Interview with former PDVSA Economist on oil and 2009

December 21, 2008

Must read interview with former PDVSA Economist Ramon Espinaza in today’s El Universal.
Espinasa knows his stuff and understands oil markets line nobody else,
I have always been impressed by him and when PDVSA had an economic
office led by him, the company and the country could count on real hard
numbers economic analysis and not the clowns of today. In fact,
Minister of Planning Petkoff always used that office to calculate how
much things would cost. In contrast, Chavez and his Government don’t
calculate, they just do and hope for the best. Which style do you
prefer?

In any case, Espinasa is also worried about
PDVSA’s revenues next year. His estimate, which he gives no details
about is that the company will have revenues of US$ 23 billion if oil
prices stay where they are today. Espinasa gives no details of what he
takes into account or not in coming up with this figure, but it is 15%
higher than mine, he may be calculating all revenues, including sales
that do not get paid. But US$ 23 billion is low, given that the country
will import about US$ 50 billion this year.
Espinasa
tells us that he expects some 4 million barrels of new oil to come into
market this year from the US and Africa. In the US he is talking about three platforms including “Thunder Horse”, while in Africa it is likely to be Angola, the new star in the oil producing world.
Espinasa
points out that the gap between the Venezuelan oil basket and WTI is
widening which is due to excess over of light crudes reducing interest
in heavy crudes, as the differential has grown from 8.5% last summer to
28% last week. (You can’t take Friday into account as it was options
expiration, creating a strange discrepancy in oil markets as traders
avoid delivery)
According to Espinasa gasoline
is sold at US$ 5 per barrel in Venezuela and it costs US$ 25 to
produce, thus he thinks this will be one of the adjustments the
Government will make. 
Espinasa estimates that
in 2008, PDVSA’s costs were US$ 23 billion, including social programs,
clearly this is simply unsustainable. 
Whether it is my number or Espinasa’s is not really important,what is important is that something needs to be done. 
And
you need more than just cutting travel allocations, which as today’s
paper says represents only US$ 700 million in savings. And don’t
believe the paper’s US$ 7 billion for food which is only used by
ignorants. That number comes from a category, which excludes imports
from Aladi which are dominated by food and represent US$ 10 billion a
year (no percentage is given for items within Aladi). It also does not
include feedstuffs and machinery using in food production. But it is
irrelevant, what is clear is that such a drop in revenues will force
the Government to reduce spending and the economy will contract and
people are going to feel it no matter how much money is in the
investment funds. 
Because as the economy
contracts, inflation will soar above the 30% this year and the
inefficiency of Government controlled imports will hit the people. 
And that is going to be very rough on those that are doing the worst.

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