4 ms·

> Early this year, the United States began shipping more than 50,000 barrels a day of the light crude that Venezuela needs to prepare its own oil for export Wh

> Early this year, the United States began shipping more than 50,000 barrels a day of the light crude that Venezuela needs to prepare its own oil for export What does this mean? How does this work? Why do you need oil to make oil?

tptacek 10y ago
This is addressed in the article: the oil industry in Venezuela is in disarray, so the country can't rely on its own supply. They have enormous reserves, but they can't reliably draw from it or refine it.
- jondubois 10y ago
  They should just lease out licenses to allow foreign companies to draw the oil themselves and use the proceeds to fix their own oil infrastructure. They have so many options to chose from to fix their economy. It seems like they don't have the will to fix anything. I wouldn't be surprised if there is some sort of corruption going on. The leaders of the country seem to be intentionally draining the money out of the country (and personally profiting from this).
  - PeterisP 10y ago
    It's not that easy to motivate foreign companies to invest lots of money, equipment and effort (opportunity cost vs using the same things in other oil fields) after you've recently nationalized their previous investment. Trust is slow to build and fast to lose, they're now facing direct consequences of their earlier actions, and a reversal would likely come only after a regime change.
  - tptacek 10y ago
    Venezuela's oil industry is nationalized.
    - AnimalMuppet 10y ago
      I think jondubois's proposal was to de-nationalize it.
      - tptacek 10y ago
        Can Venezuela's current leadership do that without altering the country's political identity? It's been clear for awhile that the Chavism experiment with oil sector management has been a failure. Is there any indication that they're going to change now?
        AnimalMuppet 10y ago
        I don't think Venezuela's current leadership can do anything useful without altering the country's political identity. But no, I see no indication that they're going to change now.
      - dragonwriter 10y ago
        Which, really, does nothing. The problem is that the country's economy is dependent on a single extracted resources for export, making it do well when prices for that resource are high and badly when they are low. Whether its privately extracted by firms paying taxes on income and leases for extraction rights or publicly extracted by the government, the same fundamental problem remains (and the same broad economic results have been seen in economies dependent on a single extracted resource all over the world, independent of the public or private nature of the extraction.)
        AnimalMuppet 10y ago
        Well, it does some. They're still dependent on a single extracted resource, and the price is still low, but they could actually produce more of it. It wouldn't be a magic fix, but it would be better than the current situation.
        dllthomas 10y ago
  - Kluny 10y ago
    Sounds like a job that needs competence, and they don't seem to have much of that in the government.
  - douche 10y ago
    Somehow I don't imagine Royal Dutch Shell will be that eager to dive in again, unless they've got some very strong assurances that the next government isn't going to just pull the rug out from under them again...
    - jondubois 10y ago
      It seems like a change of leadership would be necessary to restore trust. When you consider this, the corruption actually makes sense. The country's leaders probably know that it's just a matter of time before they are removed from power and are trying to make use that time they have left to enrich themselves personally.
      - jessaustin 10y ago
        This seems like it could explain all corruption everywhere? After all, "it's just a matter of time" for everyone.
  - SilasX 10y ago
    Except they've just created a long, immediate history of running the country like a basket case, so they have to pay an enormous premium for foreigners to come in and compensate them for the risk of reneging and re-nationalizing those leases.
  - deleted 10y ago
    [deleted]
- silvershadow 10y ago
  His question is valid. You need to mix heavy oil with light oil in order to ship it internationally. Most countries don't have plants that can directly refine heavy crude oil. So in a sense, you do need oil to make oil. Venezuela has huge amounts of heavy oil. But much less light oil. And what they have is now nowhere near enough (thanks to mismanagement and corruption) to keep up with their supply of heavy oil.
- dredmorbius 10y ago
  There's much more to it than that. 1. Not all oil is created equal. Most especially, oil has different qualities of hydrocarbon lengths (longer == heavier, more tar-like) and contaminants ("sour" == more sulfer). Light sweet is the optimum input for most transport fuel needs (petrol, kerosene/jet fuel, diesel). 2. Not all oil has the same extraction costs. In particular, Venezuela's oil has a much higher cost of extraction than Saudi Arabia's. While there's a very strong tendency to attack Venezuela for having a failed socialistic / command economy, possibly with some merits, a much more direct issue is that Venezuela benefitted from oil which in the past was easier to extract and bring to market than its offerings today, combined with a long history of extensive domestic market subsidies of basic goods, including both energy and food (which, if you think about it, both reduce to "energy). The same story has already played out in large part through the nations affected by the Arab Spring. Whilst we're not used to thinking of Egypt and Syria as large oil exporters, the truth is that they had some local oil extraction operations, enough to provide exports and some hard cash (of a useful quality: US Dollars, which had the added benefit of not affecting the value of their domestic currencies in foreign trade). Tunisia, Libya, and Yemen are also being affected by falling oil exports (the first two were where the Arab Spring originated, Yemen has had ongoing conflicts). Russia is watching its cash reserves fall, also hit by a soft market for global oil. This has some strong parallels to the fall of the Soviet Union itself, in the wake of the late 1980s oil glut, then driven by increased supply-side dynamics as North Sea and North Slope, as well as offshore Gulf of Mexico extraction came online. Saudi Arabia has the optimum product -- light sweet crude which flows (fairly) freely from the largest oilfields and most productive wells in the world. But depressed prices are hitting it as well, and its financial status has been discussed for the past year or several -- as with Venezuela, Saudi Arabia buys domestic tranquility with its oil export cash. As with much of the Gulf region, it also faces some of the most rapid population growth in the world (oil exporting states are a curious exception to the usual rule of Demographic Transition). There's another interesting situation, one I've just run across a standard economic treatment / term for -- inverted or "backward-S" supply curves. Usually applied to labour, this also seems to fit the situation of natural resources. Where market prices fall to close to the marginal cost of extraction, the tendency of suppliers, especially those with fixed costs to meet, is to increase rates of extraction. This is quite typical of oil boomtimes (Titusville, PA, Spindletop, TX, and the East Texas Oil Field most especially). In the case of the latter, oil prices in the US fell from $1/bbl to $0.13/bbl, and then further to $0.02/bbl, before the governors of Oaklahoma called out their respective national guards, and in Texas, the Rangers, to sieze wellheads at force of arms to constrain supply. The result was the implementation of US production quotas, in effect from 1932 - 1973, under the US Department of Interior and the Texas Railroad Commission. It's a fascinating bit of economic history. The size of reserves doesn't matter so much if the costs of extraction, or quality of product, aren't in your favour. Venezuela is somewhat cursed with riches, in that respect.
- dredmorbius 10y ago
  Oh, and one more point I just realised. Much of US oil extraction in recent years emphasises what are called NGL and condensate. These are very light components of oil and natural gas extraction, too light even to be used in motor fuel. There was a point where condensate was used for early automobiles, but it had a very low octane rating, meaning the engines burning it couldn't have very high compression ratios, or be very efficient. I'd have to check with a petroleum engineer, but the thought that this surplus US ultra-light not-suitable-for-fuel liquid might be helpful to mix with Venezuela's heavy extract seems at least intuitively sensible. Simply mixing light and heavy oils won't produce useful fuel, but it might help even in getting the heavy stuff (some of which really is little more than tar) to simply flow through the refining plant and distribution systems. "Cracking" of long hydrocarbon chains can produce usable lighter fuels, and is, if I understand correctly, actually a physical process of treating heavy oil with very fine sand, at high speed, to physically split longer hydrocarbon chains. Read with caution, I'm well out of my depth. ---- And: confirmation that US light crude is being imported as a dilutant for Venezuelan crude, via Reuters: http://www.reuters.com/article/us-oil-venezuela-imports-factbox-idUSKBN0IG17Q20141027 http://www.reuters.com/article/us-oil-venezuela-imports-fact...
deleted 10y ago
[deleted]
nkrisc 10y ago
Venezuela is buying crude oil (the stuff from the ground) from the United States that they will refine into other oil products to be sold.
cheald 10y ago
Venezuelan oil tends to be very heavy and needs to be mixed with light crude for refinement. It does have its own light reserves, but they've driven the oil industry into the ground and are unable to produce enough light crude to refine their heavy crude production.
- riphay 10y ago
  Mostly this is a question of transportation. You can't put heavy crude in a pipeline or on a tanker until it's been diluted with lighter hydrocarbons like condensate.
- dghughes 10y ago
  I think very heavy is an understatement you could probably call it soft pitch. Alberta tar sands is similar, thick crude oil mixed with sand, but I don't think it's anywhere near as thick as the oil in Venezuela.
  - Animats 10y ago
    What comes out of the Alberta tar sands is basically asphalt. It has to go through an "upgrader" before it can go into a pipeline. This is an "upgrader"[1] [1] http://jirirezac.photoshelter.com/image/I0000y08u1qUWSHA http://jirirezac.photoshelter.com/image/I0000y08u1qUWSHA
beachstartup 10y ago
http://canaryusa.com/crude-oil-refinery-primer/ http://canaryusa.com/crude-oil-refinery-primer/ chart indicates venezuela produces mainly heavy crude oil, which isn't as good for making gasoline, which i'm guessing is used pretty extensively to make and ship petroleum products from heavy oil.
deleted 10y ago
[deleted]
phonon 10y ago
"But the oil extracted in Venezuela is very heavy and hard to refine and then sell to other countries. Venezuela needs to first mix its heavy oil with lighter types of crude to balance out the quality, according to Nilofar Saidi, an oil market analyst at ClipperData." http://money.cnn.com/2016/02/03/news/economy/venezuela-imports-american-oil/ http://money.cnn.com/2016/02/03/news/economy/venezuela-impor...
ciroduran 10y ago
Also, consider that gasoline for cars and electricity have been heavily subsidised for a good number of years, this has caused oil demand to be always high.
jfoutz 10y ago
I think it's more like, the current economy needs X barrels to function. Because the people who control the oil fields have been lax in maintenance, they're now producing X - 50,000 barrels. They could produce much greater than X, but the current system is crufty and broken. It's the opposite of a bootstrapping problem. Consider running microservices. you need logging, monitoring, continuous deployment, all kinds of very specialized stuff. Now, your resources decline dramatically, and your paging system doesn't work anymore. You've grown beyond the point that it can be handled manually, what do you do? Software is kind of a goofy example, because those kinds of problems can be fixed fairly quickly. A better example might be AWS increases it's prices x100, and there are no alternatives. It's going to take a while to buy servers, internet access, find a place for them to live, and move everything over. In the real world, equipment is expensive. If you let the billion dollar pipeline (or whatever) decay, you can't just whip up another pipeline on Wednesday. It takes months or years to restore that service.

tptacek 10y ago

This is addressed in the article: the oil industry in Venezuela is in disarray, so the country can't rely on its own supply. They have enormous reserves, but they can't reliably draw from it or refine it.

jondubois 10y ago
They should just lease out licenses to allow foreign companies to draw the oil themselves and use the proceeds to fix their own oil infrastructure. They have so many options to chose from to fix their economy. It seems like they don't have the will to fix anything. I wouldn't be surprised if there is some sort of corruption going on. The leaders of the country seem to be intentionally draining the money out of the country (and personally profiting from this).
- PeterisP 10y ago
  It's not that easy to motivate foreign companies to invest lots of money, equipment and effort (opportunity cost vs using the same things in other oil fields) after you've recently nationalized their previous investment. Trust is slow to build and fast to lose, they're now facing direct consequences of their earlier actions, and a reversal would likely come only after a regime change.
- tptacek 10y ago
  Venezuela's oil industry is nationalized.
  - AnimalMuppet 10y ago
    I think jondubois's proposal was to de-nationalize it.
    - tptacek 10y ago
      Can Venezuela's current leadership do that without altering the country's political identity? It's been clear for awhile that the Chavism experiment with oil sector management has been a failure. Is there any indication that they're going to change now?
      - AnimalMuppet 10y ago
        I don't think Venezuela's current leadership can do anything useful without altering the country's political identity. But no, I see no indication that they're going to change now.
    - dragonwriter 10y ago
      Which, really, does nothing. The problem is that the country's economy is dependent on a single extracted resources for export, making it do well when prices for that resource are high and badly when they are low. Whether its privately extracted by firms paying taxes on income and leases for extraction rights or publicly extracted by the government, the same fundamental problem remains (and the same broad economic results have been seen in economies dependent on a single extracted resource all over the world, independent of the public or private nature of the extraction.)
      - AnimalMuppet 10y ago
        Well, it does some. They're still dependent on a single extracted resource, and the price is still low, but they could actually produce more of it. It wouldn't be a magic fix, but it would be better than the current situation.
        dllthomas 10y ago
- Kluny 10y ago
  Sounds like a job that needs competence, and they don't seem to have much of that in the government.
- douche 10y ago
  Somehow I don't imagine Royal Dutch Shell will be that eager to dive in again, unless they've got some very strong assurances that the next government isn't going to just pull the rug out from under them again...
  - jondubois 10y ago
    It seems like a change of leadership would be necessary to restore trust. When you consider this, the corruption actually makes sense. The country's leaders probably know that it's just a matter of time before they are removed from power and are trying to make use that time they have left to enrich themselves personally.
    - jessaustin 10y ago
      This seems like it could explain all corruption everywhere? After all, "it's just a matter of time" for everyone.
- SilasX 10y ago
  Except they've just created a long, immediate history of running the country like a basket case, so they have to pay an enormous premium for foreigners to come in and compensate them for the risk of reneging and re-nationalizing those leases.
- deleted 10y ago
  [deleted]
silvershadow 10y ago
His question is valid. You need to mix heavy oil with light oil in order to ship it internationally. Most countries don't have plants that can directly refine heavy crude oil. So in a sense, you do need oil to make oil. Venezuela has huge amounts of heavy oil. But much less light oil. And what they have is now nowhere near enough (thanks to mismanagement and corruption) to keep up with their supply of heavy oil.
dredmorbius 10y ago
There's much more to it than that. 1. Not all oil is created equal. Most especially, oil has different qualities of hydrocarbon lengths (longer == heavier, more tar-like) and contaminants ("sour" == more sulfer). Light sweet is the optimum input for most transport fuel needs (petrol, kerosene/jet fuel, diesel). 2. Not all oil has the same extraction costs. In particular, Venezuela's oil has a much higher cost of extraction than Saudi Arabia's. While there's a very strong tendency to attack Venezuela for having a failed socialistic / command economy, possibly with some merits, a much more direct issue is that Venezuela benefitted from oil which in the past was easier to extract and bring to market than its offerings today, combined with a long history of extensive domestic market subsidies of basic goods, including both energy and food (which, if you think about it, both reduce to "energy). The same story has already played out in large part through the nations affected by the Arab Spring. Whilst we're not used to thinking of Egypt and Syria as large oil exporters, the truth is that they had some local oil extraction operations, enough to provide exports and some hard cash (of a useful quality: US Dollars, which had the added benefit of not affecting the value of their domestic currencies in foreign trade). Tunisia, Libya, and Yemen are also being affected by falling oil exports (the first two were where the Arab Spring originated, Yemen has had ongoing conflicts). Russia is watching its cash reserves fall, also hit by a soft market for global oil. This has some strong parallels to the fall of the Soviet Union itself, in the wake of the late 1980s oil glut, then driven by increased supply-side dynamics as North Sea and North Slope, as well as offshore Gulf of Mexico extraction came online. Saudi Arabia has the optimum product -- light sweet crude which flows (fairly) freely from the largest oilfields and most productive wells in the world. But depressed prices are hitting it as well, and its financial status has been discussed for the past year or several -- as with Venezuela, Saudi Arabia buys domestic tranquility with its oil export cash. As with much of the Gulf region, it also faces some of the most rapid population growth in the world (oil exporting states are a curious exception to the usual rule of Demographic Transition). There's another interesting situation, one I've just run across a standard economic treatment / term for -- inverted or "backward-S" supply curves. Usually applied to labour, this also seems to fit the situation of natural resources. Where market prices fall to close to the marginal cost of extraction, the tendency of suppliers, especially those with fixed costs to meet, is to increase rates of extraction. This is quite typical of oil boomtimes (Titusville, PA, Spindletop, TX, and the East Texas Oil Field most especially). In the case of the latter, oil prices in the US fell from $1/bbl to $0.13/bbl, and then further to $0.02/bbl, before the governors of Oaklahoma called out their respective national guards, and in Texas, the Rangers, to sieze wellheads at force of arms to constrain supply. The result was the implementation of US production quotas, in effect from 1932 - 1973, under the US Department of Interior and the Texas Railroad Commission. It's a fascinating bit of economic history. The size of reserves doesn't matter so much if the costs of extraction, or quality of product, aren't in your favour. Venezuela is somewhat cursed with riches, in that respect.
dredmorbius 10y ago
Oh, and one more point I just realised. Much of US oil extraction in recent years emphasises what are called NGL and condensate. These are very light components of oil and natural gas extraction, too light even to be used in motor fuel. There was a point where condensate was used for early automobiles, but it had a very low octane rating, meaning the engines burning it couldn't have very high compression ratios, or be very efficient. I'd have to check with a petroleum engineer, but the thought that this surplus US ultra-light not-suitable-for-fuel liquid might be helpful to mix with Venezuela's heavy extract seems at least intuitively sensible. Simply mixing light and heavy oils won't produce useful fuel, but it might help even in getting the heavy stuff (some of which really is little more than tar) to simply flow through the refining plant and distribution systems. "Cracking" of long hydrocarbon chains can produce usable lighter fuels, and is, if I understand correctly, actually a physical process of treating heavy oil with very fine sand, at high speed, to physically split longer hydrocarbon chains. Read with caution, I'm well out of my depth. ---- And: confirmation that US light crude is being imported as a dilutant for Venezuelan crude, via Reuters: http://www.reuters.com/article/us-oil-venezuela-imports-factbox-idUSKBN0IG17Q20141027 http://www.reuters.com/article/us-oil-venezuela-imports-fact...

deleted 10y ago

[deleted]

nkrisc 10y ago

Venezuela is buying crude oil (the stuff from the ground) from the United States that they will refine into other oil products to be sold.

cheald 10y ago

Venezuelan oil tends to be very heavy and needs to be mixed with light crude for refinement. It does have its own light reserves, but they've driven the oil industry into the ground and are unable to produce enough light crude to refine their heavy crude production.

riphay 10y ago
Mostly this is a question of transportation. You can't put heavy crude in a pipeline or on a tanker until it's been diluted with lighter hydrocarbons like condensate.
dghughes 10y ago
I think very heavy is an understatement you could probably call it soft pitch. Alberta tar sands is similar, thick crude oil mixed with sand, but I don't think it's anywhere near as thick as the oil in Venezuela.
- Animats 10y ago
  What comes out of the Alberta tar sands is basically asphalt. It has to go through an "upgrader" before it can go into a pipeline. This is an "upgrader"[1] [1] http://jirirezac.photoshelter.com/image/I0000y08u1qUWSHA http://jirirezac.photoshelter.com/image/I0000y08u1qUWSHA

beachstartup 10y ago

http://canaryusa.com/crude-oil-refinery-primer/ http://canaryusa.com/crude-oil-refinery-primer/ chart indicates venezuela produces mainly heavy crude oil, which isn't as good for making gasoline, which i'm guessing is used pretty extensively to make and ship petroleum products from heavy oil.

deleted 10y ago

[deleted]

phonon 10y ago

"But the oil extracted in Venezuela is very heavy and hard to refine and then sell to other countries. Venezuela needs to first mix its heavy oil with lighter types of crude to balance out the quality, according to Nilofar Saidi, an oil market analyst at ClipperData." http://money.cnn.com/2016/02/03/news/economy/venezuela-imports-american-oil/ http://money.cnn.com/2016/02/03/news/economy/venezuela-impor...

ciroduran 10y ago

Also, consider that gasoline for cars and electricity have been heavily subsidised for a good number of years, this has caused oil demand to be always high.

jfoutz 10y ago

I think it's more like, the current economy needs X barrels to function. Because the people who control the oil fields have been lax in maintenance, they're now producing X - 50,000 barrels. They could produce much greater than X, but the current system is crufty and broken. It's the opposite of a bootstrapping problem. Consider running microservices. you need logging, monitoring, continuous deployment, all kinds of very specialized stuff. Now, your resources decline dramatically, and your paging system doesn't work anymore. You've grown beyond the point that it can be handled manually, what do you do? Software is kind of a goofy example, because those kinds of problems can be fixed fairly quickly. A better example might be AWS increases it's prices x100, and there are no alternatives. It's going to take a while to buy servers, internet access, find a place for them to live, and move everything over. In the real world, equipment is expensive. If you let the billion dollar pipeline (or whatever) decay, you can't just whip up another pipeline on Wednesday. It takes months or years to restore that service.