Venezuela's energy production

Official Name: Bolivarian Republic of Venezuela.

Summary: Venezuela is one of the most important oil producers in the world, with the largest reserves of light and heavy crude oil in the Western Hemisphere and the largest reserves of extra-heavy crude oil in the world.

Venezuela, officially known as the Bolivarian Republic of Venezuela, is one of the oldest oil-producing countries in the world. Oil is more than just a commodity that gives Venezuela international presence. It is the fuel behind the ideology of development in the country. Its proven oil reserves are among the top 10 in the world, and it holds the second-largest natural gas reserves in the Western Hemisphere. In 2016 oil revenues were responsible for about 25 percent of Venezuela’s gross domestic product (GDP), and generated approximately 95 percent of the country’s total export revenue.

By 2008, Venezuela was the eighth-largest net oil producer in the world. According to the US Energy Information Administration (EIA), the country produced around 135,000 barrels of oil per day in 2023. Its geographic location and the abundance of natural resources have endowed Venezuela with unconventional oil deposits as well, such as extra-heavy crude oil, bitumen, and tar sands, which approximately equal the world’s reserves of conventional oil. However, its production suffered from a decade-long lack of regular equipment maintenance and lack of funding for repairs.

As a founding member of the Organization of Petroleum Exporting Countries (OPEC), Venezuela plays a crucial role in the world’s oil market. Nevertheless, the story of energy in Venezuela is more complex than narratives of global market integration reveal, since it is also shaped in significant ways by practices of negotiation, interdependence, and resistance.

History of Oil Politics in Venezuela

The development of the oil industry in Venezuela took place under the 27-year rule of General Juan Vicente Gómez (known as the Last Caudillo). During this time, the Venezuelan economy shifted from an indebted agricultural nation to be the second-largest oil producer in the world. Venezuela’s location vis-à-vis the major international oil markets gave Venezuela an advantage over other oil-producing countries at the time (including Mexico, the United States, and the Middle Eastern nations). Vicente Gómez provided the oil companies with an exceptionally advantageous investment climate, the guarantee of labor peace, and flexible business conditions. In turn, oil companies were attracted to Venezuela because of the expectation of large oil deposits, relative political stability, and the good terms offered for the exploitation of the country’s oil resources.

As mentioned above, the relationship that existed between foreign oil companies and the Venezuelan state in the 1920s and 1940s was one based on resistance, interdependence, and bargaining. On one hand, the foreign investor brought capital, managerial skills, and sophisticated technology. On the other hand, the Venezuelan state provided the legal right of access and the power to control the terms under which foreign capital must operate.

In this context, the Venezuelan government played the role of a landlord in relation to oil revenues. In doing so, it experimented with a number of different strategies designed to control the behavior of the foreign oil companies. This process can be seen in all the mining laws and hydrocarbon laws created, sanctioned, and amended by the Venezuelan government at the beginning of the 20th century. The metamorphic relationship between the Venezuelan state and the oil companies changed from one based on extreme submissiveness on the part of the Venezuelan government to one of total control with the nationalization of the oil industry under the administration of President Carlos Andrés Pérez in 1976.

President Cipriano Castro issued the new mining law, the Régimen de la Ley de Minas, in August 14, 1905. It provided one of the most liberal oil policies in Latin America. On April 15, 1914, the Caribbean Petroleum Company (CPC) discovered one of the most important oil fields in Mene Grande, upon successful completion of new field wildcat Zumaque 1. On July 31, 1914, the community of Mene Grande saw what later was referred to as El Reventón, or the explosion. This moment marked the beginning of the oil era in Venezuela.

In 1917, the CPC installed an oil refinery named Refinería San Lorenzo in Mene Grande. With this initiative, the crude extracted from the Zumaque 1 in Mene Grande was refined in the same town, and the Venezuelan government no longer had to transport the crude to other refineries outside the country. This represented an amazing step in the history of oil in Venezuela, because it placed the country on the same level with the most important international oil producers in the world.

On June 19, 1920, Venezuela’s National Congress passed the first hydrocarbons law, the Ley Sobre Hidrocarburos y Demás Minerals Combustibles. The effects of this law were as follows: surface taxes were increased, private landholders got the opportunity to obtain exploration permits on their land, concession size was reduced, national reserves were expanded and could be granted only for exploitation, and the list of duty-free import items was greatly reduced. A second hydrocarbon law was enacted on June 2, 1921. As a result, exploitation area doubled, royalties were fixed at 10 percent (in cash or kind), and waste and fires were to be avoided.

One year later, on June 9, 1922, the National Congress approved a third hydrocarbon law, which increased the size of the parcels and extended the duration of exploitation to 40 years. On December 14, 1922, Venezuela experienced the second-largest oil blowout, the gusher at Los Barrosos 2, near the eastern shore of Lake Maracaibo in the La Rosa area in the Bolívar coastal field. The 1922 oil law created the right legal conditions for the oil companies, and from that year onward Venezuela experienced an unprecedented increase in oil production, rising from 6,000 barrels per day in 1922 to 425,000 barrels per day in 1936. On November 12, 1948, the National Congress passed a new income tax law, creating a 50–50 profit-sharing system.

Carlos Andrés Pérez was elected president on December 9, 1973. On May 16 of that year, he announced the creation of an oil holding company and compensation to concessionaires on the basis of undepreciated assets. By Presidential Decree 1123, the holding company of the petroleum industry Petróleos de Venezuela, S.A. (PDVSA) was established. PDVSA is a state-owned petroleum company that oversees the exploration, production, refinement, and export of oil as well as the exploration and production of natural gas. PDVSA is the third-largest oil company after Saudi Aramco and ExxonMobil. On September 2, 1975, Executive Decree 1127 converted the Corporaticíon Venezolana del Petroleo (CVP) into a mercantile company with all its shares owned by PDVSA. Subsequently, PDVSA assumed accountability for all industry operations, acquiring the shares of 14 national companies—which succeeded the concessionaires—at partial value.

In 2006, President Hugo Chávez Frías announced the nationalization of the oil fields managed by foreign companies. This move resulted in an increase of the government’s shares in these projects from 40 percent to 60 percent. On September 23, 2007, President Chávez announced the petrochemical revolution to transform hydrocarbons into social development. The goal of the petrochemical revolution was to diversify and intensify the production of fertilizers and plastics derived from oil and natural gas. Two years later, on June 18, 2009, the National Congress approved a new petrochemical law, the Organic Law for the Development of Petrochemical Activities. This law regulated all the activities related to this matter and granted the state the power to take the majority control of all petrochemical activities, from the production of raw materials to the planning, management, regulation, and inspection of facilities, to be supervised by the Energy and Petroleum Ministry.

Oil and Natural Gas

Venezuela’s oil and natural gas deposits are found in four major sedimentary basins: Maracaibo, Falcón, Barinas-Apure, and the Oriental. These sedimentary basins cover about 43 percent of the total area of the country. Approximately 37 billion barrels of crude oil have been extracted from the Maracaibo Basin alone, making it one of the most important in the country. The geographic location of these deposits in Lake Maracaibo, with access to land and sea, allows for the national and international exportation of these natural resources and gives the region great economic importance in the country.

In 2008, Venezuela consumed approximately 750,000 barrels of oil per day and exported 1.89 million barrels per day. During the same year, Venezuela produced 848 billion cubic feet of natural gas and consumed 901 billion cubic feet. Approximately 90 percent of the natural gas produced is associated gas. According to the US Energy Information Administration (EIA), the United States is the largest destination for Venezuela’s petroleum exports, followed by other South America nations, Europe, and the Caribbean. In 2008 alone, the United States imported 1.19 million barrels of crude oil and petroleum products daily.

In 2017 political turmoil under the unpopular government of President Nicolas Maduro, food shortages, severe inflation, crippling debt, and other crises impeded Venezuela’s oil production, which dropped 4.98 percent during the first six months of the year. Between March and July 2017, production fell below its OPEC allocation quota of 1.972 million barrels of oil per day. In June and July, production averaged 1.91 million barrels of oil per day, representing a twenty-seven-year low. By 2023, Venezuela's crude oil production fell to roughly 742,000 barrels per day.

Bibliography

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"Venezuela." EIA, 8 Feb. 2024, www.eia.gov/international/analysis/country/VEN. Accessed 12 Aug. 2024.

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