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Im not sure what it means that Venezuela is failing because of 'end stage oil' rather then socialism. Does Venezuela not have tons of oil reserves? If they fail

by nickik 10y ago

Im not sure what it means that Venezuela is failing because of 'end stage oil' rather then socialism. Does Venezuela not have tons of oil reserves? If they fail to develop these and all the other resources then that clearly because of bad policy stemming from at least a nominal socialist agenda.

dredmorbius 10y ago
That's partially addressed in the comment I'd linked to above from an earlier post. Not all oil is equal. The single-strike wells of the Persian Gulf which poured fourth 70,000 barrels of oil per day of light sweet crude, and are still producing nearly a century later (see the First Oil Well of Bahrain for example) are quite different from the lower-grade, hard-to-pump crude Venezuela has, or the production profile of a hydrofracked well. Put simply, you want to consider the net costs of production, including the energy costs of production (EROEI -- energy returned on energy input) which are considerable for Venzuela. Also, incidentally, for the "largest ever" onshore US discovery of Texas shale oil announced a week or so back. For Texas, the average per-well extraction is 20 barrels/day. These low-production wells are known as "stripper wells", and operators will literally turn on and off the pumps in response to the price of oil if it exceeds their ongoing production costs -- fuel or electricity for the pump jack, plus depreciation. http://oilpro.com/q/1775/many-barrels-oil-does-well-produce-daily-texas http://oilpro.com/q/1775/many-barrels-oil-does-well-produce-... I don't have a per-well production statistic for Venezuela, though national production has held steady at about 2.5 mbpd since 2004. http://www.indexmundi.com/energy/?country=ve&product=oil&graph=production http://www.indexmundi.com/energy/?country=ve&product=oil&gra... There are a few end-run oil exporter scenarios. One, the "export land model" by Jeffrey Brown looks at the total domestic consumption of exporting countries, and sees a tipping point where domestic demand accounts for all production. There's another scenario, in which the total financial accounts of an exporter are taken into account. Here, the problem is that when the global oil price falls below the costs of production in a country, it literally cannot afford to pump oil from the ground, and finds itself deprived of foreign cash flows. The classic case of this is the Soviet Union in the 1980s. Having based its national budget on the high price of oil in the 1970s, it was caught in the double bind of large flows of new fields (North Sea and Alaskan North Slope), as well as a plummeting global oil price with the 1980s supply glut. As much as anything, Saudi Arabia defeated the Soviet Union. That story's been played out in several Arabian states, including Egypt and Syria (both minor oil producers), Yemen, Lybia, Tunisia, and, yes, Venezuela. Texas, North Dakota, and Alberta, Canada are all running into the problem of development predicated on $100/bbl oil in a world of $45/bbl WTI. I don't care what your governmental or economic system is. If you're basing your economy on massive sales of extractive resources and the price falls out from under you, you're sunk. Saudi Arabia has been making very interesting noises about its finances for the past few years. Keep in mind that KSA are essentially a family-run state / business. The House of Saud runs the country and owns the country's largest company, Saudi Aramco, accounting for over half the country's GDP. I'm not sure exactly what you'd call a state in which a single unitary power bloc controls the major economic unit, but it doesn't strike me as terribly democratic-market-capitalist. I've also poked around the Heritage Foundation's Index of Economic Freedom and measures of per-capita wealth, to find some interesting bits. Dig around https://dredmorbius.reddit.com https://dredmorbius.reddit.com for more on that. Again: the heated rhetoric tends to cloud more than clarify understanding of what's going on here. I say that without either defending or denegrating Venezuela. I'm simply interested in understanding it. http://www.ibtimes.com/saudi-arabias-2016-budget-creates-new-normal-only-part-solution-economic-crisis-2246638 http://www.ibtimes.com/saudi-arabias-2016-budget-creates-new...
- aclsid 10y ago
  But actually Venezuela is one of the countries where at this price level, production is still profitable. Check this link out, where they explain the concept in detail: http://www.bbc.com/news/business-29643612 http://www.bbc.com/news/business-29643612 If Venezuela were to adopt a model like Norway for instance, where all oil income goes to a sovereign fund and it is not to be touched for anything other than building infrastructure, I can bet that the economy would be in good shape. And the reason is simple, people and the govt included, would have to learn to live by their own means.
- nickik 10y ago
  I am pretty sure well run oil company could still operate profitable in Venezuela. It is no Saudi Arabia that is for sure, but I still think you can not blame all the problems on just oil export prices. I would agree that Saudi Arabia is not democratic or all that capitalist. Socialist don't have a monopoly on bad government. How well a country is set up you can see what happens when their main export tanks, Venezuela was clearly terrible and instead of reacting and adjusting, they started looting the big companies, enforce exchange controls, escalated inflation and did many other idiot things that hurt the country badly. We don't know yet how the Saudis will deal with this if it ever comes to that.
topspin 10y ago
>> because of bad policy stemming from at least a nominal socialist agenda The oil price cop-out is one of the go to excuses for Venezuela. Another common one is the death of Chavez. Both are debunked by the fact that the current problems are nothing more than a worsening of problems that began [1] before either Chavez's death or the oil price drop. Venezuela is nothing more than the natural progression of extreme leftist government. [1] http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html http://www.nytimes.com/2012/04/21/world/americas/venezuela-f... (at the time of that story -- April 2012 -- oil was above $100/bbl)

by nickik 10y ago

dredmorbius 10y ago

That's partially addressed in the comment I'd linked to above from an earlier post. Not all oil is equal. The single-strike wells of the Persian Gulf which poured fourth 70,000 barrels of oil per day of light sweet crude, and are still producing nearly a century later (see the First Oil Well of Bahrain for example) are quite different from the lower-grade, hard-to-pump crude Venezuela has, or the production profile of a hydrofracked well. Put simply, you want to consider the net costs of production, including the energy costs of production (EROEI -- energy returned on energy input) which are considerable for Venzuela. Also, incidentally, for the "largest ever" onshore US discovery of Texas shale oil announced a week or so back. For Texas, the average per-well extraction is 20 barrels/day. These low-production wells are known as "stripper wells", and operators will literally turn on and off the pumps in response to the price of oil if it exceeds their ongoing production costs -- fuel or electricity for the pump jack, plus depreciation. http://oilpro.com/q/1775/many-barrels-oil-does-well-produce-daily-texas http://oilpro.com/q/1775/many-barrels-oil-does-well-produce-... I don't have a per-well production statistic for Venezuela, though national production has held steady at about 2.5 mbpd since 2004. http://www.indexmundi.com/energy/?country=ve&product=oil&graph=production http://www.indexmundi.com/energy/?country=ve&product=oil&gra... There are a few end-run oil exporter scenarios. One, the "export land model" by Jeffrey Brown looks at the total domestic consumption of exporting countries, and sees a tipping point where domestic demand accounts for all production. There's another scenario, in which the total financial accounts of an exporter are taken into account. Here, the problem is that when the global oil price falls below the costs of production in a country, it literally cannot afford to pump oil from the ground, and finds itself deprived of foreign cash flows. The classic case of this is the Soviet Union in the 1980s. Having based its national budget on the high price of oil in the 1970s, it was caught in the double bind of large flows of new fields (North Sea and Alaskan North Slope), as well as a plummeting global oil price with the 1980s supply glut. As much as anything, Saudi Arabia defeated the Soviet Union. That story's been played out in several Arabian states, including Egypt and Syria (both minor oil producers), Yemen, Lybia, Tunisia, and, yes, Venezuela. Texas, North Dakota, and Alberta, Canada are all running into the problem of development predicated on $100/bbl oil in a world of $45/bbl WTI. I don't care what your governmental or economic system is. If you're basing your economy on massive sales of extractive resources and the price falls out from under you, you're sunk. Saudi Arabia has been making very interesting noises about its finances for the past few years. Keep in mind that KSA are essentially a family-run state / business. The House of Saud runs the country and owns the country's largest company, Saudi Aramco, accounting for over half the country's GDP. I'm not sure exactly what you'd call a state in which a single unitary power bloc controls the major economic unit, but it doesn't strike me as terribly democratic-market-capitalist. I've also poked around the Heritage Foundation's Index of Economic Freedom and measures of per-capita wealth, to find some interesting bits. Dig around https://dredmorbius.reddit.com https://dredmorbius.reddit.com for more on that. Again: the heated rhetoric tends to cloud more than clarify understanding of what's going on here. I say that without either defending or denegrating Venezuela. I'm simply interested in understanding it. http://www.ibtimes.com/saudi-arabias-2016-budget-creates-new-normal-only-part-solution-economic-crisis-2246638 http://www.ibtimes.com/saudi-arabias-2016-budget-creates-new...

aclsid 10y ago
But actually Venezuela is one of the countries where at this price level, production is still profitable. Check this link out, where they explain the concept in detail: http://www.bbc.com/news/business-29643612 http://www.bbc.com/news/business-29643612 If Venezuela were to adopt a model like Norway for instance, where all oil income goes to a sovereign fund and it is not to be touched for anything other than building infrastructure, I can bet that the economy would be in good shape. And the reason is simple, people and the govt included, would have to learn to live by their own means.
nickik 10y ago
I am pretty sure well run oil company could still operate profitable in Venezuela. It is no Saudi Arabia that is for sure, but I still think you can not blame all the problems on just oil export prices. I would agree that Saudi Arabia is not democratic or all that capitalist. Socialist don't have a monopoly on bad government. How well a country is set up you can see what happens when their main export tanks, Venezuela was clearly terrible and instead of reacting and adjusting, they started looting the big companies, enforce exchange controls, escalated inflation and did many other idiot things that hurt the country badly. We don't know yet how the Saudis will deal with this if it ever comes to that.

topspin 10y ago

>> because of bad policy stemming from at least a nominal socialist agenda The oil price cop-out is one of the go to excuses for Venezuela. Another common one is the death of Chavez. Both are debunked by the fact that the current problems are nothing more than a worsening of problems that began [1] before either Chavez's death or the oil price drop. Venezuela is nothing more than the natural progression of extreme leftist government. [1] http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html http://www.nytimes.com/2012/04/21/world/americas/venezuela-f... (at the time of that story -- April 2012 -- oil was above $100/bbl)