Trump says he’ll unleash Venezuela’s oil. But who wants it?
Shortly after launching a dramatic raid Saturday in which U.S. forces kidnapped Venezuelan leader Nicolás Maduro, President Donald Trump justified the action by promising to revive Venezuela’s moribund oil industry. The country has by far the world’s largest crude oil reserves, accounting for nearly a fifth of the world’s remaining known crude oil, but its production has fallen under Maduro, who has ruled the country since 2013.
“We’re going to ask our very large American oil companies, the largest in the world, to come in, spend billions of dollars, repair the badly damaged infrastructure, the oil infrastructure, and start making money for the country,” Trump said at a news conference at Mar-a-Lago in which he announced Maduro’s capture.
This intervention comes at a pivotal moment for the global oil industry, which continues to disdain the prospect of a broad transition to renewable energy. For this reason, it is not clear whether future markets can justify a large increase in investment in Venezuela. On the one hand, the country’s extra-heavy crude oil is perfect for diesel and jet fuel, which are useful in hard-to-decarbonize industries. This makes it less threatened by the meteoric rise of electric vehicles replacing gasoline cars. On the other hand, the world is already experiencing an oil glut and analysts expect demand to peak over the next decade. Even though there are buyers for additional oil that could be pumped in Venezuela — some of them on the U.S. Gulf Coast — experts say a full oil recovery in the order Trump promised may not be on the agenda.
“There is a guaranteed market for this, but a market that has its limits in terms of size,” said Antoine Halff, founder of the climate and data analytics company Kayrros and a non-resident scholar at Columbia University’s Center on Global Energy Policy.
As electric vehicles and renewable energy continue to expand, global oil demand appears to be nearing a peak. Although the exact timing of this peak is disputed – it could occur within four years or in more than 15 years – almost all analysts agree that it will occur. At this point, there may no longer be enough demand to continue to exploit new oil fields, regardless of their size. And given that it will take many years just to update the infrastructure that will increase oil production in Venezuela, investors may decide it’s not worth it.
Then there is the issue of predicting future prices in a notoriously volatile industry. Oil companies only make profits when global oil prices stay above a certain level. For U.S. companies producing shale oil in Texas, for example, that figure is around $60 per barrel, which is close to the current benchmark price. For Saudi Arabia, it’s closer to $90 a barrel, because oil revenues cover almost all of the kingdom’s public spending. In the most recent oil fields, such as those off the coast of Guyana, the price does not exceed $30. There are already fears that an oversupply of oil around the world could cause prices to fall over the next year, making new fields less acceptable to investors. If demand stabilizes, a surge in Venezuelan crude would lower prices even further. Since Venezuela is a member of OPEC, it would have to coordinate its production with that of Saudi Arabia and other major producers, which would likely prevent Venezuela from flooding the market.
Nonetheless, there will likely be long-term demand for the specific type of oil produced by Venezuela. Indeed, any energy transition will not occur at the same speed in all sectors of the transport sector. The expansion of electric vehicles will first replace passenger cars and mopeds, which rely on lighter oil from deposits like the Texas shale. Larger vehicles like planes and heavy trucks are harder to replace — they need more power than electric vehicle batteries can currently provide — and they rely on heavy oil like Venezuela’s. A report from oil trading company Vitol found that “the initial pace of decline [for diesel] expected to be slow compared to gasoline, but starts to accelerate from 2035. » Few other countries have the same kind of extra-heavy reserves as Venezuela, and those that do, like Canada, have much higher production costs.
“Those are the hard segments to cut,” Halff said. “This is the part of oil demand that doesn’t seem to be declining quickly.
Venezuela was pumping more than 3 million barrels of oil per day at the turn of the century, but total production has fallen since then. After the government of Hugo Chávez nationalized significant oil infrastructure in 2007, the United States imposed financial sanctions that forced Venezuela to sell its oil at deeply discounted prices. Under the Maduro government, the state-owned oil company has accumulated debts and witnessed an exodus of skilled workers. Pumps and pipelines failed, storage tanks collapsed and production bottomed out at around 500,000 barrels per day during the COVID-19 pandemic.
President Trump promised that his aggressive raid on Venezuela would lead to a revival of that industry, and he reportedly urged U.S. oil producers to help him in the effort. In his remarks after Maduro’s raid, he promised that American companies would return to Venezuela and help export oil to other countries. Given the inefficiency of the state oil sector, analysts say it would be easy to restore the oil sector. a few production in the short term with external investment and sanctions relief.
“Our assumption is that there are a lot of wells that just need to be reworked,” Adrian Lara, senior Latin American oil industry analyst at research firm Wood Mackenzie, said in a note released last month before Maduro’s capture. “You can increase production through operating operations [operational expenditure]without requiring a lot of new investment [capital expenditure]» – in other words, a tune-up rather than a complete wave of new investments.
In the short term, demand is significant. Oil from the country’s vast Orinoco belt is very heavy and viscous, like molasses, unlike American shale oil which is about as fluid as vinegar. This makes it more expensive and carbon-intensive to produce, but also makes it well-suited for conversion to diesel fuel in trucks and other uses like asphalt. There are several refineries along the U.S. Gulf Coast that were built to process this type of heavy crude, and these refineries are operating below capacity. Currently, Venezuela exports most of its oil to China, which would also likely buy more for its own refineries. An industry expert who spoke to the Wall Street Journal said access to these reserves could be a “game changer” in terms of boosting profits for Gulf Coast refiners.
“Right now, there is a big appetite for heavy crude globally,” said Robert Auers, a refined fuels market analyst at energy consultancy RBN Energy. “Even if Venezuelan production came back strong, the global market could easily absorb it. »
But a big stimulus like the one Trump promised would be a far more ambitious challenge, given that it would take decades to unfold. Energy analytics firm Rystad Energy projects that a return to pre-Maduro levels would require an investment of $110 billion, and that those investments would not bear fruit for a decade or more. Even Chevron, the only U.S. oil producer in the country, would have to invest about $7 billion to add another 500,000 barrels, according to a former executive who spoke to The New York Times.
The climate pollution caused by this crude could also play a role in its market appeal. Currently, heavy oil extraction in the Orinoco Belt is among the most carbon intensive in the world, in part because huge quantities of oil methane are flamed during the process. As governments continue to pursue the goals of the Paris Agreement, even intermittently, they could avoid such deposits wherever possible and import low-carbon barrels instead. (The European Union has already committed to doing so.) Many experts believe that the oil majors will hesitate before diving into a resource that is much more difficult to manage than crude from American or Middle Eastern shale deposits.
All of this adds to the political uncertainty that followed Trump’s attempt to remove Maduro. It is still unclear what form Venezuela’s new government will take. Given that other producers like Exxon lost billions of dollars when the Chávez government nationalized their assets, it is far from clear that these oil companies will want to invest amid continued political instability. Past U.S. interventions have demonstrated similar dynamics: Libya’s oil production has yet to recover since the fall of Muammar Gaddafi in 2011, and it took nearly a decade for Iraqi oil production to rebound after the 2003 U.S. invasion.
“I don’t believe in a significant increase in the short term,” said Rudolf Elias, chairman of the supervisory board of Staatsolie, Suriname’s national oil company, which is pursuing an offshore oil project in waters east of Venezuela. “It will be years before the industry comes back to life… so it’s dirty, heavy oil, so it won’t be first in line.”
