Luis Giusti: Interview with a Global Oil Insider

Luis E. Giusti, enemies and supporters agree, transformed the global oil industry. As chairman and chief executive officer of global oil mammoth Petroleos de Venezuela SA, best known for its acronym PDVSA, he not only revolutionized Venezuela’s oil production capacity, but also OPEC by forcing a revision of the quota system.

He led one of PDVSA most profound transformations, opening it up to private investment of some $30 billion during the decade that followed his rise to the stewardship of the company in 1995 after decades working as a petroleum engineer. He was also the last CEO before firebrand president Hugo Chávez came to power in 1999.

Since he left Venezuela, on the very day Chávez was sworn in, he has lived in a self-imposed exile and is currently a senior advisor of the Center for Strategic and International Studies, a board member in numerous organizations and companies, and a regular speaker on global energy issues.

Loathed by Chavez for his criticism of how the populist Bolivarian government has mismanaged what was once the second biggest oil company in the world, Mr. Giusti spoke to me in Bogotá, Colombia, his second home outside Washington D.C., as part of a series of interviews for an upcoming book about US energy and national security and Chávez’s role in the current juncture.

Politics aside though, there is no doubt Mr. Giusti is one of the most authoritative experts on global energy matters. The Q&A that follows is an excerpt for Energy Tribune.

Q: What trends do you see for US oil imports in the following decade?

A: We have to define two scenarios: one in which drilling restrictions are maintained and one with increased exploration. If nothing of inland and offshore production comes to fruition, we may see declines in production continue. That means imports will grow. With growth in oil consumption between 1 percent and 1.5 percent per year, a decade from for now the US will need 25 instead of 20 million barrels per day. I have no doubt in my mind imports will grow unless something radical occurs in terms of freedom to drill in the US. You really need to drill. How it plays out depends on who’s in charge. What we’ve seen of President Obama is that he’s more inclined to dismiss fossil fuels. He’s laid out an exclusive decision. Either be a consumer of dirty oil or be an exporter of green energy, which absolutely needs a reality check. If the administration is more willing to drill and open up new areas we could see maybe a couple more million in imports. If we see more restrictive policies, we could see 4 Mbpd or 5Mbpd more.

Q: How important is Latin America to guarantee US energy security?

A: Venezuela could be really the big answer for US oil demand in the future. It would take a lot of investment and a lot of recovery, but Venezuela has the reserves. A well laid plan can bring a couple million more in five years. But it will all depend on what happens in Venezuela. Chavez took over with 3.5 Mbbd, plus 1.2 Mbpd already in implementation. That’s 4.7 Mbpd and that is now down to 2.1 Mbpd (2.5Mbpd according to more optimistic sources). We’re seeing haphazard policy, things that make no sense, so there’s no way to think this will increase significantly in the future. But with a well-organized plan, a more realistic scenario could add 1.2 Mbpd in five years.

Colombia is a place everything that should be done is being done. However, we have to dismiss that this is a boom. After three years of work, proven reserves are still 1.9 billion barrels. A lot of work has to be done, but if we look at scenario where Colombia raises proven reserves to 6 billion barrels, they could build to 1.5 Mbpd and sustain it, unless there is major discovery.

Brazil has major discoveries, but it’s high-cost, deep oil. We can expect Brazil to become a significant exporter in about five years.

So Latin America is important in the margin, but it’s not going to solve the big issue of oil for US, except for Venezuela. Amount of reserves in Colombia don’t guarantee long term supply to the US, and the same thing goes to Ecuador and Argentina, although Brazil is a step ahead. So Venezuela is at the top, Brazil is second, and Mexico is third as possibly solutions for the issue of oil in the Western Hemisphere, if you think the Middle East is always going to have trouble.

Q: What do you think of President Obama’s energy policy?

A: What I would say is that there had been little in terms of policy changes. There is concern about offshore drilling and about global warming. But I think government should go back to the drawing board and think about the consumption of fossils fuels which will definitely dominate the scene.

Q: What policies should this administration take to improve energy security?

A: Give a clear message to counties like Saudi Arabia, to Persian Gulf countries that continue to be stable suppliers to the US. You have to make it clear to them that you have a balanced position in supporting alternative sources and that you recognize the importance of the oil you are importing.

You have to make sure you get the right message to some people. It doesn’t mean that you can’t support alternative sources, but you have a clear message stated in your policy that oil is extremely important. Let others know that you support those imports from those countries. It’s only a recognition of a reality. That is the crux of the whole thing.

Q: China’s recent energy grab in Latin America has been impressive. Should the US be worried?

A: I remember the first time Chinese came. It was difficult for them to be clear on how, more than what, to do. I’m talking about 15 years ago, but they have been working hard on deal-making. Now everything is coming to fruition and they are becoming very important actors. They are getting stronger.

Q: But it seems that they are effectively “verticalizing” the oil value chain, from production, to refining, to marketing, in the Americas. Indeed, some expect Chinese companies to soon become an oil and product supplier to the US. Is this a threat?

A: If you are going to be a big oil consumer, you better be a big player as well. If you look at what’s happening in Japan over the last 20 years, they have become extremely vulnerable because they have little oil production. For China, it’s different to be a simple buyer of oil than to be a producer of oil, to have international refining, to have penetration in the US market, because when you put that mosaic together you are going to be a completely different player and that’s probably what China is looking at. There is no contradiction.

The oil business is a global thing. Countries have policies, but in the end it’s oil companies that do things. What I see is a playing field with increased number of actors. I don’t see a threat to the US. It’s a new playing field.

Energy Tribune