IMF Data on Venezuela since 1980s

The International Monetary Fund (IMF) has been publishing country specific economic data and also commodity prices in its World Economic Outlook Database since 1980.  Figure 1 shows crude oil prices, and the rise in prices after the 2005, only to plummet in 2009.

Figure 1

Not surprisingly, Figure 2 shows that Venezuelan oil exports and the country's GDP increased along with the oil prices.  By 1968 oil was 98% of Venezuelan imports, so it is logical to think that higher prices would increase the GDP.  The prices would also serve as an incentive to increase production and export more.


Figure 2














The higher prices also translated into a bump in government revenue and expenditure, with a corresponding decrease in 2009 when prices fell (Figure 3).  However, it is also interesting to note that revenue and expenditure seem to shadow each other.

Figure 3

Lastly, the unemployment rate has been falling pretty steadily since 2002, early in Chavez' first presidency.  This could help to explain his popularity in the country's working class.  Also, it is not clear if the unemployment rate is linked to oil prices.  FUrther research would be needed into that relationship.
 

Figure 4





The 1975 and 2007 Oil Nationalizations in Venezuela

On August 21, 1975, the Venezuelan Congress enacted the Organic Law Reserving to the State the Industry and Commerce of Hydrocarbons (hereinafter, the 1975 Nationalization Law), extinguishing all of the existing oil concessions to private companies. The bill provided for payment of compensation not exceeding the net book value of the companies’ assets. Article 1 of the 1975 Nationalization Law reserved for the State the industry and commerce of hydrocarbons at all levels, which would thereafter be managed exclusively by the newly created State-owned oil company Petróleos de Venezuela, S.A. (i.e., PDVSA). Petroleum exports would be under the exclusive administration and control of the State, directly by the Government or through State entities (Article 2), in order to maximize the economic benefits in accordance with the requirements of national development (Article 3). Article 5 defined the space left to private enterprise:

The State shall carry out the activities indicated in Article 1 of this Law directly through the National Executive or through entities owned by it, being able to enter into the operating agreements necessary for the better performance of its functions, without these arrangements affecting in any case the very essence of the activities assigned. In special cases and when convenient to the public interest, the National Executive or the aforesaid entities may, in the exercise of any of the aforementioned activities, enter into association agreements with private entities, with a participation such that guarantees the control by the State and with a determined duration. In order to enter into such agreements, the prior authorization of the Chambers in a joint session shall be required, under the conditions [the Chambers] establish, once they have been duly informed by the National Executive of all relevant circumstances.

In other words, the Article 5 of the 1975 Nationalization Law permitted two means of private participation in the oil industry: (i) operating agreements, which were to be simple service contracts; and (ii) association agreements, which were permitted only in “special cases.” However, the latter were valid only if a State company had a participation that guarantied control by the State and only if the agreement was approved by Congress” (id.).

The 1990’s marked a change of policy known as Apertura Petrolera. Indeed, in the early 1990s, Venezuela approved a plan to increase oil production. To achieve this goal, Venezuela decided to develop the large extra-heavy oil reserves in the Orinoco Oil Belt through progressively more strained interpretation of the second portion of Article 5 of the 1975 Nationalization Law. In particular, Venezuela reopened the oil industry to foreign investment in three different ways:

• First portion of Article 5: PDVSA was allowed to enter into operating agreements with private investors for the reactivation of old, non-performing wells, in exchange for a fee per barrel produced.
• Second portion of Article 5:
• Profit Sharing Agreements: PDVSA auctioned to foreign and national investors the rights to explore and exploit potential light and medium crude reservoirs under shared-profit-and-risk association agreements. Under this arrangement, the private party carried the risk of exploration and PDVSA had the opportunity to participate in up to 35% of the production in the event of a commercial discovery.
• Association Agreements: certain oil companies entered into so-called “strategic associations” with PDVSA subsidiaries, primarily to produce and upgrade extra-heavy crudes in the Orinoco Oil Belt. To this end, both Chambers of the legislative power (i.e., the Congress and the Senate) granted these private oil companies a more favorable tax regime, in addition to the required authorization under Article 5 of the 1975 Nationalization Law.

However, a new Hydrocarbon Law was adopted in 2001 and, from October 2004, a number of measures were taken by the Government of Venezuela to regulate the petroleum industry: (i) in October 2004, the royalty rates were then increased; (ii) in April 2005, the Minister of Energy and Mines issued an instruction declaring that the agreements with the private companies were illegal and setting in motion an orderly process of “migration” of those agreements to the new form of mixed companies required under the 2001 Hydrocarbons Law; (iii) in May 2006, an extraction tax of 33 1/3 % was enacted; and (iv) in August 2006, the income tax rate was increased to 50 %. Additionally, in August 2006, term sheets were prepared for all companies involved in the associations, outlining the proposed conditions for conversion into mixed companies consistent with the 2001 Hydrocarbons Law.

Discussions regarding migration failed to reach fruition, and on January 8, 2007, the President of the Republic announced that all the projects that had been operating outside the framework of the 2001 Hydrocarbons Law would be nationalized. A decree of February 26, 2007 called for the transformation (called “migración”) of the oil associations into mixed companies approved by the National Assembly (this is known as the “Nationalization Decree”).

Amicable settlements were arrived at in most cases, but some companies like the American oil ConocoPhillips and Exxon failed to reach an agreement with the Venezuelan Government and thus were expropriated. Those companies refused to accept the compensation for expropriation offered by the Government and instead filed a request for arbitration with the International Centre for the Settlement of Investment Disputes (an organism belonging to the World Bank). In essence, in this kind of arbitration proceedings, a panel of three arbitrators decide the question of whether there was an unlawful expropriation of a foreign investment. Additionally, they also decide what is the amount of compensation due to the foreign investor. These arbitrators obtain their powers the World Bank, which, in turn, has been empowered to set arbitrations of this nature from a framework of treaties entered into by different countries. In the present case, the two countries involved are The Netherlands and Venezuela, as ConocoPhillips and Exxon – despite being of American nationality – channeled their investments in Venezuela through Dutch subsidiaries. The arbitrations of ConocoPhillips and Exxon against Venezuela are still pending.

As opposed to ConocoPhillips and Exxon, thirty private companies operating in Venezuela were successfully migrated, with financial settlements reached with those that did not. Indeed, BP, Chevron, Shell, Petrobras, Repsol, CNPC, Hocol, Perenco, Tecpetrol, Teikoku and Harvest Natural Resources successfully participated in the migration process and agreed with the Government to remain in Venezuela under the 2001 legal regime.

Sources:

Juan Carlos Sosa Azpúrua, La Apertura petrolera: reprivatización del negocio La Apertura Petrolera en Venezuela, PDVSA Web site (available at www.pdvsa.com)

Mobil Corporation, Venezuela Holdings, B.V. et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction dated June 10, 2010.

Hildegard Rondón de Sansó, En la Haya se juega la credibilidad del arbitraje internacional, Aporrea.org, dated June 1, 2010 (available at www.aporrea.org).

Statoil, Total, Chevron and BP Sign Joint Venture Deals with PDVSA, ALEXANDER'S GAS & OIL CONNECTIONS COMPANY NEWS: LATIN AMERICA, June 26, 2007.

Jorge Rueda, Venezuela Signs Agreements With Foreign Oil Companies to Create Joint Ventures, THE ASSOCIATED PRESS, April 1, 2006.

Chevron CEO: “There are Opportunities to Invest in Venezuela", EL UNIVERSAL, March 19, 2009.

Chevron, Shell for More Investment in Venezuela, PRENSA LATINA, March 19, 2009.

Sowing the seeds of oil...

I've been interested in learning when oil outpaced all other traditional Venezuelan exports, as if the date were a point of no return when policy decisions were made that pushed the country into a mining dependent economy.  There is some truth in the notion that policy decisions that favored petroleum were made, but it is interesting to note that there were many dissenting voices that were struggling to be heard in the meantime.

Hugo Chávez and the opposition

In my opinion, Venezuelan President Hugo Chávez is a brilliant politician – though somehow controversial. In addition, I believe that he has been very fortunate. In this regard, I should point out that he is presiding over the highest crude prices which his oil-producing nation has ever enjoyed, as well as because his opposition has proven to lack of unification and sufficient power to remove him from power.

In 2002, the legacy of a corrupt political class that once had the power unsuccessfully attempted to take away power from Chávez with a coup d’état and a nationwide oil strike that paralyzed the country. Nevertheless, they only seemed to deepen their hole when they lost a 2004 referendum to oust Chávez, and then boycotted parliamentary elections last year. This situation allowed Chávez’s allies to take full control of Venezuela's National Assembly and strengthened his omnipotence. Since then, divisive infighting has been the opposition’s norm.

An opposition movement to Chávez has continued to gain foothold in Venezuela, which is dominated primarily by members of the middle and upper classes. These social groups were so angry with the Bolivarian government because they had lost much of their dominance over Venezuelan politics with the introduction of the 1999 constitution. Additionally, this wealthy elite owns most of the media in Venezuela and uses it to create an anti-Chávez campaign. One of the most prominent examples of this was the popularization of the racist term “ese mono” (“that monkey”), which began to be applied to Chávez by his opponents. Opponents of the government often accused them of trying to turn Venezuela into a dictatorship by centralizing power amongst its supporters in the Constituent Assembly and giving Chávez increasingly autocratic powers.

Chávez government has also been accused of Human Rights violation by many national and international organizations like Amnesty International. In this vein, according to the Washington Post, the Organizations of American States have found concerns “with freedom of expression, human rights abuses, authoritarianism, press freedom, threats to democracy, as well as erosion of separation of powers, the economic infrastructure and ability of the president to appoint judges to federal courts.”

Furthermore, crime rates within the country have increased significantly. According to the Venezuelan Observatory of Violence :

“[Venezuela] has one of the highest crime rates on the continent, with 54 homicides per 100,000 citizens in 2009. With a murder rate of 140 per 100,000 citizens . . . Venezuela’s capital Caracas has the highest murder rate in South America, only exceeded in the hemisphere by Mexico’s Ciudad Juarez. Most of the deaths occur in crowded slums, but crime impinges on all sectors. In richer residential areas at night, cars shoot through red lights on often deserted streets and few people are willing to risk walking outside.”

Chávez’s popularity levels remain high. However, despite he obtained a majority in the legislative elections held in September 2010, the opposition secured at least one-third of the seats, giving them the ability to block critical legislation and top federal appointments. According to this article of The New York Times:

“By winning one-third of the seats in the National Assembly and about half of the popular vote, the opposition showed that it could learn from earlier mistakes like boycotting elections in 2005, which ended up strengthening Mr. Chávez and his radical allies, and could claw its way back from its self-imposed exile from the legislature.”

In practical terms, the seats won by the opposition enable them to block critical legislation and play a role in determining the makeup of important bodies like the Supreme Court, now packed with the president’s supporters. Beyond that, however, the elections also offered a view into the viability and direction of Mr. Chávez’s political movement, which has been in power for the last 12 years.

Furthermore, in state and municipal elections in November 2008, the opposition retained power in oil-rich Zulia and won a crucial contest in the capital, Caracas. Despite the inroads made by the opposition, supporters of Chávez still control the Supreme Court, the National Assembly, the federal bureaucracy and every state company.

In February 2009, Chávez won a referendum ending presidential term limits, allowing him to run for re-election indefinitely. The results pointed to his resilience after a decade in power, as well as to the fragmentation of his opposition. Chávez's term expires in 2013.

Members of the opposition celebrating the winning of one-third of the seats in the National Assembly (Miguel Gutierrez/Agence France-Presse Getty Images).

Hugo Chávez, Venezuela and the World

Since 1999, Hugo Chávez is the 56^th and current president of Venezuela. He follows a political ideology inspired by Bolivarianism and Socialism (but adapted to the 21 Century). As part of a social project known as “ The Bolivian Revolution,”, Chávez has focused on implementing social reforms that favor the poor people. Additionally, he has enacted a new constitution, has nationalized several key industries, secured government control over oil projects in the Orinoco oil belt and caused Venezuela to withdraw from the International Monetary Fund.

Born from a Venezuelan working class family, Chávez became a career military officer. In 1980, he founded the secretive Revolutionary Movement-200 in order to overthrow the government at the time. According to Chávez, the government was corrupt, undemocratic and only represented the interests of the elites. In 1992, Chávez led an unsuccessful military coup against the president Carlos Andrés Pérez, for which he was imprisoned for two years.

After he was released from prison, he founded the political party named the Fifth Republic Movement, and was elected president of Venezuela in 1998. He enacted a new constitution, which altered the structure of Venezuelan government, and allowed him to be reelected. However, opposition movements started to arise in Venezuela because of the nationalization of various industries and the firing of the management of the state-owned oil company. This policies angered the upper and middle class resulting in an unsuccessful military coup in 2001 and a recall referendum in 2003. Although Chávez was briefly ousted in 2002, he was again elected president in 2003.

Chávez blamed the administration of President George W. Bush for the incident, and his rhetoric became steadily stronger. Chávez openly criticizes capitalism and, in particular, neoliberalism. Additionally, Chávez has been in strong opposition to the United States’ foreign policy. In a speech to the United Nations in September 2006, Chávez, speaking the day after Bush had addressed the General Assembly, declared that the room stank of sulphur because “the devil” had been there. Furthermore, Chávez has had diplomatic problems with other Western nations like Spain, whose bilateral relations were disturbed after the King of Spain publicly told Hugo Chávez to “shut up” when Chávez repeatedly called the former Spanish prime minister a “fascist.”

Chávez within Latin America

He has aligned himself with the socialist governments of Fidel Castro (Cuba), Evo Morales (Bolvia) and Rafael Correa (Ecuador). Chávez is trying to reinforce and expand socialist governments in the region and, by criticizing Western “imperialist policies” he is making himself the hub of anti-American sentiment in Latin America.

In 2009, together with Argentina, Brazil and Bolivia, Chávez incorporated a regional bank to function as a development lender called Bank of the South, based in Caracas, in an attempt to distance Latin American countries from international banks – such as the IMF – and give these countries more financial freedom.

Nonetheless, Chávez has encountered difficulties not only with the United States but also with some Latin American governments. For example, the relationship between Venezuela and Colombia has suffered tremendous damages because of Chavez “secret” support to Colombia’s largest revel group (FARC).

Chávez and China

In April 2010, Chávez said that China had agreed to extend $20 billion in loans to Venezuela. This measure tries to deepen ties between Venezuela, which needs investment in the oil sector, and china, which seeks to secure oil supplies. Furthermore according to the article of the New York Times:

“The announcement of the loans followed other financing agreements with China that softened a sharp economic downturn in Venezuela, including a $12 billion bilateral investment fund. China’s ties with Venezuela have grown increasingly warm in recent years, marked by rising Venezuelan oil exports to China, the Chinese launching of a satellite for Venezuela and the sale of Chinese military aircraft to Venezuela”

If the loans materialize, they could give Mr. Chávez a much-needed cash infusion. Some financial analysts said that Venezuela could soon face a cash crunch as it grapples with low oil revenues and a dearth of foreign investment. Venezuela, faced with a slump in oil production, has recently been seeking to reach similar deals with energy companies from Russia, India and Spain, as well as the Chevron Corporation from the United States”

How rents on concessions developed in Venezuela

The introduction and first chapter of El petroleo en el pensamiento economico venezolano by Asdrubal Baptista and Bernard Mommer (Ediciones IESA 1997) give a good historical background to how oil rents began in Venezuela.  In the 1930s, there were two very different economies developing in the country: one linked to the traditional agricultural activities of the region and the other was found in the foreign dominated petroleum industry.  The question that the State needed to address was how to handle the oil concessions.

Europe's social revolution was defined by the historical pressure to reduce or eliminate the profits landowners received from their monopoly on land ownership and it's development.

SAGD and JIVE: The Feasibility of Future Production Techniques of Venezuela's Heavy and Sour Oil Fields.

As I mentioned in an earlier post, Venezuelan oil reserves, while vast, are very heavy and sour. This type of oil is generally more expensive to both extract and refine, cutting into the countries overall profit margin. This presents a number of problems for the country including difficulties finding domestic impetus to fund necessary upkeep and repairs, problems securing FDI to further advance production, and challenges reaching a global market in general, since transportation to growing economies means higher transportation costs, further eating in to profit.

Venezuela's contribution to OPEC: Juan Pablo Perez Alfonso

Chapter 25 of Daniel Yergin's The Prize (New York, 1992) describes the origins of OPEC, in which Venezuela was heavily involved.  According to Yergin, talk about beginning a society of oil-exporting states began in the 1950s, and the Venezuelan Minister of Mines and Hydrocarbons, Juan Pablo Perez Alfonso, had a "catalystic role" in making the organization a reality (509).

Perez Alfonso left Venezuela after being briefly imprisoned after the 1948 coup.  He and his family moved to Washington DC, where he spent much of his time studying the American oil industry in the Library of Congress.  He became very interested in the structure and policies of the Texas Railroad Commission (TRC), an organization that regulated Texan oil production to match changes in demand.  Many of his ideas about OPEC were inspired by the TRC (512).

Brief History of the Role of Oil in Venezuela

This post summarizes the events and ideas laid out in The History of Venezuela by Michael Tarver and Julia C. Frederick (Palgrave McMillan: 2006). Page numbers have been given where appropriate.

When looking at Venezuela and its oil production today, it's important to have some historical knowledge of oil's role in the country's political and economic development. Venezuela currently has more proven petroleum reserves than any other Latin American country and oil revenues have been used for public work projects and loans to sympathetic nations as well as the Bretton Woods institutions. However, a percentage of the revenue has disappeared into the bank accounts of those well connected to the oil industry and petroleum has not brought an increase in the standard of living for the average Venezuelan citizen. A look back will help better understand the country's current situation.

Colonized by the Spanish in the early 1500s, by 1830 Venezuela had managed to liberate itself from the Spanish crown, initially as part of Gran Colombia (comprised of what is now Colombia, Ecuador and Venezuela) and finally breaking away as an independent nation.

Extravagant Claims dogged by economic reality.

Hugo Chavez's recently expressed desire to sell 1 million barrels of oil a day to China may be best described as a pipe dream (no pun intended) as he and his government run into capacity building problems due to a confused national strategy within the oil sector. In a country where actual production has slipped from 3.3 million barrels a day to 2.3 over the past decade, this ambition seems to be wildly hopeful and suggests a disconnect between Venezuela's leadership and the realities on the ground.

A recent article in the Wall Street Journal has outlined a number of difficulties Venezuela will face in trying to reach Chavez's bold ambitions. First the country has failed to secure investments which would allow it to increase production in the future, and has been suffering from maintenance issues and industrial accidents which threaten to further decrease production levels as soon as next month.

Just in the last few weeks, PdVSA, as the state oil monopoly is known, has had to tackle fires and technical problems at a number of plants, including its largest refinery Amuay, which produces around 640,000 barrels a day.

Second, shipping oil to China presents a whole new set of issues for Venezuela. Venezuelan oil is notoriously expensive to refine, as it is extra heavy and very sour. Pair this with the added transport cost of shipping to a trading partner as far away as East Asia, add in the rumors that China has struck a discounted pricing structure deal with Chavez, and it is hard to imagine how any increase in shipments could be justified from an economic perspective, even if price of a global barrel stays high.

"...experts question the practicality of making expensive long-range oil shipments to China, which sources more than 90% of its oil from suppliers closer to home, mainly the Middle East, Africa and Russia. Likewise, Venezuela's natural and traditional market, the U.S., is just on the other side the Caribbean."

The relationship has been described as problematic, but indeed it may be more than that. Chavez's desperation to cultivate relationships with powers that he sees as being possible counters to American Hegemony mey be blurring his vision.

"U.S. Embassy cables from February 2010, released by Wikileaks, cited an unnamed PdVSA official saying China was paying as little as $5 per barrel of oil and then in turn selling it at a "sizable" profit."

If this is even partially true it uncovers some fairly foolish bahavior on Chavez's part and serves to discount much of his rhetoric about the relationship between America and the developing countries of the world. His imagined global position may indeed be self fulfilling.

Petróleos de Venezuela Sociedad Anónima (PDVSA)

Petroleos de Venezuela Sociedad Anonima (“PDVSA”) is a State-owned company dedicated to the exploration, production, refining, marketing and transportation of Venezuelan oil. PDVSA was created by Decree No. 1.123, published in the Official Gazette (Extraordinary) No. 1.170, on August 30, 1975 as a result of the nationalization of the oil industry in 1975. Since that time, PDVSA has dominated the oil industry of Venezuela.

PDVSA is the world’s fifth largest oil exporter and is third in the ranking of the 50 oil companies in the world – exceeded only by Aramco (Saudi Arabia State-owned company) and ExxonMobil of the United States. Among PDVSA’s greatest assets are international Citgo refineries in the United States (of which owns 100%), the German Ruhr Oil (of which owns 50%), and Nynas in Sweden where it shares equal ownership with an oil company in Finland.

The Bolivarian Republic of Venezuela owns all the shares of PDVSA, which depends upon the Ministry of Popular Power for Energy and Petroleum. The 1999 Constitution requires PDVSA to maintain a monopoly of the Venezuelan oil, and PDVSA’s shares cannot be sold to individuals. The company, however, can partner with and provide concessions for the provision of any service related to their products pursuant to Article 5 of the Organic Law Reserving to the State the Industry and Commerce of Hydrocarbons, published in the Official Gazette (Extraordinary) No. 1.769, on August 29, 1975:

“The State shall carry out the activities indicated in Article 1 of this Law directly through the National Executive or through entities owned by it, being able to enter into the operating agreements necessary for the better performance of its functions, without these arrangements affecting in any case the very essence of the activities assigned. In special cases and when convenient to the public interest, the National Executive or the aforesaid entities may, in the exercise of any of the aforementioned activities, enter into association agreements with private entities, with a participation such that guarantees the control by the State and with a determined duration. In order to enter into such agreements, the prior authorization of the Chambers in a joint session shall be required, under the conditions [the Chambers] establish, once they have been duly informed by the National Executive of all relevant circumstances.”

Until 1999 , PDVSA (through its affiliates) had the monopoly of the oil industry in Venezuela. However, that same year, after the so-called “apertura petrolera”, other companies entered the Venezuelan market – such as Shell, BP and Texaco. These foreign companies were allowed to commercialize and sell petroleum products within certain limitations, such as a controlled pricing of their gasoline. This control continues independently of the international market prices. The local pricing is approximately .045 US dollars per liter of 91 and 95 octane gasoline. This is the least expensive gasoline in most if not all of the world.

In 2005 they stopped producing leaded gasoline so they would be in compliance with the international environmental rules.

According to the net income from sales that PDVSA reported in 2007, this company is the eighth largest in the world with a balance of $6,273 million US dollars (15% higher than in 2006). By comparison, Pemex of Mexico reported $4,287 million US dollars and EcoPetrol reported $2,800 US dollars for the same 2007 period.

PDVSA has the world’s third largest refining capacity with a production of 3.3 million barrels per day. PDVSA owns 24 refineries throughout the world, of which 18 are outside Venezuela and 6 in country. Refinador Paraquena in Falcon state (Venezuela) is the world’s largest refinery with a production capacity of 940,000 of crude every day. On its part, the refinery Puerto La Cruz has a production capacity of 200,000 barrels per day, and El Palito refinery has a capacity of 130,000 barrels per day.

Through Citgo, PDVSA owns eight refineries in the US. They are located at Houston, Texas, Illinois, New Jersey, Louisiana and Georgia. The production capacity of all the refineries in the US is approximately 1.12 million barrels per day. In Europe, the refining capacity is over 252,000 barrels per day and is produced by its affiliate Nynas in Nynasshamn (Sweden) and Antwerp (Belgium), as well as in the United Kingdom. Furthermore, approximately 608,000 barrels are refined every day at refineries in the Caribbean.

In May 2010, PDVSA purchased a 49% share of Refidomsa in the Dominican Republic for $133.4 million US dollars. In August 2009, PDVSA acquired 20% of the shares in the Canadian company Enbridge.

U.S Energy Information Administration Assessment of the Venezuelan Oil Industry.

In March of 2011 the U.S. Energy Information Administration issued an updated country analysis brief for the Venezuelan Oil industry. The brief goes into detail underlining some of the major events and trends that may shape the future of oil in the Venezuela and its place on the global market.

Some important aspects of the report are summarized as follows:

Venezuela has the largest proven oil reserves in Western Hemisphere and, in 2009, was the worlds 11 largest net oil exporter. While the country obviously benefits from such large amounts of oil, it has become increasingly difficult for Venezuela to bring it to market due to quality issues and limits to both its drilling technology and refining capabilities.

In the last year Venezuela has seen a drastic increase in proven oil reserves up to 211 billion barrels in 2011 from 99.4 billion barrels in 2010. However this increase has mostly been in the form of extra heavy sour crude which must be sent to specialized refineries to be made usable. The country also has had problems keeping up its production in general as many of its fields are very mature and require major investments to maintain current output. It is estimated that Petroleos de Venezuela S.A (PdVSA) must spend approximately 3 billion dollars a year in infrastructure adjustments and upgrades just to maintain current production levels.

In an attempt to preempt these issues, in the mid 90's Venezuela divided its largest extra heavy crude region of Orinoco into the management of four companies, all majority PdVSA owned, to convert the heavy crude to lighter sweeter crude. While the efforts have been consistently held back by maintenance and safety issues, Venezuela expects the project to yield an additional 2,000,000 bbl/d of oil production by 2014.

Venezuela's petroleum exports have dropped precipitously since the mid 90's partly because of the above mentioned problems, and partly because the United States has decreased its level of imports from the country in recent history. Venezuela has has been trying to diversify its trading partners and has more than tripled its annual exports to China since 1995, but limits in the refining process, in which refineries found only in the Western hemisphere are specially built to handle extra heavy Venezuelan crude, have created difficulties in getting quality oil to other parts of the world. The United States and the Caribbean still make up its largest export destination by far.

Important dates in the history of Venezuelan oil

I'm currently reading The History of Venezuelan Oil by H. Michael Tarver and Julia C. Frederick (2006) and it begins with a timeline of important dates in Venezuelan history. Since our group is just beginning to research Venezuela and we have little prior knowledge of the region, I thought it would be interesting to cherry pick the Tarver/Frederick timeline for important dates in the history of oil within the country. It will be interesting to later look back at these dates and see what we can add or subtract from the list, once we have a bit more research under our belts.

• 1914 - discovery of first oil field in Venezuela with the drilling of the Zumaque-1 oil well. The oil field was christened Mene Grande.


• 1918 - massive oil exploitation begins


• 1926 - oil becomes the #1 Venezuelan export (note: it would be interesting to look a history of where oil exports from Venezuela have gone over the years)


• 1948 - first democratically elected government in power, led by Romulo Gallegos. Overthrown by military coup in the same year. The miliary regime that followed was brutally led by Coronel Marcos Perez Jimenez (note from Daniel Yergin's The Prize (1992) is that oil production advanced rapidly during the years of the military regime (pg. 510)).


• 1958 - Perez Jimenez' dictatorship overthrown and the military has since withdrawn from Venezuelan politics and there has been relatively continuous civil democratic rule.


• 1973 - Venezuela benefits from oil boom as Bolivars begin to peak against the dollar.


• 1976 - The petroleum industry is nationalized


• 1983-4 - low oil prices cause cuts in state spending to be made


• 1989 - "Caracozo" in Caracas. 200 people are killed in rioting that protests government's austerity plans


• 2000 - Chavez elected to 6 year term following modifications to the constitution in 1999.


• 2002 - Chavez appoints a new board of directors to Petroleos de Venezuela (PDVSA) in an attempt to gain more control of the industry. The industry is opposed to the change and executives strike in April, supported by the trade unions. There are clashes between the strikers and the National Guardsmen in which 10 people are killed. Chavez shuts down the media to minimize coverage of the violence. The military demands that Chavez resign, which he does on April 12, but returns two days later. The strike by the opposition calling for his resignation cripples the oil industry and leads to fuel shortages in the country.


• 2003 - The strike ends in February with a deal brokered by the Organization of American States (OAS) and a framework is st for a referendum on Chavez' rule.


• 2004 - There is a class over the referendum and allegedly false signatures


• 2005 - Chavez continues to antagonize the United States as oil prices increase and the Bolivar is devalued, causing inflation (Dutch disease)

Venzuelan oil exports by country

Map of Venezuelan oil fields

map accessed 24 of march, 2011 at http://news.bbc.co.uk/2/shared/spl/hi/guides/456900/456996/html/default.stm