The National Council Area Chapter of the U.S. Association for Energy Economics (NCAC-USAEE) held a public online event on July 1, 2020 to discuss current challenges facing Venezuela’s energy sector, including US sanctions, declining crude output, gasoline shortages, and relations with Iran and Russia. Lisa Viscidi, Director of the Energy, Climate Change & Extractive Industries Program at the Dialogue, moderated the event and Risa Grais-Targow, Director of Latin America at Eurasia Group, appeared as the featured speaker.
Comments by Lisa Viscidi and Risa Grais-Targow:
Lisa Viscidi: “Venezuelan oil production declined from over a million barrels the day before Juan Guaidó assumed the interim presidency in January 2019 to about 600,000 barrels a day in the months after. United States sanctions shrunk Venezuela’s export market and restricted cash flow for the sector. What is the current status of the oil sector and where does production stand? What’s been the latest impact of United States sanctions and how is PDVSA getting by in terms of cash flow and export markets?”
Risa Grais-Targow: “The short answer is that the situation is pretty dire. The data that we’re getting for production is around 400,000 barrels per day. This is really a product of several factors. US sanctions initially imposed last year were a complicating factor but production has been declining very steadily and even aggressively over the past couple of years due to cash flow constraints and really horrible management of the sector. US sanctions prevented PDVSA from exporting to the US, which was its largest cash generating export market, and forced the company to find new markets. Since those initial US sanctions we’ve seen the US targeting shipping companies and trading companies that have been working with PDVSA to try to help them find workarounds to that first round of sanctions. It’s become even more complicated since Rosneft, which was playing a key role in helping to commercialise PDVSA’s crude, left in February…”
Lisa Viscidi: “Let’s go to the downstream sector. You mentioned that there were a lot of imports, there have been massive fuel shortages, and Venezuela’s refineries are running below twenty percent utilization. Can you tell us a bit more about how the country is still able to import gasoline, considering its refineries aren’t working and it’s lost a lot of the ability to trade with other countries because of sanctions? Are shortages at the pump going to get worse and worse?”
Risa Grais-Targow: “The gasoline shortages really became the number one problem for the country this spring, even with very aggressive mobility restrictions and probably around 25 percent of normal demand for gasoline due to the pandemic. We were seeing day-long lines around the country at gas stations and it was becoming virtually impossible to even find gasoline on the black market. There are two ways the government is trying to solve this problem and they both involve Iran. The first is trying to resuscitate its domestic refining capacity. Right now their refineries are in really bad shape and they’ve been working with the Iranians to try to bring in some inputs to fix those refineries. Beyond that, Venezuela started importing gasoline directly from Iran. The arrival of Iranian tankers bringing gasoline has actually really helped to stabilize the gasoline supply in the country. As an additional measure, the government liberalized gasoline prices, although they’re still subsidizing it for some more vulnerable consumers. So for now, we’ve seen a stabilization in terms of supply…”