Venezuela's natural resources

Until the mid-1930s, Venezuela’s principal export was coffee, but the discovery and exploitation of oil—which began in the early 1900s but peaked later in the century—changed the economic orientation of the country. Oil remains the principal product and export, and the nation consistently ranks among the top ten exporters of oil in the global economy. The country is one of Latin America’s most important oil producers, but economists warn that Venezuela is too dependent on this sole commodity; as the price of oil goes up or down, so does the nation’s economy.

The Country

Venezuela is a tropical country that sits along the northern coast of South America. The Caribbean Sea and Atlantic Ocean demarcate its shoreline. The northern third of Venezuela consists of narrow coastal lowlands, a branch of the Andes Mountains, and a teardrop-shaped Lake Maracaibo. Its midsection is the expansive east-west grass-covered plains of the Orinoco River and its western tributaries. The southern part of the country consists mostly of the ancient rocks of the Guiana Highlands. Colombia, Brazil, and Guyana are to the west, south, and east, respectively. Venezuela’s total area is roughly twice the size of California. Venezuela is a mid-sized country for South America. It is about one-tenth the size of Brazil (South American’s largest country) but ten times larger than French Guiana (the continent’s smallest country).

In 2008, Venezuela was one of the world’s leading producers of crude oil. However, by 2024, it was only the world's eighteenth largest oil producer. The principal oil deposits are under the offshore Caribbean-Atlantic shelf, the Maracaibo basin, and the Orinoco plains. This resource accounts for about 90 percent of the total value of the nation’s exports, and it gives the country a trade surplus annually. The nation also exports iron, steel, and aluminum because of a juxtaposition of water power, iron ore, and in the Guiana Highlands.

Petroleum

Venezuela's government nationalized its oil industry in 1975–76, creating Petróleos de Venezuela S.A. (PDVSA), the country’s state-run oil and company. PDVSA accounts for about 50 percent of the government’s revenue and about 80 percent of nation’s export earnings. The company has lucrative contracts with foreign companies that drill for the country’s oil and natural gas. PDVSA refines about one-third of the crude oil and all the natural gas that these ventures produce. The remaining crude oil is shipped to other countries (mainly to the United States) for refining. CITGO, a familiar company name in the United States, is a wholly owned subsidiary of PDVSA that has about fourteen thousand branded retail outlets (both directly owned and affiliates) in the United States.

Oil production in Venezuela comes from four major basins: Maracaibo, Falcón, Apure, and Oriental. The latter three basins make up the so-called “Orinoco Belt,” which runs east-west across the middle of the country in the Orinoco plains region. The Maracaibo basin supplies slightly less than one-half of Venezuela’s oil production. The increasing depth of remaining oil in this basin requires heavy investment to maintain current capacity. For example, in order to lessen an ongoing decline in withdrawal rates, oil drillers reinject natural gas into the oil reservoirs in order to increase pressure in the deeper wells. The Orinoco Belt has crude oil that is extra heavy and requires unconventional extraction and refining methods. Refineries along the US Gulf Coast are specifically designed to handle the heavy crude varieties; consequently, that region is the largest recipient of the Orinoco crude exports. Besides the United States, other important destinations of Venezuelan include South America, Europe, and the Caribbean (especially Cuba). Much of the crude oil that is exported to the Caribbean is refined there and re-exported as petroleum products to other locations.

Industry experts calculate production was 761,000 barrels of oil per day in 2023, but the production could be higher, because in 2021 the country had proven reserves of about 303.806 billion barrels. Venezuela’s oil production has fallen, but PDVSA has planned to develop the Orinoco Belt reserves aggressively. The most notable companies drilling in this region—such as Conoco-Philips, Chevron Texaco, and Exxon-Mobil—were American until 2008 and 2009, when PDVSA signed contracts with oil companies from India, Japan, Russia, Iran, and China to exploit the heavy Orinoco crude.

Oil prices began falling in 2014 and have added to Venezuela’s economic crisis. Additionally, some US and multinational firms have cut back or shuttered their operations in the country, due to a lack of sufficient access to dollars, price controls, and stringent labor regulations. PDVSA’s poor cash flow has also been a factor in slowing investment in petroleum and consequently reducing oil production.

Natural Gas

Venezuela does not export natural gas to the global economy, a fact that is likely to change in the future. The nation had more than 5.6 trillion cubic meters of proven natural gas reserves in 2021; in the Western Hemisphere, only the United States had more reserves. About 90 percent of Venezuela’s natural gas production occurs in association with oil reserves. As a result, the petroleum industry consumes more than 35 percent of Venezuela’s natural gas production, with the largest share of that in the form of reinjection to aid crude oil extraction. PDVSA produces the largest amount of natural gas in the country, because there is limited participation of privately owned Venezuelan companies in the sector. However, since the late 1990s, the government has permitted foreign private companies to explore for new reserves in the Orinoco River region and off the northeast coast. The exploratory work has proved that the natural gas reserves in both areas are commercially viable. The offshore reserves straddle the maritime boundary between Venezuela and Trinidad and Tobago. The two countries reached an accord spliting the maritime reserves in 2007; 75 percent of the production will go to Venezuela.

As of 2009, Venezuela planned to build liquefied natural gas (LNG) plants that convert natural gas, which is predominantly methane (CH₄), to liquid form for ease of storage and exporting. However, by 2024, it had not built these plants. The government instead planned to increase its offshore natural gas production and export it as LNG. In 2023, Atlantic LNG signed an agreement that enabled Trinidad and Tobago's state owned National Gas Company to increase its equity in liquified trains and allow third-party access to countries such as Venezuela.

Water Power

Hydroelectricity is electrical power that dammed stream water generates when it is released through turbines. It is a renewable form of energy and therefore relatively cheap to produce compared to energy derived from fossil fuels. Venezuela ranks ninth in per-capita production of hydroelectricity among the 149 nations that produce it. Hydroelectric energy supplies 25 percent of the country’s energy needs (compared to 5.6 percent in the United States). The nation’s hydroelectricity comes from dams built on the rivers of the Guiana Highlands, especially the Caroní River, which has four dams. The government planned to build two more dams on that river. The Guri Dam, which is just above the mouth of the Caroní, began operations in 1978 and has the third largest generating capacity among hydroelectric dams in the world. The Three Gorges Dam in China and the Itapúa Dam on the border of Brazil and Paraguay are first and second in generating capacity, respectively.

Water power is important to Venezuela’s participation in the global economy in three ways. First, the usage of water power rather than oil to produce energy allows the country to sell more of its oil to other nations. Second, Venezuela generates more hydroelectricity than it consumes, so it earns extra income by exporting surplus hydroelectricity to neighboring Colombia and Brazil. Third, and most important from an economic standpoint, Venezuela is able to use low-cost hydroelectricity to produce and export large amounts of iron, steel, and aluminum to the global market. In value terms, iron and steel exports rank second and aluminum ranks third in Venezuela’s overseas economy.

According to the World Factbook, in 2022, Venezuela received 77.6 percent of its electricity from hydroelectricity, 22.3 percent from fossil fuels, and 0.1 percent from wind.

Iron Ore

Venezuela’s iron-ore deposits are in the Guiana Highlands, which rise behind the city of Ciudad Guayana, the industrial heart of the country. The fast-flowing Caroní River descends from the mountains to generate the electricity that powers the iron and steel mills of the city. The city, which is near the juncture of the Caroní and Orinoco rivers, is one of Venezuela’s fastest-growing urban centers. Demographers expect that Ciudad Guayana will reach two million people by 2030. The city’s growing economy and Venezuela’s steel production would not be possible without the juxtaposition of iron and the Guiana Highland’s fast-flowing rivers.

The mining of iron ore for steel production dominates the economy of the Guiana Highlands. In the vastness of the mountains lie huge deposits of iron ore and bauxite (the raw material for aluminum). The region also has deposits of gold, silver, uranium, nickel, and phosphates, but iron ore is the most abundant and valuable ore of the region. Bauxite ranks second in value. After World War II, the great iron-ore deposits on the northern rim of the plateau attracted the former giants of the US steel industry—the US Steel and Bethlehem Steel corporations—to the region. Both companies had large open-pit mines. The main U.S. Steel mine covered the entire top of the mountain Cerro Bolívar. Bethlehem Steel’s main mine was nearby at the town of El Piar. These companies mined the ore and shipped it a short distance by rail to barges waiting on the Orinoco River. The barges took the ore to the Paria Peninsula, just beyond the mouth of the Orinoco. There, the ore was loaded on oceangoing carriers for export to the United States.

The Venezuelan government took over the iron-mining operations in 1975. It now controls all aspects of iron-ore mining and steel production through the mining conglomerate CVG Ferrominera Orinoco. The company controls the extracting, processing, transporting, and marketing of the iron ore and its products. Its headquarters are in Puerto Ordaz. Rather than exporting the iron ore as the US companies did, Ferrominera processes it into iron and steel at its plants at Ciudad Guayana. The largest market for Venezuelan steel is the domestic oil industry. PDVSA needs structural steel and iron and steel pipes. Nevertheless, iron-ore products—iron, iron pellets and ingots, and flat-rolled sheets of iron and steel—rank second (behind petroleum) in value among the country’s global exports.

Bauxite

Venezuela has one of the world’s largest supplies of bauxite, the ore for making aluminum. Like iron ore, bauxite is in the country’s enormous Guiana Highlands region. The bauxite is a residual rock that formed as a result of laterization of Tertiary sediments that lay horizontally and unconformably on the Precambrian rocks of the highlands. Except for the dissected topography, the bauxite is relatively accessible in two horizontal layers about 4 to 10 meters below the summit surfaces.

The bauxite ore consists of one or more aluminum hydroxide minerals plus various mixtures of alumina-silicates (such as clay), iron oxide, silica, titanium, and other impurities in trace amounts. Processing alumina starts with separating it from ore by means of a wet chemical caustic leach process. Next, the alumina is smelted by subjecting it to electrolytic reduction in a molten bath of natural or synthetic cryolite to produce aluminum metal. In 2008, six companies operated fourteen primary aluminum smelters. The required a huge amount of electricity, which hydroelectric dams produced relatively cheaply. The operation of those smelters placed Venezuela fifteenth in production of aluminum, behind Mozambique but ahead of Tajikistan. In the same year, the country accounted for 2.9 percent of the world’s bauxite and 1.4 percent of aluminum output. Venezuela consistently ranks in the top twenty-five exporters of aluminum. The main importers of Venezuelan aluminum are the United States, Mexico, Japan, the Netherlands, and Colombia, in descending order.

Other Resources

Venezuela also is a producer of other commodities, although none holds more than minor ranking in global exports. These minerals are sulfur (6 percent), feldspar (2 percent), and silica sand (1 percent). Miscellaneous commodities ranking less than 1 percent include coal, lead, zinc, copper, nickel, gold, titanium, diamonds, and uranium. Most of these commodities come from mining activities in the Andes Mountains or Guiana Highlands.

Economic Collapse

Despite its great wealth in natural resources, in the ensuing years following the death of authoritarian leader Hugo Chavez in 2013, Venezuela is commonly acknowledged as a failed state. Under Chavez, Venezuela committed to economic and social policies that ultimately proved ruinous. Foremost among these was the near-total reliance on petroleum as the primary source of the nation’s revenue. Excessive inflation had been a perennial issue while Chavez remained in office. Shortly following his death, the plunge in petroleum revenues coupled with high inflation led to the collapse of the Venezuelan economy. This was sparked as the price of petroleum dropped from $100 a barrel in 2014 to $30 in 2016. The implosion of Venezuela’s economy had yet to be reversed in the subsequent decade. Corruption, mismanagement, and the collapse of private sector businesses all contributed to the inability to restore petroleum production levels. Other sectors of Venezuelan industry that supplied natural resources have likewise seen reduced production. Foreign investment needed to ensure Venezuela's ability to capitalize on these resources has diminished because of increased risk. In 2022, the Council on Foreign Relations reported that 77 percent of Venezuela’s twenty-eight million citizens lived in extreme poverty, with more than six million having emigrated since 2014.

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