White House concerned over Venezuela's tumultuous oil strike

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, Dec. 20--US policy makers are worried that a widespread strike by Venezuelan oil workers could impact US energy markets if the situation isn't resolved soon.

"We're following the events in Venezuela very closely when it comes to the energy situation, Venezuela being a major exporter to the United States," a White House spokesman said.

US officials said that the Department of Energy has been monitoring events to determine if the US would suffer "negative impacts" on oil supplies if there is a "prolonged" disruption in Venezuelan oil exports.

Before the strike Venezuela produced a total of 3 million b/d of crude and liquids; it exported more than 1 million b/d of crude and 200,000 b/d of product into the US market. For global oil exports, the net loss of supply is about 2.4 million b/d, a volume that is roughly equal to the Organization of Petroleum Exporting Countries' current spare oil production capacity, according to analysts at Merrill Lynch.

Moreover, because of the medium heavy and sour paraffin properties of Venezuelan crude, its largest buyers—most notably state oil company Petroleos de Venezuela SA's refining arm Citgo Petroleum Corp and ConocoPhillips (OGJ Online, Dec. 16, 2002)—are already struggling to find replacement feedstocks.

Venezuela and Mexico are the two primary exporters of the heavy crude that is the only type of oil some US Gulf Coast refineries process. The two countries supplied on average 89.6% of that US market during the first 10 months of this year, jumping to 93% in October (OGJ Online, Dec.18, 2002). However, industry observers say it would be impossible for Mexico to increase its heavy crude exports enough to make up for the loss of Venezuelan crude.

White House officials said the US government recently took what it views as a proactive step to reduce possible supply problems. DOE is deferring 6.5 million bbl of deliveries into the Strategic Petroleum Reserve, now at 86% of its capacity until September 2003. But US officials stopped short of suggesting any kind of US supply crisis is expected because of Caracas's woes; they noted that DOE is not currently considering either a release or exchange of oil due to the temporary loss of Venezuelan crude.

The White House affirmed this view later in the week as well. "The Strategic Petroleum Reserve is, by design, to be used for severe disruptions of the market. That is a type that has not occurred," a White House spokesman said Thursday.

Market worries
DOE, however, could find itself under increasing pressure to consider an SPR drawdown if oil prices continue to climb. US crude prices this week pushed past $30/bbl, largely in response to the Venezuelan work stoppage; the strike is now in its third week with no signs of waning.

Other oil producers—most notably from OPEC, of which Venezuela is a founding member—are warning they may not be able to make up a supply shortfall if production from both Venezuela and Iraq occurs, a possibility given current tensions between Washington and Baghdad. If there are sudden supply shortages that translate to a dramatic price increase, SPR may be used, US government officials have said.

In Venezuela, no end to civil unrest is yet apparent.

Most PDVSA employees, from top executives to the rank and file, remain deeply unhappy with the way leftist Venezuelan President Hugo Chavez is running the state petroleum company. Chavez is said to mulling a declaration of emergency measures that would expand his powers and limit civil rights. Meanwhile, his opponents have ignored a temporary Supreme Court order for industry workers to return to their jobs.

Last week, the US called for early elections to resolve the stalemate.

But US officials were careful not to explicitly endorse a coup d'etat or "unconstitutional alteration" of the country's constitution. "The Venezuelan people must be able to decide which democratic, constitutional electoral option is most viable to resolve the crisis peacefully," US State Dept. officials said.

"We recognize the situation in Venezuela is volatile;, it's deteriorating rapidly," said a State Department spokesman. "The United States believes that a solution must be found quickly to avoid further polarization that could erupt into violence."

US State officials are concerned that a growing gasoline shortage in Venezuela may exacerbate an already dangerous situation.

Analysts view
Venezuela's potential near-term impact on the oil market is difficult to predict, noted oil analysts with Merrill Lynch. But in a note to clients Wednesday, they said they do not expect Venezuela's woes alone to have the potential to disrupt what they call the "delicate" political balance in OPEC.

"It will take time to rebuild lost capacity [in Venezuela]; decline rates are running at 8-9%, and the international community is likely to be cautious on investment until the political situation stabilizes," analysts said.

Currently, international companies produce about 650,000 boe/d in Venezuela, Merrill Lynch said. "However, it is worth noting that Venezuelan production does not account for more than 10% in any of the major foreign players," analysts said. Among the least exposed are the super majors such as BP PLC, ExxonMobil Corp., and Royal Dutch/Shell Group.

Merrill Lynch said it's hard to know when or what the resolution will be with regard to Chavez. But they said that his position appears "increasingly untenable, particularly given (that) the government appears to (be) becoming more and more isolated from the international community."

In the event that Chavez cedes power, Merrill Lynch predicted that "an interim government led by political parties (Coordinadora Democratica), the national workers confederation (CTV), the military, and other sectors of the economy would likely take charge and call for early elections shortly thereafter. A full resumption of oil exports by PDVSA would resume shortly thereafter."

Deutsche Bank AG analyst Adam Sieminski observed that the drop in Venezuela's production has lifted crude prices to an 8-week high and refining margins to a 2-year high.

Investors who continue to look past this near-term support into a weaker 2003 market should remember that inventory levels were extremely low even before this outage, Sieminski said.

"Not only do we expect higher settling-out prices and refining margins, but we also highlight that the shape of current inventories is similar to the winter 1999-2000 energy price environment that presaged the refining margin boom of 2000-2001," he said.

Related Articles

WAFWA: Aerial survey finds lesser prairie chicken population grew

07/06/2015 A recent range-wide aerial survey found the lesser prairie chicken population rose 25% from 2014 to 2015, the Western Association of Fish & Wil...

Production ramps up from Sunrise oil sands project

07/06/2015 Husky Energy Inc., Calgary, reported that 25 well pairs are now on production at its Sunrise oil sands project in northeastern Alberta. Steaming is...

South Africa’s Enref refinery due maintenance

07/06/2015 Engen Petroleum Ltd. will shut down its 125,000-b/d Enref refinery in Durban, South Africa, for planned maintenance beginning on July 9, the compan...

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Cenovus sells royalty business for $3.3 billion

07/06/2015 Cenovus Energy Inc., Calgary, inked an agreement to sell its wholly owned subsidiary Heritage Royalty LP to Ontario Teachers’ Pension Plan for gros...

CERI: Energy, operational efficiencies possible in Canadian oil, gas

07/06/2015 Measures can be taken by operators in the expanding resource-intensive Canadian oil and gas sector to improve both energy efficiency and operationa...

AGL Energy to scale back upstream gas operations

07/06/2015

Gas retailer AGL Energy Ltd., Sydney, says it will exit the oil business and massively scaling back its upstream gas operations.

Woodside lets contracts for Browse LNG project

07/06/2015 Woodside Petroleum Ltd. has let more contracts for the Browse floating LNG project offshore Western Australia. The contracts, awarded to a Technip-...

Macondo settlement seen ‘positive’ for BP

07/06/2015 BP Exploration & Production Inc.’s recent agreement to settle federal and state claims related to the 2010 Macondo blowout and spill improves t...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected