Watching the World: Chávez touts heavy crude

July 4, 2005
Speculation is rife over Venezuelan President Hugo Chávez’s desire to prove his country has the world’s largest oil reserves.

Speculation is rife over Venezuelan President Hugo Chávez’s desire to prove his country has the world’s largest oil reserves.

Chávez says 238 billion bbl of heavy oil in the Orinoco Belt should be added to Venezuela’s conventional reserves of 78 billion bbl.

Industry analysts say Chávez wants a higher reserves estimate in order to regain negotiating power for his nation within the Organization of Petroleum Exporting Countries.

They say Venezuela is producing below its OPEC quota and that it can’t boost output, diminishing its influence within the group.

Heavy oil...

But there is no reason to think much would change in OPEC if Venezuela’s heavy and extra-heavy oil were included in its reserves. In fact, the inclusion could hurt Venezuela or, at least, Chávez.

Some heavy crude from the eastern Orinoco region, marketed as boiler fuel as part of a mixture called Orimulsion, was excluded from conventional oil reserves calculated by past Venezuelan governments.

That’s because Orimulsion was designed to compete with coal-not oil-and was therefore handily excluded from OPEC production quotas. Being outside those quotas means that Venezuela can produce and sell as much Orimulsion as it can with no complaint from OPEC. So far, no reports have emerged that Chávez has gone to OPEC with an official request to increase his country’s reserves. It is unlikely that he ever would make such a request since it would limit his own political options.

...Feeds dreams

Chávez has political reasons to increase the size of Venezula’s oil reserves. Such a claim would play well to the audience that Chávez courts-the millions of poor in his own country and around the world.

A populist, Chávez is at one of the high points in his term thanks to rising world oil prices, which have allowed him to increase social investments this year.

The chief executive has approval ratings of 57-70%, according to the most recent polls, in contrast to his ratings prior to August 2004, when the presidential recall referendum was held and support for him ranged from 33% to 50%.

Few political observers question Chávez’s popularity, as he also enjoys strong support thanks to his stepped-up social programs-“missions”-to benefit low-income groups.

With the oil price averaging $40/bbl this year, $17/bbl higher than the budget provided for, Chávez has invested several hundred million dollars in health care programs, education, the formation of cooperatives, and purchases of companies.

According to official data, the government last year appropriated $2 billion from an oil fund for its official social programs, and this year alone it has spent $640 million on them.

With such a boost to his popularity from windfall oil profits, there should be little wonder why Chávez talks up his country’s reserves. Such talk raises the hopes of the world’s impoverished and, in turn, those hopes become political capital in the hands of the Venezuelan leader.