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Page added on September 3, 2016
Venezuela’s Oil Output Set To Collapse As 1 Million Take To The Streets
Hundreds of thousands of protesters took to the streets in Caracas on September 1, demanding the removal of Venezuelan President Nicolas Maduro. Estimates peg the number of protesters at about 1 million, clogging the capital’s streets amid the country’s worst economic crisis in its modern history.
“We are going to defeat hunger, crime, inflation and corruption. They’ve done nothing in 17 years. Their time is finished,” one protester said according to a Reuters report.
Venezuela’s economic crisis has morphed into a political and humanitarian disaster. The collapse of oil prices has hollowed out the country’s sole source of export revenue.
But the problem for Venezuela is that a spiral of debt and deprivation will simply fuel further desperation. Oil exports have already declined by about 300,000 barrels per day as of June from a year earlier as PDVSA fails to keep up with maintenance and electricity blackouts knocked refineries offline. After counting for domestic consumption and the oil that is set aside for loan repayments to China, Venezuela only has about 900,000 barrels per day left for exports, according to Russ Dallen of Caracas Capital Markets, cited by Bloomberg in an alarming September 1 article on Venezuela’s predicament.
However, as Luisa Palacios said in an August report published by the Columbia University’s Center on Global Energy Policy, “the most severe risks to oil markets…still lie ahead.” PDVSA is struggling to pay for the needed imported diluents to mix with its heavy crude oil, without which, production could fall. PDVSA has also fallen deeply into arrears with oilfield service companies, firms that have cut back on operations because of lack of payment. And while production has already declined by 230,000 barrels per day this year, the Columbia University report says, exports have not yet seen a corresponding drop off because of the meltdown in domestic demand. As such the problems with Venezuela’s oil is worse than the headline export figures suggest.
Thus far, Venezuela has prioritized debt payments, even above the needs of its populace, a seemingly cold and self-defeating strategy. But the Venezuelan government appears intent on keeping access open to international debt markets, so it continues to use its shrinking pile of cash to meet its bond payments. However, it faces its toughest challenge yet in the next two months. Venezuela – both the sovereign and the state-owned oil company PDVSA – has large debt payments falling due. In October, it must meet a $1.8 billion payment followed by another $2.9 billion due in November. Even if it can somehow make those payments, next year things only get worse. In April 2017, for example, it has to repay $3.8 billion in maturing debt.
Even with Venezuela’s determination to meet those deadlines, it may not have the cash to do so. That could force a restructuring or some sort of negotiated settlement or refinance agreement with creditors. But so far no deal has been struck despite rumors. “Perhaps signaling more precarious finances, PDVSA continues to insist on the need for debt re-profiling of the 2017 maturities,” Siobhan Morden of Nomura Holdings Inc., said in a recent research note to clients, according to Bloomberg. “Though more worrisome is the nine months of headlines without any follow-through.”
The implied probability of a default based on credit default swaps suggests that the markets are predicting a 50-50 chance that Venezuela fails to pay over the next year. Over the next five years, the markets are more certain – there is a 91 percent chance of default based on credit-default swaps, Bloomberg says.
And while diverting increasingly scarce resources to pay international creditors while people go hungry in the streets is an absurdity, Venezuela has only bad options at its disposal. Oil production could be crippled even further if it were to default on bond payments, Luisa Palacios of Columbia University says. Another 200,000 to 300,000 barrels per day could be lost if Venezuela is unable to import diluents, a disruption that could occur from a credit event.
“The downside risks to the production outlook in 2016 are already materializing. But if there is no political and economic stabilization in the country, the risks to oil production and exports will continue well into 2017,” Palacios wrote in August. “So while Venezuela has already become a headline risk for global oil markets, the true magnitude of its supply risks might lie ahead.”
By Nick Cunningham of Oilprice.com
30 Comments on "Venezuela’s Oil Output Set To Collapse As 1 Million Take To The Streets"
shortonoil on Sat, 3rd Sep 2016 7:58 am
The end of the oil age will come one producer at a time. Venezuela has a combination of very low quality oil, and a very corrupt system. It certainly isn’t surprising that they are likely to be the first to go. But, as the overall system (Petroleum Production System) degrades others will follow as sure as night follows day.
The system (PPS) is consuming an ever larger percentage of what it produces. It can be likened to a snake eating its own tail. Each year it eats another 1.3% of itself. A point is obviously reached where another bite kills it.
The system, in total, now requires 56% of what it produces to continue operating. Some individual producers require a little less; some more. Venezuela required more; but what is happening to them is happening to the entire system. The only difference is that when the wealthier nations get down to eating their cats and dogs, CNBC won’t be covering it.
http://www.thehillsgroup.org/
Sissyfuss on Sat, 3rd Sep 2016 8:04 am
I think this unfolding scenario in Venezuela is consistent with Shorts’ formulas for what is coming to all of our oil based economies. Go long on horse drawn plows.
Cloggie on Sat, 3rd Sep 2016 8:15 am
“The end of the oil age will come one producer at a time.”
The end of the oil age will come one wind turbine at a time. Oil depletion and price competition with renewables will do the rest.
Horses and carriages went out of business, not because we ran out of horses and carriages, but because cheaper forms of transport emerged.
shortonoil on Sat, 3rd Sep 2016 8:33 am
“The end of the oil age will come one wind turbine at a time. Oil depletion and price competition with renewables will do the rest. “
So what you are saying is that he world is going to build 1.94 billion, 20 kwhr wind turbines over the next 10 years.
AND, that Santa is going to appear this year with a really big sleigh pulled by eight elephants with red noses. You are definitely putting too much cinnamon on your toast!
Cloggie on Sat, 3rd Sep 2016 8:45 am
“So what you are saying is that he world is going to build 1.94 billion, 20 kwhr wind turbines over the next 10 years.”
No, but what does this “10 year” mean?
You think that in 10 years time we will be out of fossil fuel?
Nobody really knows accurately when peak oil will be, but for the time being it is more likely 2030 than 2016. Ask oil nerd rockman, since you are not going to take it from me.
And apart from oil there is enough “high hanging fossil fuel” around to fry us all (just bring a ladder), I mean to set up a renewable energy base.
“AND, that Santa is going to appear this year with a really big sleigh pulled by eight elephants with red noses.”
Santa was yet another cultural item brought to America by the Dutch. So I have more intimate knowledge about him than you and I can tell you first hand that this year he will arrive per e-sleigh.
Sinterklaas (“Santaclaus”) from the 13th century:
http://www.geschiedenisbeleven.nl/een-verboden-feest-vastgelegd-door-jan-steen/
Ben Parkinson on Sat, 3rd Sep 2016 11:25 am
This article contains some misconceptions. Oil vs. food? How can the state provide food if they cannot even provide oil? The presumption is that the state knows how to calculate food prices in the midst of double digit inflation, which is absurd. And the effect of one tiny nation on the global oil market is minuscule.
Paul on Sat, 3rd Sep 2016 11:34 am
The big issue is that Venezuela spent so much money on social programs under Chavez that they failed to fund PDVSA to drill and upgrade production. By short-changing the oil industry they decimated production and thus cash flow.
Very ignorant indeed.
shortonoil on Sat, 3rd Sep 2016 11:47 am
So where exactly are you planing on coming up with the energy to build 1.94 billion, 20 kwhr wind turbines. WalMart?
Sounds like a really, really good plan!
“No, but what does this “10 year” mean? “
There is no new oil coming on line! How long do you think existing fields are going to last, forever?
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/icbkDFACM4iA/v2/-1x-1.png
This graph was put up here yesterday. You have the memory retention capabilities of a horse fly. You had better start looking for a new career; your trolling days are numbered.
asaaghyd on Sat, 3rd Sep 2016 12:04 pm
Only partially true Paul. What you seem to ignore is that the real culprit to blame is not the social spending as much as rampant corruption and mismanagement. And it still is.
Boat on Sat, 3rd Sep 2016 12:21 pm
Peak oil happens when the growth of electric vehicles matches new vehicle growth. In 2015 that was around 22 million.
To short and his believers. Why is the vehical market still growing. It creates demand that you claim the world can’t afford.
Anonymous on Sat, 3rd Sep 2016 12:31 pm
@short, what evidence. do you have if any, that venezuela is ‘very corrupt’? You sound like a uS state dept, uSaid(aka CIA) parrot here. While I have little doubt corruption exists there in some form or another, I would say the exact same thing about my own oily, neo-liberal govt, and society as well. And your own amerikan empires corruption is simply off the charts. Your contention venezuela is a sinkhole of corruption is just a 1%’er talking point. I assume, like all amerikans, ‘very corrupt’ = not controlled by uS, extractive, multi-national corporations and the CIA?
@paul. Yet another uS state dept talking point. What business it is of yours, or the uS’s, how venezuela spends ITS money? Ive seen this trope repeated (mindlessly) on many occasions. If only they hadnt wasted all that perfectly good money funding things like schools, health care, public infrastructure etc,then things would be just peachy. Fact is you dont have any information to support that contention, any more than short does with his ‘very corrupt’ charge.
So lets get a few things straight here.
Venezuela is not some poster child for the early arrival of peak oil, like some here seem to believe. That nation has been under relentless economic , and political attack, by the amemo-zionist regime that infests washingdum. The crisis there is NOT some natural response to resource depletion, but is an ENGINEERED crisis, by washingdum and its local allies. Like the so-called ‘Syrian Civil War’, Venezuela’s current crisis, are artificial affairs, carried out and implemented by outside forces. This is not to suggest, that even in the absence of washigdums and its oligarch allies sanctions and destabilization efforts, that venezuela would be trouble-free, of course not. The uS has been focusing its much of its attention, and own declining resources, on its phoney ‘War on Terror'(tm), and hasn’t been paying as much attention to the South and Central American areas as it customarily has. That has changed somewhat. The uS has upped its efforts to topple numerous govts in the region. Brazil is also in a deep crisis, where the recent ‘soft-coup’ against the previous govt, also had the uS’s sticky fingerprints all over it as well.
No, paul, the ‘big issue’, is uS directed economic and political warfare, aimed at creating maximus chaos and destabilization. Not how much money the state oil firm allocates to its own internal operations. amerikans dont want examples of oil revenues being used to fund social programs that improve the lives of the poor to exist, especially in S.A. Might give people ideas, like they can own and benefit from their own resources, as opposed to the investor class residing in Jew York.
http://www.globalresearch.ca/venezuela-cuba-nicaragua-hostile-media-coverage-and-economic-sabotage/5535527
ghung on Sat, 3rd Sep 2016 12:32 pm
asaaghyd said; “…..the real culprit to blame is not the social spending as much as rampant corruption and mismanagement.”
The real culprit in Venezuela was oil itself. They had a fairly robust and diversified economy, including agricultural exports, until they became a one-trick oil pony.
“Prior to the 1950s and the initiation of large-scale oil exports, agriculture, fishing, and forestry were central to the Venezuelan economy, producing more than half the gross domestic product (GDP). As late as the 1930s, agriculture still provided 22 percent of GDP and occupied 60 percent of the labor force. As the petrochemical industry expanded rapidly in the 1970s and 1980s, however, the proportion of the labor force in agriculture dropped from one-fifth to about one-tenth. By 1988 agriculture contributed only 5.9 percent of GDP, employed 13 percent of the labor force, and furnished barely 1 percent of total exports. Agriculture has continued to decline, accounting for about 5 percent of GDP and 10 percent of employment in 2004.[1] According to a 1997 government survey, 3.4m hectares of land are suitable for farming (and a further 17.1m hectares suitable for pasture) – but only 0.7m hectares were employed in grain production.[2]…”
https://en.wikipedia.org/wiki/Agriculture_in_Venezuela
The good news is that the country still has plenty of arable land, some fallow for decades. Indeed, they are implementing conscripted service (some call it “slave labor”), making folks work on farms to try and feed themselves since they can no longer afford to import most of their food.
thomas couchon on Sat, 3rd Sep 2016 12:33 pm
NO WHERE in this story is it stated that Venezuela is running OUT of oil! They have mis-managed their production and refinement as a result of abject stupidity! If they finally get rid of Maduro and his cadre of idiots, then put into office some real people with a bit of intelligence, Venezuela can be a strong country once again. The ONLY failure here has been from Socialist Policies…..run by idiots. Just ANOTHER example of the total failure of Socialist Principles!
Davy on Sat, 3rd Sep 2016 12:43 pm
Right Ghung, Venezuela is a poster child for the oil-curse. The modern world is full of curses. The US has the curse of the car culture and all the damage that has caused. Look at China’s curse of rapid industrialization. Venezuela had the money to get themselves into lots of trouble. The US made matters worse of course but the blame lies clearly with the Venezuelans.
Alaira on Sat, 3rd Sep 2016 12:43 pm
Must suck for those people. But yea Chavaz’s programs were just not sustainable and this is the result.
ghung on Sat, 3rd Sep 2016 12:47 pm
thomas couchon said; “NO WHERE in this story is it stated that Venezuela is running OUT of oil! They have mis-managed their production and refinement as a result of abject stupidity!”
Of course, crashing oil prices had nothing to do with it. I suppose “abject stupidity” is why so many US producers (and most other oil producers) are in a pickle these days.
ted weiss on Sat, 3rd Sep 2016 12:53 pm
this is our country(USA) tomorrow if Hillary gets in
Hoodoo on Sat, 3rd Sep 2016 12:56 pm
This is not about Socialism causing the problem here. It doesn’t matter what type government Venezuela has or had. Venezuela is just reverting to being a banana republic. This crisis is actually only a correction, not a reversal. Oil was just a temporary boom commodity that made the country seem prosperous, not a solution to an insoluble one of overpopulation in a nation of scant resources. Venezuela’s day in the sun is over at least for a couple of generations and even then only an oil boom will temporarily bring it back.
Yachtsman on Sat, 3rd Sep 2016 1:10 pm
Will the last person to leave Venezuela please turn off the lights…………
Yachtsman on Sat, 3rd Sep 2016 1:11 pm
Will the last person to leave Venezuela please turn off the lights………….
Luis Tavarez on Sat, 3rd Sep 2016 1:39 pm
All you should be writing the right thing do not say the opposite the really happening in Venezuela The MUD (UNDESTAND CRIMINAL GROUP CONTROLLED BY THE VENEZUELA TRAIDORS AND THE ULTRA RIGHT GROUP IN U.S.A)They are trying to taking the government down because they no longer can steal the natural sources and sealing in order to be most richest. Less the 50,000 people participated in the protect and also they tried to poison the people selling food over due, also what you need to say here in order to North American people know is: In the last 4 years they made over 1 million 200,000 houses for the poor people, having better education, Doctors, etc. that never had in the pass. Maduro is too nice all these PEOPLE (OPOSITION LEADRES)should be arrested and sent to jail for life or doing what is done every day in this country killing hundreds people every day in each city only for be traffic violation. where the Human right? where?. THAT IS FACT.
Luis Tavarez
peakyeast on Sat, 3rd Sep 2016 2:18 pm
Just remember who is the mother of all banana republics – and the one who wants and fight for everybody else to be a banana republic…
That is the USA.
If you dont believe it – you should read some history.
perry on Sat, 3rd Sep 2016 2:35 pm
Oil extortion is over. From the Arctic circle to the Mexican border there is more Petroleum in the earth then we could consume in a thousand years. Technology is now available to extract all of it. The Arabs know this, that is why they will not pull back on production and are trying to get every Yankee buck they can before We cut them all off.
shortonoil on Sat, 3rd Sep 2016 2:39 pm
“@short, what evidence. do you have if any, that venezuela is ‘very corrupt’? “
I worked there on, and off for ten years.
Every thing happens with a bribe, and every one is on the take.
The last time was there it cost my employer $2000 to get me out of the country. The Customs “Official” said that I had the wrong stamp on my passport, even though it was the right stamp when I came in. For $2000 he agreed that it was, after all, the right stamp.
That’s Venezuela, without oil it is back to growing coca leaves, and murdering someone.
dennis on Sat, 3rd Sep 2016 2:43 pm
Venezuela’s problem has been severe mismanagement and really crappy oil. How can a country like Saudi Arabia with a population similar in size have such a high level comfort for it’s citizens while Venezuela is mired in poverty.
wolfpack on Sat, 3rd Sep 2016 2:51 pm
Anonymous- By your writings you can qualify to be a poster child for Socialism/ Communism by defending the Lenin-Marxist state controlled government concept and blaming everything on the free enterprise model. Let me ask you a question. I will move into your front yard and you will provide shelter, food, medical assistance and internet. It will not cost be anything but you have to pay for it all. If you say no, then you reject your own socialist/ communist ideology and therefore you are a hypocrite.
Butch on Sat, 3rd Sep 2016 3:20 pm
@Anonymous – You have no idea what you are talking about, you have been reading too many spy magazines.
I lived in Venezuela for 6 years from 1998 to 2004, the rise of Chavez years, and the story in Venezuela has everything to do with internal corruption. The country is corrupt at every level, police, banks, judges, politicians, you can buy off anybody for almost nothing and the people were sick of it. Along came a military strongman who promised to end corruption, and he said he wanted a socialist state, the people were willing to give up some freedom to end the corruption. He not only did not end corruption he made it worse, in Venezuela all the spoils go to the victors, he and the chavistas filled their pockets and robbed the people of their money, property and freedom, they ended up doing a deal with the devil. Chavez wanted a nation which he controlled and raised himself to a god like figure, he gave the poor crumbs just to buy off their votes. While I was there, he would load up poor men on buses, give them whiskey, 2000 bolivars (equal to 50 cents at the time) and drop them at the US embassy to protest, does that sound like he cared about the poor ? during protests he would position chavistas with rifles to shoot at protesters, he jailed, on phony charges, all his enemies. He used the poor, they make up 85% of the population and would die for anybody willing to give them anything. Chavez was nothing more that a ego driven dictator, his own family begged him to step down for the good of the country, he refused and his wife divorced him. Chavez used his war on the US as a way of trying to unite Venezuelans around a common enemy, an old trick. The US has done nothing to Venezuela. Venezuela has oil everywhere but no money to invest, the investment had been made by foreign oil companies, in 2004 Chavez expropriated all oil fields and threw the foreign companies out, an attempt to appease the people telling them the oil money belonged to VE, but they have no money to maintain the fields as PDVSA is stripped of profits by the gov and the oil fields they took fell into ruin, but with oil prices rising VE held things together, when oil collapsed the drop in production and price destroyed the already centrally controlled screwed up economy they had, an economy based on Chavez’s self serving political engineering. In short, all of Venezuela’s problems are caused by internal politics and corruption, having lived there for 6 six years I will tell you that it is as close to paradise destroyed by politicians as I have ever seen, there is a lesson there
rockman on Sat, 3rd Sep 2016 3:58 pm
Sissy – Blame corruption or incompetence or self-serving political motives: it doesn’t matter who you point a finger at: the situation in Venezuela has nothing to do with PO and then come close to predicting the future of others as we stumble down the PO path.
Consider this latest update: Venezuela would be the poster child at the other end of the spectrum of countries dealing with the ramifications of PO. And it isn’t for lack of capex but because of the way oil revenue was allocated. Last year it was the 9th largest exporter with $28 BILLIOON coming in during 2015. Hugo provided the Vz poor with the Mother of All Tits to suck on. Kept him in power for a very long time. One of many examples: “Last February President Maduro announced that his citizens will soon be paying a lot more for motor fuel. Before the announcement, a liter of high-quality gas in Venezuela cost about 1¢. Soon it will be increased 6,000% to 60¢ per liter. Which is still much less then it cost to produce it.
In the meantime lack of infrastructure maintenance will cost the country TENS OF $BILLIONS in revenue in coming years. A period during which the country will still have more PROVEN COMMERCIAL oil reserves the any other. And COMMERCIAL at the current prices: the country was producing significantly more COMMERCIAL oil when prices were much lower then today’s.
Sissyfuss on Sat, 3rd Sep 2016 7:01 pm
Rock, I keep reading it’s the wrong kind of oil;it’s crude is too crude and also what happened to the Chinese? Did they turn their backs after investing massive amounts of money in Venezuelas’ oil business? Maybe even they think there’s too much corruption.
Kenz300 on Mon, 5th Sep 2016 10:46 am
Electric vehicles are coming…..battery prices keep dropping…. soon electric vehicles will be at cost parity with ICE fossil fuel vehicles…..
Big Oil’s Nightmare Comes True – EcoWatch
http://www.ecowatch.com/california-climate-policy-1988157045.html
The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them.
Climate Change is real….. it will impact all of us…
It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..
The world is moving to embrace alternative energy sources…….. the fossil fuel companies can transform themselves into “energy” companies or they can die a slow death.
As Climate Change impacts more people there will be a bigger backlash against fossil fuels.
Clean energy production with wind and solar…….
Clean energy consumption with electric vehicles……