"Investors are starting to raise doubts about how much oil Venezuela really has
and whether it could be profitably extracted."
"To make Orinoco oil marketable, producers must blend it with lighter hydrocarbons, known as diluent,
or upgrade it into a lighter synthetic crude using large industrial facilities.
Without blending or upgrading, this oil backs up in the field."
"José hosts four major crude upgraders: Petromonagas, Petropiar, Petrocedeño, and Petrosanfelix.
Those facilities have a combined nameplate capacity of 600,000 to 650,000 barrels a day.
In practice, utilization has been far lower due to years of deferred maintenance, corrosion, power outages,
and equipment failures that have left units cycling on and off."
"Rystad estimates that $53 billion of upstream and infrastructure spending would be required
over 15 years just to keep crude oil production flat."
"Lifting production from 1.4 million to 2 million bpd by the early 2030s would require
an additional $40-$45 billion, much of it tied to pipelines, upgraders,
and other non-upstream facilities that cannot be bypassed."
https://www.msn.com/en-us/money/markets/how-much-oil-does-venezuela-really-have-for-chevron-the-truth-matters/ar-AA1TF7qYComments: Venezuelan crude is "heavy" and requires lots of processing.
Oil industry infrastructure has long been neglected and substantial capital investment is needed.
There is currently a glut of oil and Brent/WTI benchmark crude prices are relatively low.
Is this a favorable scenario for major U.S. oil companies?
Comments
The major obstacle would seem to be rebuilding the infrastructure in Venezuela. As you pointed out the oil companies do have options when it comes to investing that sort of dough.
Is Venezuela the easiest choice? Was any other country investing in Venezuela's infrastructure prior to recent events? I don't think so.
US shale oil is light/sweet.
US Gulf refineries were designed for heavy Venezuelan crude when relations were better. So, they have been mixing tar/sand oil from Canada and heavy crude from elsewhere with sweet crude. With US control over Venezuelan crude, this is indeed a problem solved.
BTW, Citgo is Venezuelan, but Citgo-US is in process of being sold for 50% of its market value to a group that includes Elliott.
Elliott Management paid $6 Billion for Citgo. The sale was forced because they defaulted on debt. The court advisors estimated CITGO was worth twice that.
It's a distress sale after debt default.
There are now appeals by the bid-loser and by Venezuela (filed before the recent changes there) and the court will provide time to sort those out.
Treasury has also to approve the transaction.
There is a lot going in the favor of Elliott, but it isn't a done deal yet.
BTW, I read a report that 70% of Canadian oil goes to Midwest, 20% to California, and only 10% to Gulf coast. So, the worst case for Canada is the loss of only 10% of its oil exports to US.
But Venezuela may not be ready. Its production now is under 1 million barrels/day, and now the next 25-50 million barrels (1-2 months of Venezuelan oil output) may be sent to US.
From the Krugman article posted by @AndyJ
"And $62 (breakeven price) a barrel wouldn’t be high enough to make investing in the Orinoco Belt, where the estimated breakeven is more than $80, profitable even if there were no political risks."
https://en.wikipedia.org/w/index.php?title=Order_of_the_Liberator&action=edit§ion=2
Of course Chavez fired all the VZ technicians running the oil fields and canceled the Order de la Libertador, replacing it with an award created by Simon Bolivar.
He then awarded the new medal to Assad, Xi, and Erdogan.
Hard to believe one man can destroy a country so quickly.
The relative silence from the US majors was kind of revealing since Saturday, and i don't think they're going to roll over for Donnie just because he'd like them to be good 'patriotic' companies -- even with a taxpayer 'incentive' (reimbursement) they're still going to do what's best for their businesses, and I suspect they know they won't see much oil from VZ anytime soon, let alone a stable infrastructure and safe society to send their employees into.
I still think this is just another Donnie-created fantasy to make him look 'big' on the world stage and of course, distract everyone from the Epstien files. Remember, he always punches down, never up ... and only has plans for his Day One optics, never on the (often messy) followthrough.
Oh, the possibilities when one is drunk with the power and there are no adults to restrain him.
And if it all comes crashing down -- Biden to be blamed. And the magats will lap it all up.
You may have heard that Venezuela has the world’s largest oil reserves — 300 billion barrels. You probably don’t know that Venezuela’s reported oil reserves tripled while Hugo Chavez was president. This increase, from roughly 100 billion to 300 billion barrels, didn’t reflect major new discoveries or exploration. Instead, it reflected the Chavez government’s decision to reclassify the country’s Orinoco Belt heavy oil as “proved” — oil that can be recovered with reasonable certainty under existing economic and operating conditions:
As Torsten Slok of Apollo, who recently made this point, notes, “Much of the oil is extra-heavy, which has low recovery and a high cost to produce.” This suggests that Venezuela’s claims to have immense usable oil reserves were politically motivated hype.
This view is supported by the fact that the huge increase in Venezuela’s reported oil reserves wasn’t followed by a surge in production. On the contrary, Venezuelan oil production soon plunged:
Plunging production was associated with a steady degradation of Venezuela’s oil infrastructure, which would take years and many billions of dollars in investment to restore. Given these costs as well as political instability, major oil companies clearly aren’t enthusiastic about the idea of sinking money into Venezuela.