Decline in Venezuelan Oil Production Could Hurt Oil Industry Post-Maduro, PdVSA Director Says

Venezuela’s oil production will continue to drastically decline in 2020 if Nicolas Maduro stays in power, potentially crippling future Venezuelan oil trade, said Alejandro Grisanti, director of the ad hoc board for Petroleos de Venezuela set up by opposition party leader Juan Guaido. Speaking during an Oct. 22 Atlantic Council panel, Grisanti said Venezuela’s oil production will fall to 450,000 barrels per day in 2020 if Maduro stays in power. The country’s oil production has fallen from 1.5 million to about 750,000 barrels per day this year due to U.S. sanctions, Grisanti said.

“Oil production has collapsed,” he said.

Grisanti’s comments came one day after the Treasury’s Office of Foreign Assets Control extended the expiration date for certain transactions with PdVSA by Chevron Corp., Haliburton, Schlumberger Limited, Baker Hughes and Weatherford International (see 1910210065). The general license extension was aimed at preparing for Venezuela’s “day-after scenario” -- the day after Maduro’s regime loses power, said Carrie Filipetti, deputy assistant secretary of the State Department’s Bureau of Western Hemisphere Affairs. She said the license is aimed at keeping transactions between the U.S. and PdVSA flowing to ensure the country’s oil infrastructure does not collapse.

“We need to be aware that if some of this infrastructure collapses, there could be a real challenge in terms of the amount of time it takes to rehabilitate that infrastructure,” Filipetti said during the panel, adding that none of the money from the authorized transactions is going to the Maduro regime.

The U.S. is hoping for a speedy transition to minimize impact on the oil industry and improve the chances of reintegrating Venezuela’s oil production with global buyers and sellers, Filipetti said. She said the State Department hopes the transition happens “very, very quickly,” which is why the general license was only extended until Jan. 22.

“I can't judge whether or not that analysis will shift over time, but the license was provided for the next 90 days and it was consistent with that line of thinking,” Filipetti said.

Filipetti said the State Department has recently “increased our interest” in South America to address human rights issues and “strengthen governance.” She said the U.S. will continue to sanction Venezuela’s mineral and oil sectors to restrict funds to Maduro. “Where we are seeing the Maduro regime steal the national resources of the Venezuelan people, that is where we will target our sanctions.”

The sanctions have been working, specifically in limiting China’s presence in the market, said Francisco Monaldi, a Latin American energy policy fellow at Rice University. Monaldi pointed to recent moves by the China National Petroleum Corporation to temporarily end their oil contracts with Venezuela and China Petroleum & Chemical Corporation’s intention to not hire any vessel that has docked at a Venezuelan port within the last year. “The Chinese are clearly worried about the effect of secondary sanctions,” Monaldi said.

The sanctions are also causing a domestic oil infrastructure problem in Venezuela, as oil reserves are increasing and storage space is shrinking. Monaldi said Venezuela has tried placing oil on floating tankers, but has nearly maxed out its storage.

“I think that strategy is reaching its limits,” Monaldi said. “If they start to have to close production, that’s also very costly, because it’s very hard to restart production in Venezuela.”