At which point are Venezuela’s finances in trouble? Part I: Oil

October 17, 2008


Everyone wants to understand what the recent 50% drop in
oil prices means for Venezuela. The problem is that there are n simple answers
mainly due to the lack of transparency in the country’s numbers. There are two
approaches to this problem: In the first one, you can take what you believe in
and describe it, which is what I tend to do. The second approach is to present the “official” story and compare it to what analysts and your own logic may say.

In what follows I will try to follow largely the second
approach, that is relate what the official version of the numbers is and then
try to point out where the discrepancies and problems are, while trying to keep
it simple. I am actually repeating things I have said before on oil, but the
recent drop in prices suggests it is important to review it. To keep the
subjects separately I will cover only oil in this first part.

We were told yesterday that the 2009 budget set the price
of a barrel for the Venezuelan oil basket at US$ 60 per barrel. This number on
its own is meaningless, because you only get dollars for your exports.  That is the relevant number at the end
of the day.

Thus, you need to know:

Total Production

Subtract Internal Consumption

Subtract oil sold as part of intra Government treaties, or
at least figure out what fraction of that you get paid  for.

—Production

Here is problem number one:

PDVSA says production is around 3.15 million barrels per
day

The International Energy Agency and OPEC says productions
is around 2.45 million barrels of oil a day

No matter how you turn this one around, it is hard to
believe that OPEC is wrong, after all Venezuela is a member and has argued and
tried to change the number. Sadly, the 2.45 million number takes the country
back to 1997 in oil production.

—Internal
Consumption

This is the key:

Official number: 530,000 barrels of oil a day

My Estimate: 800,000 barrels a day

Ramon Espinasa’s estimate 750,000-800,000

Who is right?

Well, let’s look at the evidence: In 2001 PDVSA stated
that internal consumption was 510,000 barrels of oil a day.  Thus, PDVSA claims internal consumption
has gone up 20,000 barrels a day since 2001. But, between 2002 and 2007 the
Venezuelan economy supposedly grew by 44% and the number of vehicles increased
by 50%, the price of gasoline has drooped by more than 50% in real terms and the
price difference between Venezuela and Colombia is a factor of 30 (I take these
numbers from Espinasa).

Thus, it seems unbelievable that production has increased
by barely 20,000. My number comes from the increase in vehicles alone using
numbers from the car salesmen association.  

Clearly, the PDVSA number makes no sense.

—Exports
under Treaties

These are all official numbers for 2007 except China which
is official 2008:

Petrocaribe 138,000 barrels a day

Caracas Cooperation Agreement: 70,000 barrels a day

Argentina: 34,000 barrels a day

Cuba: 92,000 barrels a day

San Jose Pact: 80,000 barrels a day

China: 80,000 barrels a day

The problem here is that conditions vary. Cuba has two
years grace period plus long term cheap financing. Petrocaribe has 50% plus
long term cheap financing, as well as the San Jose Pact. China never pays, the
oil pays for projects, so that there is no cash flow for PDVSA. The total is
486,000 barrels of which 170,000 does not get paid, leaving 316,000 barrels,
only about half or 158,000 barrels of which gets paid and generates dollars for
the country and cash flow for PDVSA.

Thus, of the total left after local consumption, you
subtract 486,000 and then add 158,000

—Summary

With all of the above, the believable numbers are:

Production 2.45 million a day

Consumption-800,000 million barrels a day

This gives 1,650,000 barrels a day.

But you have to subtract 486,000 and then add 158,000.

Thus, the most likely number for Venezuela’s exports of
oil is:

1,322,000
barrels of oil a day

This would provide foreign currency revenues for the
country at the following levels:

Price (Billions of US$)

Revenues (Billions of US$)

100

 

48.25

 

 

90

 

43.43

 

 

80

 

38.60

 

 

70

 

33.78

 

 

60

 

28.95

 

 

50

 

24.13

 

 

 

I will use these numbers in the latter parts, but you see
the picture: Venezuela will import over US$ 50 billion this year. Of curse, the
country has other sources of foreign currencies, but the picture is not pretty
if the country can’t borrow abroad.

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