Tellechea Projects 1.3 Mb/d for 2024
On Friday, Oil Minister Rafael Tellechea presented data and projections from PDVSA at Fedeindustria’s yearly event. Tellechea, who is also president of the state-owned oil company, said that production is finally expected to exceed 1.2 million barrels per day this year.
The data collected by the OPEC based on direct communication from the Oil Ministry shows the following picture: Oil production reached 860,000 b/d in January, and it has been rising since; the preliminary numbers for May are 924,000 b/d. Tellechea also expects to reach 1.295 Mb/d in December.
The OPEC also draws from secondary sources to produce an alternative database for its member states. For Venezuela, it does not indicate a significant rise in output in the year to date, though it is above 800,000 b/d, and thus higher than last year.
Both data sets must be considered alongside each other, rather than just relying on one. At the event, Tellechea also said that, in May, PDVSA’s own numbers show an output 30,000 b/d higher than the data the OPEC has.
Crude production has risen gradually in 2023. Tellechea now forecasts almost 1.3 Mb/d by December 2024.
Too optimistic?
Crude output growth has been slow in 2023, rising by about 100,000 b/d—if we consider “secondary sources.” The year was rocked by the unveiling of a colossal corruption scandal, after which Tellechea was appointed to take over the ministry. However, the industry also started to benefit from GL 44 in the last quarter, as well as renewed efforts by foreign companies to boost extraction.
The gap between the two OPEC databases has also widened this year, leading to scepticism as to which one presents a more reliable picture. Unrealistic targets are not new to the oil industry, let alone to the company’s history.
Politics will determine a large part of whether PDVSA’s goal is feasible. If both Caracas and Washington DC continue to open the space for the sector, it is certainly possible. In the short term, we are awaiting specific licenses from the Treasury Department’s OFAC. Two factors are important: the number of authorised companies and what they are allowed to do—just trading or also operating fields?
The uncertainty about a contested presidential election in July, and rocky negotiations with the US, could keep the brakes on large-scale investments, which are necessary to boost growth at the speed that PDVSA projects.
On the other hand, this year PDVSA could benefit from an administration that settled in. Tellechea was appointed to head the company in January 2023 and as minister in March of that year. Regarding the vote, while it will take place in July, the new government will not be sworn in until January, giving ample space for a smooth transition, despite a highly confrontational political environment.
For more context, in the 20 years to 2017, production mostly ranged between 2 and 3 Mb/d, with a peak of 3.44 Mb/d in 1998. The lowest point in output was 390,000 b/d in 2020, while it has been rising slowly since. What seemed a fast-paced recovery in 2021 is mostly the result of selling stockpiles left from the pandemic-induced period of low demand.
Where is growth coming from?
Tellechea said that there has been an increase of 230,000 b/d from December 2022 to May 2024. A large part of this growth can be attributed to joint ventures with Western corporations, most notably Chevron.
Since late 2022, thanks to a policy shift from Washington DC, western companies have had an easier time obtaining licenses and comfort letters to restart pumping in the fields where they already had rights. Simultaneously, Caracas is granting them greater operational and financial control, which has become a prerequisite for many companies to work in the country.
Chevron alone can explain almost half of this growth. In November 2022 the Biden administration introduced GL 41 for the oil giant to resume production, and by September 2023 it was pumping out 135,000 b/d. It is currently undertaking a drilling campaign to add 65,000 b/d by the end of 2025.
In the same period, European firms Eni, Repsol, and Maurel et Prom have also restarted operations after receiving comfort letters, and are also expanding production of oil and gas. Needless to say, PDVSA alone is still the largest producer of crude while there are also non-western companies working in the country. However, they are not expanding operations at the same pace.
Further growth can be expected if smaller Western companies that signed under GL 44 are successful in obtaining specific licenses. The impact of each joint venture, with a daily production in the four or five digits, can seem negligible. Nevertheless, together they can be the main driver to bring production to the target, over 1 Mb/d, for the first time since early 2019 when oil sanctions were introduced.
Under GL 44, many companies sought both to trade oil and to plunge into Venezuela and enter joint ventures. Most, however, did so discreetly without press releases. For instance, in January we learned of US high-risk investors visiting Caracas in search of deals. Last month, LNG Energy Group announced it had signed an agreement—under GL 44—over five fields in Eastern Venezuela. This and other companies would be waiting for a specific license from the OFAC.
Orinoco Oil Belt rules
Tellechea at the Fedeindustria event on 24 May 2024. On the chart, he presents crude output data alongside a projection, with a breakdown by division of PDVSA.
Drawing from Tellechea’s presentation, the Orinoco Oil Belt remains the most important division presently and looking to the future. It is yielding the highest amount of crude, while it will be the main contributor to growth in absolute terms. Production would be rising from 491,000 b/d to 542,000 b/d from January to May—that is, from the 924,000 b/d total—, and to 750,000 b/d by December of this year.
The Orinoco Oil Belt also concentrates the majority of the resource, as the largest reserve in the world. It is also more easily accessible than in other regions. 261.4 billion barrels of oil, out of the total 303.8 billion in proven reserves, are found here, according to BP’s 2019 Statistical Review of World Energy.
The main challenge for the belt is that it mostly consists of extra heavy crude. This peculiarity requires refining installations, special technology, and the use of diluents. In short, it needs trade with other countries. It is therefore more susceptible to sanctions, than lighter crudes which could be easily processed into petrol.
The next most important regions are the Western Division, around Lake Maracaibo, contributing 214,000 b/d in May, and the Eastern Division, close to the Orinoco Belt, yielding 151,000 b/d in the same month. The divisions of Los Llanos, Costa Afuera, and PDVSA Gas currently produce no more than 10,000 b/d of crude each.
The sector remains promising
In the short term, Venezuela’s current crude production does not seem strategically significant for a fossil fuel giant like the US. The country is now producing little more than Guyana or Colombia, while Brazil is pumping 3.5 Mb/d. The country’s reserves are nevertheless very appealing from both a strategic and business perspective for US interests.
However, Venezuela has larger oil and gas reserves than its neighbours added together. The 303.8 billion barrels of oil represent 17.5% of global reserves, even if the country’s output is less than 1% of the global aggregate, based on the same data from BP. It also has a wide range of crudes under its soil, which means that they can be used for petrol, asphalt, petrochemicals, and other end products. Natural gas reserves of 223.8 trillion cubic feet represent 3.2% of the world's total and 77% of Latin America. Numbers may have changed since the end of 2018.
Washington policymakers see that they can do without a few hundred thousand barrels. However, they prefer that US, or at worst European businesses are the main players in Venezuelan oil, rather than hand over the abundant reserves to rival powers, especially looking to the future. Furthermore, OFAC regulations have turned into a subsidy for Chinese firms buying up oil at steep discounts.
That Venezuela already has the infrastructure built up; repairing is cheaper and faster than building from scratch. Other countries also have installations geared for its crudes, like the US Gulf Coast refineries. Therefore, the sector remains promising, despite multiple external limits like OFAC sanctions, or internal ones like high fiscal costs, corruption and the lack of qualified and experienced personnel.
Minister also speaks about queues at petrol stations—again
Tellechea stated that in 2021, the petrol supply was 64,000 b/d and by late May 2024 it is 102,000 b/d. He also claimed that a recent increase in queues at petrol stations is due to what he called a false rumour that prices will rise to $0.80 per litre. Currently, prices are subsidised at $0.50 for retail consumption. The Patria scheme also offers 120l—or 60l for motorcycle owners—a month for less than a dollar.
While it could be possible that such subsidies are eventually reduced, it would be expected for after the presidential election in July, not before. The supply of petrol nonetheless continues to be unstable, given that it relies on the proper functioning of refineries and foreign parties providing diluents, or the latter shipping back the refined product.
The import of diluents was targeted by OFAC regulations in 2019, leaving the country dependent on shipments from Iran. On their own, they were insufficient to meet domestic demand. Vehicle fuel shortages have continued, intermittently, since 2015.
However, supply could be steadier as Chevron, Repsol, Eni, and Maurel et Prom are reassured that they can keep doing business in Venezuela. In January, they drove up imports of refined oil products to a four-year high, 84,000 b/d.
