now. The fires should highlight the Communist politicians hanging from lamp posts. Lobbyist offices should have been ransacked for evidence and wanted posters of Communist lawyers and bureaucrats should be on every building.

There should be nowhere to hide. But, we’re law abiding people.

That will be our epitaph...