Global Insight Perspective | |
Significance | The US$125-billion investment figure is completely unrealistic and at best can be seen as an attempt by the president to give assurances that, despite the uncertain outlook for the economy, the government is committed to continuing investment in this strategic oil sector. |
Implications | With the price of a barrel of Venezuelan crude well below the US$60/b projection set in the budget, the government faces some difficult decisions over possible spending cuts in the months ahead. There have already been signs that refinery projects overseas are being delayed, and there is a risk that some domestic projects may also be affected. |
Outlook | Setting aside PDVSA's own difficulties in financing investments, lower oil prices mean that investments by third parties in the Orinoco Belt may appear less attractive than a year ago. |
President Hugo Chávez announced in his seven-hour annual address to the National Assembly on Tuesday (13 January) that the government plans to invest US$100 billion in 121 non-oil projects and US$125 billion in 88 oil projects between 2009 and 2013. In a statement on the speech released by PDVSA, the national oil company said that under its 2007–15 Business Plan a total of US$45-billion-worth of investment is anticipated in the Orinoco heavy oil belt, of which US$21.8 billion has been allocated to the construction of the Cabruta refinery and two extra-heavy oil upgrade projects. The two latter projects were included in a tender for heavy oil blocks launched last year.
The PDVSA statement also drew attention to operational achievements in the oil sector highlighted in the president's speech. These included a 137,000-b/d increase in oil output last year, raising average production to 3.330 million b/d in 2008 (including production from the Orinoco heavy oil belt), up from 3.193 million b/d in 2007. (These figures probably include natural gas liquids (NGLs) as they are even more optimistic than those normally cited by PDVSA). PDVSA did, however, concede that production has fallen since October in order to comply with a production cut agreed by OPEC members, saying that production at the end of December averaged 3.187 million b/d.
Meanwhile reserves rose thanks to the incorporation of an additional 55 billion barrels of oil reserves, bringing the total volume of proven reserves to 152.561 billion barrels. Under the “Magna Reserva” project the government aims to certify the 235-billion-barrel “oil in place” reserves in the Orinoco belt as proven reserves and raise the country's total reserves to 316 billion barrels by the end of 2010.
Outlook and Implications
The investment target for the oil sector referred to by President Chávez is completely unrealistic even leaving aside the impact of lower oil prices and the global credit crunch on investments in general in the oil industry across the world. The US$125-billion figure presupposes an annual investment by PDVSA and its partners of around US$25 billion. This compares with an actual reported capital expenditure by PDVSA in 2007 of US$11.006 billion and an investment of US$10.456 billion in the first nine months of 2008. It is extremely unlikely that PDVSA will substantially increase levels of investment in the hydrocarbons sector at a time of mounting concern over the impact of lower oil prices on the Venezuelan economy.
Venezuela remains heavily dependent on the oil sector. Oil sales accounted for over 90% of total export revenues in 2008 and almost 50% of GDP, while the expansion of public spending in recent years has been underpinned by high oil prices. At the same time Venezuela is probably overoptimistic as to how much money it can hope to raise from third parties. No breakdown was given as to where funds for the 88 cited projects were expected to come from. Nonetheless, lower oil prices could make capital-intensive projects in the Orinoco Belt less attractive to foreign investors, while the credit crunch and continued regulatory instability faced by private investors in Venezuela means that obtaining the necessary financing for large projects to go ahead could become increasingly difficult.