Crude Talk: US and Venezuela Dance
First published May 28 2004, revised June 11 2004
[After several failed efforts to unseat Venezuela's popular President Hugo Chavez, the fuel sector of corporate America is getting nervous. Venezuela is growing in prosperity, relying on its own mineral resources and technological patents to build new wealth. Chavez is exactly the kind of indigenous national leader whom American power can't tolerate. Arbenz, Mossadegh, Allende, and the other names on that too-familiar list were deposed for the crime of using their countries' own resources to enrich the general population. More recently, Aristide moved a few inches in that direction and found himself miles from home. Even as Venezuela consolidates its position on the global oil chessboard, American law-and-order rhetoric is less and less credible. The old script goes like this: U.S. corporations expropriate third world wealth; a democratic leader then nationalizes that wealth; the US then cries "property rights!" and invades said country in the name of international law. But Iraq is tearing that script to shreds at every point, and the Venezuela story is unfolding in what may prove to be a new narrative for the world --- or a particularly bitter replay of the old one. --JAH]
In spite of a robust and energetic press conference held recently in New York, which was wide open to the public, a spokesman for Venezuela's President Hugo Chavez reiterated Chavez's promise that he would cut off crude oil supplies from the US's 3rd largest producer in the event of any US-sponsored attempts to destabilize his government.
This comes on the heels of serious oil trade talks between Venezuela and China. What is provoking Chavez is an ongoing US campaign to get rid of him by supporting those in the Venezuelan opposition who are demanding his recall from office (3.76 million votes are needed to unseat him in the August referendum). It is a dance of arrogance on the part of the US, considering the devalued dollar and China's thirst for oil.
China already has supply contracts for Venezuelan crude and other petroleum products and may be waiting for just such a rift to replace the US as Venezuela's favorite customer. Its imports of crude, fuel oil and diesel oil have dramatically increased this year -- 60%, 90% and 33%, respectively -- while exports of gasoline are down 43%.
So it was a charged conference room on May 19 as Dr. Ali Rodriguez Araque, President and CEO of Petroleos de Venezuela S.A., Venezuela's state-run oil company, opened the discussion. A graceful and eloquent man, Rodriguez brings to PDVSA his impressive credentials from the world petroleum stage, having served as President and Secretary General of OPEC (2000, 2001). Prior to this, Rodriguez was Venezuela's Minister of Energy and Mines. In 1997, he published a key paper on privatization of the Venezuelan oil industry.
Rodriguez was joined on the panel by Luis E. Marin, CEO of Citgo Petroleum, America's 3rd largest refiner of oil -- a wholly-owned subsidiary of PDVSA -- and PDVSA VPs Ivan Hernandez (Refining) and Jose Alejandro Rojas (Finance).
The oil trade publications were packed in tightly at the Regency Hotel with an aggressive team from Platts most vocal. Energy Intelligence Group, Dow and Reuters also made their presence known in the questioning. Yet, at a time of maximum national concern about price and supply of oil – the international media were visibly missing, as were the major New York dailies.
There was also an absence of US dignitaries. Unlike the Saudi Arabian oil conference at New York's Waldorf-Astoria a few weeks earlier, there were no former US ambassadors wearing expensive gold watches. No delegation from the Council on Foreign Relations. No Frank Wisner – even though reinsurer AIG recently visited western Venezuela's natural gas facilities and gave PDVSA a thumbs-up high degree of security index.
Rodriguez began by focusing on remarks he'd made at the Harvard Club luncheon earlier in the day, citing Venezuela's crude oil reserves at 78 billion barrels, heavy crude and extra-heavy crude from the Orinoco Belt at 235 billion barrels, and 148 trillion cubic feet of proven natural gas reserves – the largest in the Western Hemisphere. There have also been important discoveries of crude and natural gas in eastern Venezuela, which PDVSA cites at "several billion barrels of low-sulfur, light crude".
Dr. Rodriguez said the country had recovered from the strike and sabotage in December 2002 and January 2003, which virtually shut down oil production -- from 2.9 m/b/d to a trickle of 25,000 b/d -- and that production was now at 2.6 m/b/d (some barrels sourced from foreign contractors). Rodriguez noted PDVSA sales in 2003 were $46 billion with a net profit of $3.8 billion and that the 2004-2009 business plan is to increase production to 5 m/b/d. Rodriguez also cited Venezuela's 22 refinery projects.
Particularly significant is PDVSA's ownership of Citgo, which makes Venezuela an important player in the US economy. Citgo says it has $12 billion invested in US refineries, terminals and pipelines and employs 2,400 (indirectly 150,000). The Chavez administration has threatened to nationalize US assets in Venezuela should the US take any action against Citgo.
Rodriguez said Venezuela has joint ventures with Amerada Hess and ExxonMobil in refineries in the Virgin Islands and Louisiana. He also noted that ExxonMobil, ChevronTexaco and ConocoPhillips, as well as a number of European oil companies, are invested in Venezuela's oil industry, and that PDVSA is about to offer seven offshore natural gas exploration blocks in western Venezuela (bidding in June). Also, Venezuela has now authorized Shell gas liquification for export to the US.
Luis Marin advised that Citgo, a marketer of fuels, lubricants and petrochemicals, operates 13,500 gas outlets in America with 50 terminals between the Gulf of Mexico, New York and Chicago. Marin also indicated they're about to increase the operating capacity at the company's Lake Charles, Louisiana refinery to 425,000 b/p/d (to the delight of environmentalists), and that Citgo has two other US refineries --in Corpus Christi, Texas and Lemont, Illinois. He cited Citgo's 14 safety awards from NPRA (National Petrochemical & Refiners Association).
Refining was a topic of conversation at the Saudi Waldorf energy panel, as well, with the Saudis saying they are committed to financing two new 500,000 b/p/d refineries in the US. It's rumored one reason may be that they are now dipping into their heavy crude supplies.
ChevronTexaco Vice Chair Peter Robertson, a panelist at the Waldorf press conference, said that regulations regarding US refineries are so diverse from region to region -- with different jurisdictions requiring different formulas -- that the price of gasoline gets pushed up.
"So when a refinery's down in one location," Robertson said, "it's very difficult to satisfy demand somewhere else because you have all these formulas. It would make life a lot easier by adopting a simple formula across the country. There probably will be at some point in time."
Meanwhile, Venezuela has said it has patented the ISAL process to reduce sulfur levels of gasoline. Ali Rodriguez said the technique "not only meets, but exceeds" the new US sulfur requirements.
PDVSA VP for Finance Jose Alejandro Rojas said Venezuela will soon have a risk rating. Moody's on April 13, 2004 recognized PDVSA's production recovery following the 2002/2003 oil workers' strike. It stressed, however, that Venezuela will need foreign investment and expertise.
Rojas indicated PDVSA will invest $37 billion in the domestic oil industry over the next five years -- with $10 billion of this coming from third-party financing (probably foreign oil companies, especially if investment becomes more attractive, although the Chavez opposition argues Venezuela is already a "buyer's market").
Rojas is viewed by many as key to PDVSA's success since he has a rapport with international bankers and foreign governments from his years as the country's finance minister. Addressing criticism that PDVSA is still understaffed (thousands were fired by Chavez following the 2002 strike -- mostly executives), Rojas said the company has an aggressive plan for human resources and is bringing back retirees as well as hiring foreign specialists.
Rojas was not specific about where he would get foreign capital. But Ali Rodriguez has described Venezuela's low debt and high generation of liquidity enabling PDVSA to raise $133 million in 2003 at highly favorable rates. And in 2004 PDVSA received a $122 million loan from the Japan Bank for International Cooperation for a refinery project in eastern Venezuela.
Venezuela might find some inspiration in the approach of Saudi Arabia (providing attacks on foreign workers stop), which has long been cautious about foreign investment. Saudi Arabia's investment authority, SAGIA, is led by the maverick Abdullah bin Faisal bin Turki Al Saud who says the country recognizes "foreign investors bring in both money and expertise, and can plug into developments around the world".
The problem is at what price? Chavez, in an effort to stem the commercial exploitation of his country has, for instance, taken on Science Applications International Corp., the California-based information technology company, because it was demanding 60% ownership in its joint venture with Venezuela.
In a question and answer session that was broadcast into Venezuela along with the panel's speeches, I asked Ali Rodriguez just how serious President Chavez was about statements regarding cutting off Venezuela's crude oil to the US and stepping up exports to China if the US continues to meddle in Venezuela's political affairs.
Chavez has accused the US of not only instigating opposition protests for his recall, but also for playing a starring role in the April 11, 2002 coup d'etat, which lasted two days before supporters clamored for Chavez's reinstatement. He has said he would also interrupt the crude supply to the US if Washington threatened sanctions or tried an invasion.
Chavez has announced that even if he did step down and hand over the government, it would only be to another "revolutionary" government -- his vice president would become president. He's advised that he's taken steps to strengthen the military, calling up reservists and setting up a people's militia.
Dr. Rodriguez answered my question saying "President Chavez's statement stands". That it's happened before. And that he had nothing further to add.
As for the Chinese supply contracts, Rodriguez said China is of interest because it needs oil for its intense development. He cited 60% of the projected increase in the world's primary energy demand to 2030 will come from developing countries, particularly in Asia, and that Venezuela was interested in selling oil to these "new markets" in order to "better our population".
But he was firm that Venezuela would not sell its technology or patent for Orimulsion (made from extra-heavy crude) to China or to any other country – although he said Venezuela will fulfill its other contracts to China.
UK oil financial analyst Oliver Campbell (no relation to "peak oil guru" Colin Campbell), is a native of Venezuela and is familiar with its oil fields, having worked in Venezuela's petroleum industry from 1953-1982, with Shell and as finance coodinator at PDVSA. He has noted Venezuela's interest in adding 235 billion barrels of extra-heavy crude from the Orinoco Belt to its reserves and suggests "they could be regarded as conventional" considering that the per barrel price of oil is now as high as it is. He also believes the Orinoco crudes were classified as "bitumen" to keep Orimulsion out of the OPEC quota.
Campbell says further that because the distinction between conventional and non conventional oil "has become blurred," it might make sense for the oil industry to consider switching to the UK method of reporting reserves, which offers more of a range: proven, probable, proven and probable, possible, and maximum -- as opposed to the SEC model widely in use of disclosing only proved reserves producible under existing economic conditions.
Moreover,"it is the end result that counts" he says, "if a substance can be produced and upgraded to be saleable oil at a cost of only $8 a barrel, what does it matter if it started life with a viscosity over 10,000 milliPascals/second?"
Moving beyond oil economics and politics to humanitarian issues, Dr. Rodriguez has sketched out what his country hopes to do with its oil wealth saying Venezuela is "witnessing the beginning of a time in which a better quality of life will be the privilege of the many, not the few . . . The new PDVSA is a company dedicated to the task of enhancing the value of not only these [petroleum] resources, but also of the human being."
Meanwhile, the labor movement in the oil sector has also come together. In March of this year, Venezuela's three oil unions – Fedepetrol, Febrahidrocarburos and Sinutrapetrol – signed the "Palito Declaration". Venezuela's Minister of Energy and Mines Rafael Ramirez has said Palito will allow for the "deepening of the bolivariana revolution" in social and economic terms. Ali Rodriguez told me that two of the union leaders, Nelson Nunez and Rafael Rosales, are external directors of PDVSA's 10-member board.
Rodriguez has said further: "We are making use of all our capabilities and assets to generate and multiply wealth, to transform our oil industry into a tool for sustainable development . . . . It is unacceptable that 100 million Latin American citizens live with less than one dollar a day. . . . We must dispel the pessimistic view that nothing can be done to ameliorate the poverty in our region."
Kevin Saville from Platts questioned Rodriquez as to whether Venezuela had really recovered from the 2002 strike. Rodriguez said scepticism in the media was a matter of disinformation. Rodriguez again cited Venezuela's earnings in 2003 at $46 billion. And he promised Venezuela's oil sector had not only recovered but that it would be offering "greater products" – not just crude.
A reporter from Dow questioned whether shipments were now ready for New York and Connecticut and what percentage of the gas complied with US requirements.
Ivan Hernandez, VP for Refining, answered saying there was no problem with 2004-2005 exportation. The sulphur level was at 390 ppms.
Reuters challenged the b/p/d production figure of PDVSA. Rodriguez reiterated that it was indeed 2.6 m/b/d.
Dr. Rodriguez addressed questions about the price of oil, saying factors include the war in Iraq, insufficient capacity in the US (US 2.7 m/b/d deficient), and particuarly speculation on "paper barrels" on futures markets -- citing New York and Dubai. And Venezuela's energy minister, Rafael Ramirez, agreed with his colleague's statement saying last week he doesn't support an OPEC crude production increase because "the price in the market has nothing to do with production".
Saudi Arabia's oil minister Ali Naimi said during his appearance at New York's Waldorf that commodities were part of the problem. "Look at metals," he said, "I think if you compare prices in 2002 and 2003, over 50% to 70% increase. So this is one of the driving forces behind the price."
And PDVSA's Ivan Hernandez responded to my question in a private conversation about drug money's influence in the oil futures market, telling me he did not rule it out.
There is no shortage of opinion as to why the price of oil is high. Platts cites oil analyst Mehdi Varzi who said, "I think it's now a question of panic, and I'm not sure what OPEC can do about it." Varzi echoed the Venezuelan statements that there is no "physical crude supply" problem. He blamed the US government for not easing specs for gasoline and the buildup of petroleum reserves. And he said Chinese demand and a destabilized Middle East were also factors.
But it really became clear to me at the Venezuelan press briefing just what the Chavez government is up against when a woman from the "Abril 11" (day of the coup) movement seated next to me later confronted me outside the ladies room with a press packet of anti-Chavez literature about how Venezuelan oil is being used as a political weapon. The packet included speeches by Senators Bill Nelson (Dem-FL) and Diane Feinstein (Dem-CA) following a tour of Venezuela in April 2004.
Nelson said on the floor of the Senate April 24 that he hoped the Bush administration would "make clear to President Chavez that our Government places a high priority on democracy, the rule of law, and responsible conduct in international relations". And he said this with a straight face! Nelson went on, "If things do not improve soon, I worry that we may eventually reach the point where we have to treat this Venezuelan Government as an unfriendly government that is hostile to U.S. interests." Hopefully, rumors that Nelson is on Senator John Kerry's short list for VP are just that.
There were also statements in the press packet from Andrew Gold, CEO of Schlumberger, the world's biggest oil field service provider, that PDVSA was "floundering" as a result of last year's mass firings and that payments to Schlumberger had slowed.
The woman from April 11 offered to set up an appointment with a former petroleum officer from the Venezuelan embassy who she said had been educated at Harvard. And she advised that there was a human rights gathering I could attend.
I have a soft spot for Venezuela. It is the first foreign country I visited 35 years ago aboard the SS Santa Rosa. As the cruise ship pulled into port at La Guaira -- the enormous green and purple Avila mountains tufted with clouds were a glimpse of Heaven. I would hate to see those skies littered with B-52s . . .
* EL JOROPO: Click here: Translated version of www.mujeresdeltercermilenio.hpg.ig.com.br/joropo.htm
Suzan Mazur's reports have appeared in the Financial Times, Economist, Forbes, Newsday, Philadelphia Inquirer and on PBS, CBC and MBC. She has been a guest on McLaughlin, Charlie Rose and Fox television shows. Mazur has traveled widely, covered the wars, and for a few years along the way was also a top runway fashion model for Geoffrey Beene and other design talents. Her story: "How Bush Got Bounced From Carlyle Board" , which first appeared on Progressive Review, has become a classic. Click here: HOW BUSH GOT BOUNCED FROM CARLYLE BOARD - Suzan Mazur, Progressive Review
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