Venezuela’s collapse is a window into how the Oil Age will unravel



Posted by Ed 5 mths ago
For some, the crisis in Venezuela is all about the endemic corruption of Nicolás Maduro, continuing the broken legacy of Chavez’s ideological experiment in socialism under the mounting insidious influence of Putin.

For others, it’s all about the ongoing counter-democratic meddling of the United States, which has for years wanted to bring Venezuela — with its huge oil reserves — back into the orbit of American power, and is now interfering again to undermine a democratically elected leader in Latin America.

Neither side truly understands the real driving force behind the collapse of Venezuela: we have moved into the twilight of the Age of Oil.

So how does a country like Venezuela with the largest reserves of crude oil in the world end up incapable of developing them? While various elements of socialism, corruption and neoliberal capitalism are all implicated in various ways, what no one’s talking about — especially the global oil industry — is that over the last decade, we’ve shifted into a new era.

The world has moved from largely extracting cheap, easy crude, to becoming increasingly dependent on unconventional forms of oil and gas that are much more difficult and expensive to produce.

Oil isn’t running out, in fact, it’s everywhere — we’ve more than enough to fry the planet. But as the easy, cheap stuff has plateaued, production costs have soared.

And as a consequence the most expensive oil to produce has become increasingly unprofitable.


Ed 5 mths ago

traineeinvestor 5 mths ago
Yet another shining example of socialism in action.

Ed 5 mths ago
Dead oil

While it is now fashionable to blame the collapse of the Venezuelan oil industry solely on Chavez’s socialism, Caldera’s privatisation of the oil sector was unable to forestall the decline in oil production, which peaked in 1997 at around 3.5 million barrels a day.

By 1999, Chavez’s first actual year in office, production had already dropped dramatically by around 30 percent.

A deeper look reveals that the causes of Venezuela’s oil problems are slightly more complicated than the ‘Chávez killed it’ meme. Since peaking around 1997, Venezuelan oil production has declined over the last two decades, but in recent years has experienced a precipitous fall.

There can be little doubt that serious mismanagement in the oil industry has played a role in this decline. However, there is a fundamental driver other than mismanagement which the press has consistently ignored in reporting on Venezuala’s current crisis: the increasingly fraught economics of oil.

The vast bulk of Venezuela’s oil is not conventional crude, but unconventional “heavy oil”, a highly viscous liquid that requires unconventional techniques to extract and flow, often with heat from steam, and/or mixing it with lighter forms of crude in the refining process.

Heavy oil thus has a higher cost of extraction than normal crude, and a lower market price due to the refining difficulties. In theory, heavy oil can be produced at below break-even prices to a profit, but greater investment is still needed to get to that point.

The higher costs of extraction and refining have played a key role in making Venezuela’s oil production efforts increasingly unprofitable and unsustainable. When oil prices were at their height between 2005 and 2008, Venezuela was able to weather the inefficiencies and mismanagement in its oil industry due to much higher profits thanks to prices between $100 and $150 a barrel.

Global oil prices were spiking as global conventional crude oil production began to plateau, causing an increasing shift to unconventional sources.

That global shift did not mean that oil was running out, but that we were moving deeper into dependence on more difficult and expensive forms of unconventional oil and gas.

The shift can be best understood through the concept of Energy Return on Investment (EROI), pioneered principally by the State University of New York environmental scientist Professor Charles Hall, a ratio which measures how much energy is used to extract a particular quantity of energy from any resource.

Hall has shown that as we are consuming ever larger quantities of energy, we are using more and more energy to do so, leaving less ‘surplus energy’ at the end to underpin social and economic activity.

Ed 5 mths ago

A few years ago, especially in the 2005-2008 period, many people were concerned that the oil supply would run out.

They were concerned about high oil prices and a possible need for rationing. The story was often called “Peak Oil.” Peak Oil theorists have also branched out into providing calculations that might be used to determine which substitutes for fossil fuels seem to have the most promise.

What is right about the Peak Oil story, and what is misleading or wrong?

Let’s look at a few of the pieces:

Ed 4 mths ago
Venezuela buckles under massive power, communications outage

Next up - Mexico?

Time’s Running Out for World’s Most Indebted Oil Company

Ed 4 mths ago
Mar 10, 2019 at 8:32 pm

“The [Mexican] government’s financial support, in order to restore credit fundamentals, falls well short of [Pemex] multi-annual capital investment needs. . . To avoid ‘further deterioration’, Pemex could require at least $20 billion over multiple years. “

Correct me if I’m wrong, but isn’t, or wasn’t, it the other way around? Namely, Pemex oil is that which relieves the Mexican fiscal annual budgetary constraints. How or with what is the Mexican govt. supposed to support the very state-owned oil company that supports its own day to day operations? There is something very wrong, in a very big way, but, sadly, nothing the drug cartels can’t fix. What a hopeless situation.

Ed 2 mths ago

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