6 ms·

Venezuela oil industry is literally falling apart, the real amount of oil they could produce with lifted sanctions doesn't make much of a dent in global demand.

Venezuela oil industry is literally falling apart, the real amount of oil they could produce with lifted sanctions doesn't make much of a dent in global demand. Oil markets are pretty tight to begin with- they're finely tuned to react to even marginal shifts in supply/demand. Have massive changes like the lockdowns or turn off a major supplier, you see equally massive swings in price, backwardation/contango levels, etc.

jessaustin 5y ago
Their equipment is in bad shape because sanctions have prevented them from buying supplies, parts, tools, and services. When they're able to purchase those (which could be soon [0]), the equipment will be fixed. All it took to get rid of sanctions on a nation that has never harmed or threatened anyone was for one of their competitors in the petroleum market to invade another nation... [0] https://www.wsj.com/articles/u-s-officials-meet-with-regime-in-venezuela-to-discuss-oil-exports-to-replace-russias-11646591752 https://www.wsj.com/articles/u-s-officials-meet-with-regime-...
- zubiaur 5y ago
  Industry sanctions started in 2018. Their production had been declining since 2014. It's not just an issue of equipment. Its also a brain drain, corruption, lack of a functional justice system, legal guarantees, property rights... Competent Venezuelan oil professionals have been fleeing the country and can be found in Colombia, Brazil, and other oil producing countries farther away. The Venezuelan regime is far, far from being harmless and nonthreatening, their human violations are numerous and nobody is suffering the consequences of their actions more than Venezuelans themselves. I've seen the plight of their people on the immigrants who fled to my own country. Even their own PDVSA stars don't drink the Kool-aid... It was sad to share a table with disillusioned young, bright, venezuelan engineers at the SPE Latin America Heavy and Extra Heavy Oil Conference, so ask me how I know...
  - jessaustin 5y ago
    Sanctions on PDVSA started in 2014. Sanctions that effectively limited the import of medical supplies started in 2015. [0] The Venezuelan emigrants you see in your nation are fleeing the depression caused by those sanctions. After that stops, many of them will return to Venezuela. [0] https://www.telesurenglish.net/news/Timeline-of-Half-a-Decade-of-US-Economic-War-Against-Venezuela-20190521-0011.html https://www.telesurenglish.net/news/Timeline-of-Half-a-Decad...
    - zubiaur 5y ago
      That timeline grossly misrepresents the nature of the sanctions and is nothing more that a hit piece by a propaganda arm of the Venezuelan government. There is no freedom of press in Venezuela. Their take on law 113-278 is blatantly false. https://www.govinfo.gov/content/pkg/PLAW-113publ278/pdf/PLAW-113publ278.pdf https://www.govinfo.gov/content/pkg/PLAW-113publ278/pdf/PLAW... Venezuelan sanctions targeting PDVSA sanctions start in EO 13808. https://home.treasury.gov/system/files/126/13808.pdf https://home.treasury.gov/system/files/126/13808.pdf The immigrants I see in my country are fleeing a dictatorship.
zubiaur 5y ago
Absolutely! Venezuela's oil (or any) industry is not viable. And you are absolutely right. Oil markets are incredibly inelastic in the short run. Think about your individual energy consumption. I assume you have to drive and heat your house, and how much you drive, and weather you heat up your house, does not, in the short run, vary much weather gas is 2 dollars or 3. Many many people behave the same way, thus we deem demand to be inelastic. Something similar happens on the supply side. Oil projects are incredibly capital intensive, sometimes taking years to come online. Thus oil companies, in the short term, can only extract so much oil from the ground, regardless of the price. A supply or demand shock, that is, displacement of either curve to the right or left, leads to a much larger change of the clearing price.
- peytoncasper 5y ago
  I'm genuinely curious about this, because it sounds like you have some first hand experience. My understanding is that this is not entirely true. Capital intensive projects like Refineries, Storage and Shipment are inelastic, but actual drilling is relatively elastic. To the point where they leave wells sitting, pre-drilled ready to turn on in the event that they become profitable at some point. I'm assuming there is also excess capacity available in the inelastic parts of the system given that a lot of these infrastructure was built during times when the US was a larger extractor of oil.
  - zubiaur 5y ago
    Like many things, it depends. I think the pre-drilled thing was an artifact of relatively cheap money coupled to low oil prices. Some sort of underground contango hold. I remember this was a thing around 2015, when oil prices were below 50 dollars. The thing is, those wells were not ready to go, they needed to be completed (the process of perforating the casing to have contact with the formation) and fracked. I don’t know if we have a significant backlog of uncompleted wells anymore. Wells vary much depending on the reservoir. For the most part, easy oil has already been tapped. There are still some places with low geological risk, in the Middle East, Venezuela, and such. A driller friend of mine in the Middle East was drilling a well a month, so there is that. This is why, every time there is a disruption, one hears discussion about OPEC’s spare capacity. But even then, before the drilling actually happens, there needs to be a well design, and studies done on how better to drain a reservoir to maximize recovery. All that also takes time. And all that assumes that these companies operate on fields that are already discovered. Fields have a production curve, the area under the curve is the recovered oil. They all, at the end, decline. Doing a full field development can take decades after discovery, and discovery can take years too. From prospection, to seismic, to the drilling of wildcat and delimiting wells. Moreover, investment in exploration has declined, and more and more new discoveries are in remote places, needing great investments in infrastructure. A potential stopgap could be the adoption of fracking in places like Europe, but it is banned over there. It baffles me. The simple exercise of calculating the enthalpy of combustion of methane vs carbon (coal) makes it incredibly obvious that natural gas is a much better fuel from a carbon emitting perspective, and this is without accounting for the efficiencies of combined cycle vs steam cycle.

jessaustin 5y ago

Their equipment is in bad shape because sanctions have prevented them from buying supplies, parts, tools, and services. When they're able to purchase those (which could be soon [0]), the equipment will be fixed. All it took to get rid of sanctions on a nation that has never harmed or threatened anyone was for one of their competitors in the petroleum market to invade another nation... [0] https://www.wsj.com/articles/u-s-officials-meet-with-regime-in-venezuela-to-discuss-oil-exports-to-replace-russias-11646591752 https://www.wsj.com/articles/u-s-officials-meet-with-regime-...

zubiaur 5y ago
Industry sanctions started in 2018. Their production had been declining since 2014. It's not just an issue of equipment. Its also a brain drain, corruption, lack of a functional justice system, legal guarantees, property rights... Competent Venezuelan oil professionals have been fleeing the country and can be found in Colombia, Brazil, and other oil producing countries farther away. The Venezuelan regime is far, far from being harmless and nonthreatening, their human violations are numerous and nobody is suffering the consequences of their actions more than Venezuelans themselves. I've seen the plight of their people on the immigrants who fled to my own country. Even their own PDVSA stars don't drink the Kool-aid... It was sad to share a table with disillusioned young, bright, venezuelan engineers at the SPE Latin America Heavy and Extra Heavy Oil Conference, so ask me how I know...
- jessaustin 5y ago
  Sanctions on PDVSA started in 2014. Sanctions that effectively limited the import of medical supplies started in 2015. [0] The Venezuelan emigrants you see in your nation are fleeing the depression caused by those sanctions. After that stops, many of them will return to Venezuela. [0] https://www.telesurenglish.net/news/Timeline-of-Half-a-Decade-of-US-Economic-War-Against-Venezuela-20190521-0011.html https://www.telesurenglish.net/news/Timeline-of-Half-a-Decad...
  - zubiaur 5y ago
    That timeline grossly misrepresents the nature of the sanctions and is nothing more that a hit piece by a propaganda arm of the Venezuelan government. There is no freedom of press in Venezuela. Their take on law 113-278 is blatantly false. https://www.govinfo.gov/content/pkg/PLAW-113publ278/pdf/PLAW-113publ278.pdf https://www.govinfo.gov/content/pkg/PLAW-113publ278/pdf/PLAW... Venezuelan sanctions targeting PDVSA sanctions start in EO 13808. https://home.treasury.gov/system/files/126/13808.pdf https://home.treasury.gov/system/files/126/13808.pdf The immigrants I see in my country are fleeing a dictatorship.

zubiaur 5y ago

Absolutely! Venezuela's oil (or any) industry is not viable. And you are absolutely right. Oil markets are incredibly inelastic in the short run. Think about your individual energy consumption. I assume you have to drive and heat your house, and how much you drive, and weather you heat up your house, does not, in the short run, vary much weather gas is 2 dollars or 3. Many many people behave the same way, thus we deem demand to be inelastic. Something similar happens on the supply side. Oil projects are incredibly capital intensive, sometimes taking years to come online. Thus oil companies, in the short term, can only extract so much oil from the ground, regardless of the price. A supply or demand shock, that is, displacement of either curve to the right or left, leads to a much larger change of the clearing price.

peytoncasper 5y ago
I'm genuinely curious about this, because it sounds like you have some first hand experience. My understanding is that this is not entirely true. Capital intensive projects like Refineries, Storage and Shipment are inelastic, but actual drilling is relatively elastic. To the point where they leave wells sitting, pre-drilled ready to turn on in the event that they become profitable at some point. I'm assuming there is also excess capacity available in the inelastic parts of the system given that a lot of these infrastructure was built during times when the US was a larger extractor of oil.
- zubiaur 5y ago
  Like many things, it depends. I think the pre-drilled thing was an artifact of relatively cheap money coupled to low oil prices. Some sort of underground contango hold. I remember this was a thing around 2015, when oil prices were below 50 dollars. The thing is, those wells were not ready to go, they needed to be completed (the process of perforating the casing to have contact with the formation) and fracked. I don’t know if we have a significant backlog of uncompleted wells anymore. Wells vary much depending on the reservoir. For the most part, easy oil has already been tapped. There are still some places with low geological risk, in the Middle East, Venezuela, and such. A driller friend of mine in the Middle East was drilling a well a month, so there is that. This is why, every time there is a disruption, one hears discussion about OPEC’s spare capacity. But even then, before the drilling actually happens, there needs to be a well design, and studies done on how better to drain a reservoir to maximize recovery. All that also takes time. And all that assumes that these companies operate on fields that are already discovered. Fields have a production curve, the area under the curve is the recovered oil. They all, at the end, decline. Doing a full field development can take decades after discovery, and discovery can take years too. From prospection, to seismic, to the drilling of wildcat and delimiting wells. Moreover, investment in exploration has declined, and more and more new discoveries are in remote places, needing great investments in infrastructure. A potential stopgap could be the adoption of fracking in places like Europe, but it is banned over there. It baffles me. The simple exercise of calculating the enthalpy of combustion of methane vs carbon (coal) makes it incredibly obvious that natural gas is a much better fuel from a carbon emitting perspective, and this is without accounting for the efficiencies of combined cycle vs steam cycle.