Emily Pickrell, UH Energy Scholar
As the energy world adjusts to the idea – theoretically, at least – of becoming less oil dependent, one of many unknown pieces is how it will impact an oil-rich country like Venezuela.
The distressed South American country plays no small role in the global energy saga: It owns one of the world’s largest oil reserves, and until the last two years, was a main supplier of oil for U.S. refineries.
This history could enable Venezuela to re-open its energy sector to the investment world, potentially attracting billions of dollars, if its leadership changes.
“Venezuela’s oil sector opening could represent for U.S. companies major investment opportunities, even bigger than the most recent energy reforms in the region, if democracy and rule of law returns to the country,” said Julian Cardenas, an energy law professor at the University of Houston. (Cardenas is also a board director at Venezuelan energy company PDVSA Ad Hoc, overseeing the protection of PDVSA’s assets abroad.)
Opposition leaders in Venezuela have openly identified the oil industry as its best chance for repairing the county, should they gain power. It is a seemingly natural choice to fund the massive infrastructure that will be needed after decades of neglect.
Indeed, Venezuela’s previous failure to distribute the oil wealth is what opened the doors of power to socialist leader Hugo Chavez. Chavez made a public show of driving out many of its experienced petroleum engineers and reasserting state control of the sector.
His successor, President Nicolas Maduro, continues to assert control. He is seemingly more in control of the country than ever, having recently managed to pack the Venezuelan Congress with handpicked supporters.
Meanwhile, the economic situation is deteriorating.
“While Maduro might seem to be in control, in the last eight years, all his plans to create economic growth have failed – creating not only the exodus of Venezuelans but also corporations that have decided to leave the country,” said Cardenas.
Oil production has been falling for the last two decades, the result of inexperienced and often corrupt leadership and a shortage of investment dollars. The country that once earned $90 billion a year from oil exports now only brings in about $2.3 billion.
A 2019 decision by the U.S. to levy sanctions on Venezuela’s exports has made a bad situation worse.
Oil makes up about 99 percent of the value of its exports. And until recently most of it has been going to the U.S., which was buying about 800,000 barrels per day (bpd). By 2021, the amount has dropped to less than 400,000 bpd. Instead, U.S. frenemies Russia, China, Iran, and Cuba have taken the U.S.’s place as the major consumers of the reduced Venezuelan oil production.
At this point, Venezuela currently has a lower standard of living than Haiti, and according to United Nations Human Rights Commission, 5.4 million Venezuelans have fled to neighboring countries since 2015. Venezuelans are currently the largest group of asylum seekers in the U.S.
One of the big questions for the Biden administration is how to move forward with Venezuela, as it balances its own energy and immigration policy goals. Experts like Cardenas say the sanctions are having an impact but are not necessarily enough for regime change.
The Venezuelan leadership has agreed to participate in negotiations now being held in Mexico City, looking to end its economic crisis but vague about how much it is willing to give up in exchange. The Biden administration has made clear that without concessions from Maduro’s regime for free elections, sanctions will remain the same.
To date, Biden’s approach has been to continue the Trump administration’s approach of exemptions for some energy companies already operating in Venezuela.
This bending of the rules is designed to keep the U.S. footprint – albeit bare bones at this point – in the Venezuelan energy sector, undoubtedly waiting for change to come.
“In this case, letting US companies keep minimum operations in Venezuela has been part of the U.S. foreign policy strategy – after all these efforts the U.S. is not willing to leave the country to the Chinese or Russians,” Cardenas said.
It’s a strategy that has an eye to the future, trying to run the clock until a new administration is in charge of Venezuela.
One of the big questions for the U.S. is whether the current sanctions are actually pushing the Maduro administration towards change.
Maduro’s government has already made some small concessions in efforts to stave off economic collapse, hoping to attract much-needed international investment.
“Venezuela is going to become the land of opportunities,” Maduro said in a June 2021 interview with Bloomberg Television. “I’m inviting U.S. investors so they don’t get left behind.”
Yet the oil markets are not likely to immediately be receptive to reinvesting in Venezuela, and the last two years have shown that even the Gulf Coast refineries can get along quite well without the heavy Venezuelan crude for which they were designed.
And while Maduro is talking about reforms that allow him to still run the country, others involved in the talks are pushing for real elections that could bring in new leadership.
Should this happen, the country could change its economic direction quickly. It has already had to do both the early 1900s, and again in the late 1990s.
For example, if given the needed investment, Venezuela could ramp up production to 2.6 million bpd in the next ten years, according to an estimate by IPD Latin America, a consulting firm.
Yet even if Venezuela gets new leadership, it still has many roadblocks ahead in persuading energy investment to jump back in.
Some Venezuelan oil is heavy and expensive to process, and big companies are becoming held to account for their carbon footprint. And while energy demand is again growing, there is a shift away from fossil fuels that will make importing them less attractive.
Companies, in turn, have said what they will need to return to Venezuela: the end of US sanctions, political stability, predictable and enforceable rules. None of that seems possible without Maduro’s accepting to hold free democratic elections.
Venezuela is also facing the competition of other opportunities, even under a new regime.
The costs and risks of extracting oil in Venezuela means it will have to offer lower prices to make such an investment attractive.
And this strategy for rescuing Venezuela through its oil would come when the rest of the world is talking about how to burn less. Indeed, both French-owned Total and Norwegian-owned Equinor recently announced they will be selling their stakes in a Venezuelan project in order to lower their carbon footprint.
As the current Venezuelan administration faces growing pressure to decarbonize, it might just help tip the balance to usher in a new way of doing business in Venezuela.
Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE.
UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.