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Sunday, August 8, 2010

A lake of leaks reflects problems that stretch to the Orinoco

A lake of leaks reflects problems that stretch to the Orinoco

As the world watched BP battle with the devastating effects of the oil spill in the Gulf of Mexico, another problem with leaking crude nearby has managed to escape much attention.

Venezuela’s state oil company, Petróleos de Venezuela (PDVSA), has been trying to play down a chronic problem of leakages from thousands of miles of pipelines that criss-cross Lake Maracaibo, a large brackish lake connected to the Caribbean.

Critics argue that the extensive oil slicks that have appeared on the lake in recent months are a direct result of PDVSA’s negligence since the expropriation last year of 76 oil service companies that worked on the lake. Mismanagement, a problem that has tainted the economic performance of President Hugo Chávez’s government as a whole, has had a disastrous impact on Venezuela’s oil output over the last few years and is likely to hobble production for years to come.

The US Energy Information Administration estimates that Venezuela’s crude oil production averaged 2.2m barrels a day in 2009, about 190,000 b/d lower than in 2008 and down from 3.2m b/d in 1997, before Mr Chávez came to power.

PDVSA, which disputes those numbers, has made a concerted drive to attract foreign investment into the oil-rich Orinoco Belt in order to boost production. In February it signed contracts with foreign oil companies for projects that could add 2.1m b/d to output and bring some $80bn (£51bn, €61bn) in investment from Chinese and Russian companies as well as majors such as Italy’s ENI, Chevron of the US and Spain’s Repsol.

Although this represented a vote of confidence in Venezuela just three years after a wave of nationalisations in the Orinoco, experts estimate that it could take at least three or four years for sagging output to recover. Efficient co-ordination of the projects, technical requirements and capital commitments are all barriers.

One of the pitfalls is whether PDVSA, which is keeping a 60 per cent stake in the projects, allows its minority partners a fair degree of operational control. Given its own patchy management record, experts argue that PDVSA must allow partners to become more integral players in its joint ventures. PDVSA’s partners are not involved in the sale of their output, for which PDVSA instead compensates them at the end of each year. Companies privately complain that PDVSA is not paying them enough to cover running costs and reinvest in expanding production.

With oil revenues providing about half of government expenditure, Mr Chávez may still face several lean years ahead.

FT.com


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