When the Time Comes, #Venezuela’s Vast, Yet “Dirty”, #Oil Reserves May Not Be Able to Provide the Cash Needed to Restart its Economy

"Oil will not save us this time around..."

"If you have the slightest concern about the future of oil demand, you wouldn't touch [Venezuela] with a barge pole"

Venezuelan oil could become world's biggest stranded asset, say experts

Climate change poses mortal threat to shattered country's only economic lifeline

Financial Times 

November 18, 2020 

Once a wealthy oil exporter, Venezuela's hopes of reviving its shattered economy are pinned on huge investment in extracting one of the world's most carbon-heavy blends of crude.

But concerns about climate change are upending energy markets worldwide, and some experts believe much of the country's most valuable asset will remain stranded in the ground.

"Oil will not save us this time around," said Pedro Burelli, a former board member of Venezuela's state-owned oil company PDVSA who now runs a consultancy in the US. "We have to reinvent ourselves as a country and as an economy."

…

Chronic mismanagement of the national oil industry and draconian US sanctions on exports have slashed Venezuela's crude production to 359,000 barrels per day in the third quarter of this year, just over a tenth of the level achieved in the early 2000s.

But Venezuela has the world's biggest proven oil reserves, according to Opec data. One of the very few things Mr Maduro and the country's US- and EU-backed opposition leader Juan Guaidó agree on is that the road to recovery lies in huge investment to revive the industry.

The "Plan País" blueprint drawn up by Mr Guaidó's team is unequivocal: "Oil and gas are the fundamental resources which the nation has to begin its reconstruction."

Elías Matta, president of the energy commission of the Guaidó-dominated Venezuelan National Assembly, said that to rebuild the once widely admired PDVSA "will take eight to 10 years and cost $180bn to $200bn to produce 2m barrels per day more".

…

Yet, even if Mr Maduro and his inner circle could somehow be induced to depart, much of the country's oil wealth may end up worthless because of the dramatic shifts in the global energy industry.

"Plan País says 'Let's go back to the oil era again'. It's the wrong premise. We are now at the end of the oil era," Mr Burelli said in a talk to the British-Venezuelan Society, pointing out that Venezuela's oil infrastructure has been effectively destroyed and PDVSA is in ruins.

Video: How Venezuela's oil industry collapsed

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With every year that passes, investor pressure on oil companies to become carbon-neutral increases and Venezuela's chances of reviving its once-mighty oil industry diminish. Its abundant Orinoco Belt crude, while relatively cheap to extract, is among the world's most carbon-intensive.

"More and more companies are turning away from the dirty barrels and Venezuelan crude is among the dirtiest," said Valérie Marcel, an energy expert at Chatham House in London. "There are still some players out there that might invest but they are becoming fewer and fewer."

BP and Shell declined to comment. However, oil executives have said they are increasingly factoring in the carbon intensity of investments into future decision-making. Venezuela's oil is likely to be less attractive in such scenarios, though it may still have some offshore gas potential. 

…

"If you have the slightest concern about the future of oil demand, you wouldn't touch [Venezuela] with a barge pole," said Andrew Grant, who leads energy research at Carbon Tracker, an independent climate change think-tank.

Some insist that Venezuela's oil has not yet lost its allure. Ricardo Hausmann, a former Venezuelan planning minister in the 1990s now at Harvard University's Centre for International Development, said "there are fairly few places in the world where there are proven reserves with zero geological risk and fairly low costs of production".

See the whole story on the FT here: https://www.ft.com/content/cafbd3c7-2434-4f23-8da8-1f7052efdc8e?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content

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DEEP DIVE in US #Shale- plenty of inventory below $40/bbl- best names are $PXD/$OXY/$CXO/$EOG/$MTDR/$MRO #OOTT

Phil Jungwirth at BMO is out with a Deep Dive on the US shale plays. The conclusions are: 

1-      There is plenty of inventory even below $40/bl mainly located in the Permian

2-      In fact there is enough inventory to hold US production flat below $40 for 10 years

3-      The Delaware is the most Capital efficient play ( see chart below). XEC/DVN/EOG/MTDR/OXY best exposed there

4-      Interestingly the top tier of Bakken ranks higher than the Delaware. MRO is most exposed.

5-      Tier 1 and 2 inventory: PXD, OXY, CVX, XOM, HES, COP, and CXO have the deepest inventory. MTDR, WPX, and XEC screen best among SMIDs

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#DataCenters Accounted For 1% of Global #Electricity Use in 2019

The energy used run the servers and keep them from overheating is considerable. Just one block of a recently built, large data center is estimated to consume up to 40 megawatts of electricity, enough to power 154 Japanese households for a month. Data centers accounted for around 1% of global electricity use in 2019, according to a recent study in the journal Science. 

See the article on Bloomberg here: https://www.bloomberg.com/news/articles/2020-10-29/japan-wants-to-take-the-heat-off-data-centers-with-the-help-of-snow

#Cenovus $CVE.to - #HuskyEnergy $HSE.to CAD 3.8 BN Merger Creates #Canada's 3rd Largest #Oil Producer

Cenovus Energy and Husky Energy agreed to a merger in an all-stock deal. The transaction will create Canada's 3rd largest oil and natural gas producer (attachment 1) and lead to CAD 1.2 Bio. in savings. The new company will be No. 2 in downstream capacity behind Suncor Energy (attachment 2).

 

Under the terms of the definitive agreement, Husky shareholders will receive 0.7845 of a Cenovus share plus 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share.

 

The shares of Cenovus Energy fell yesterday 8.4% to CAD 4.47 (attachment 3) and the shares of Husky Energy gained 12% to CAD 3.55 (attachment 4).

 

Buying Husky will boost Cenovus's production to about 750'000 barrels per day (b/d) from about 475'000 b/d of oil equivalent. It will gain substantial downstream assets, namely additional refinery and pipeline capacity. The Alberta Government will stop setting monthly oil production limits in December in a bid to create jobs and to use available pipeline capacity.

 

Cenovus' lack of refining and pipeline assets has been a major issue as Western Canadian Select (WCS) oil prices plummeted relative to West Texas Intermediate (WTI) prices.

 

WTI oil price trade currently at US$ 38.50 whereas Western Canadian Select prices at US$ 30.00 per barrel. Attachment 5 displays the oil prices (red-Western Canadian Select (WCS) - black West Texas Intermediate (WTI).

 

Attachment 6 shows the natural gas prices. The Canadian gas (AECO) is also selling at a discount to U.S. gas prices (Henry Hub).

 

The shares of Husky Energy have been in a strong downtrend for years as attachment 7 shows. The shares of Cenovus Energy also are in a steep downtrend (attachment 8).

 

Oil producers, pipeline shippers, and refineries are all struggling as there is too much oil coming out of the ground, with not nearly enough demand or places to store it.This resulted Canadian producers to sell their oil at hefty discounts to WTI, not only because of the heavier sour variety they are pumping out of the oil sands, but also because of limited pipeline capacity that moves the oil out of the Province of Alberta, the heart of the Canadian oil industry.

 

The Canadian ETF for oil and natural gas producing shares (XEG) CAD 4.26 shows there has been no joy to invest in Canadian oil and gas producers over the last few years (attachment 9).

 

We have been writing fore some time that we don't see oil prices entering into a bull market. There is very strong resistance between US$ 45 to US$ 50 per barrel (WTI prices) (Attachment 10). There is a huge amount of oil production capacity, which can come on stream if firmer oil prices persist over a shorter period of time.

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84% Surge in #PDVSA Stockpiles Latest Sign of #Venezuela’s #Oil Collapse #OOTT

At this rate, #PDVSA will have to start shutting in production again, and is the latest sign that Venezuela's oil industry is on the verge of collapse.

The last time an oil tanker loaded at the Jose terminal was on Oct. 16. 

Latest Sign of Venezuela's Oil Collapse Is 84% Surge in Stockpiles

(Bloomberg) -- Venezuelan crude inventories have surged 84% over the last three weeks as the threat of U.S. sanctions ward away buyers of the nation's most important commodity. That raises the risk that state-run PDVSA will have to start shutting in production again, and is the latest sign that Venezuela's oil industry is on the verge of collapse.

The port of Jose, the main gateway of the country's oil exports, has been empty for a week as importers of Venezuelan crude including India's Reliance Industries Ltd, Spain's Repsol SA and Italy's Eni SpA skipped oil purchases this month, according to internal reports seen by Bloomberg. The three companies last month took a combined 9.7 million barrels, accounting for more than half of September's exports.

Oil stored at the Jose terminal and nearby facilities known as upgraders almost doubled to 10.6 million barrels since the end of September, reversing a 3-month decline. At these levels inventories are dangerously close to volumes that in the past have prompted the state oil company Petroleos de Venezuela SA to shut-in wells because it didn't have anywhere else to store its crude.

While U.S. sanctions have crippled Venezuela's oil export trade, so-called crude-for-diesel swaps between PDVSA and Asian and European refiners were permitted for humanitarian reasons. The Trump administration was reported in August to be considering additional measures to cut off these remaining fuel transactions. Last month, Reliance bought 12 million barrels of Canadian oil, possibly a precursor to a more permanent shift away from Venezuela.

© Bloomberg Glut

The Trump administration is zeroing in on the diesel swaps because it's running out of options to pressure the regime of President Nicolas Maduro. Just last month, an influential Trump administration official secretly met with a representative of Nicolas Maduro's regime in Mexico City to try to negotiate the Venezuelan leader's peaceful exit from power.

The last time an oil tanker loaded at the Jose terminal was on Oct. 16, according to ship-tracking data. There are no other vessels scheduled for the rest of the month, preliminary reports seen by Bloomberg show. That's a sharp contrast from 3 years ago, when the terminal was loading one vessel every 17 hours.

© via Bloomberg

Venezuela's Port of Jose sits idle for the seventh straight day

With the big European and Indian refiners sitting out of the Venezuelan market, little-known companies including Retino Maritime, Kalinin Business, Xiamen Logistic Grass and Wanneng Munay have taken over, the internal reports show. Together they loaded so far 4.6 million barrels of oil, a far cry from September, when loadings totaled 17.4 million barrels.

For more articles like this, please visit us at bloomberg.com

©2020 Bloomberg L.P.

See the article online here: https://www.msn.com/en-us/money/news/latest-sign-of-venezuelas-oil-collapse-is-84percent-surge-in-stockpiles/ar-BB1akMaS%3Fli%3DBBnbfcL&ct=ga&cd=CAEYAioTODI5Mzc3NzA3NTMxMDI5OTM5NzIaODI3NzQ0ODJkMDMyZWM0Zjpjb206ZW46VVM&usg=AFQjCNE6fkEis5qjomVMascYXrmQhGldUQ

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The Conventional Wisdom on #Geopolitics of #ClimateChange Is (Probably) Wrong

An excellent article from Jason Bordoff tackling the potentially mistaken conventional wisdom on what the future will bring as we move away from Fossil Fuels towards Renewable Energy in the decades to come. 

Some of the key points he brings up are: 

 "China will rise and petrostates will fall—or so says conventional wisdom. In reality, the geopolitical fallout of a clean energy transition will be far more subtle, complex, and counterintuitive. Many of today's predictions are likely to turn out wrong, or will take decades to unfold in unpredictable ways."

" The Economist predicts powerful "electrostates" to take the place of today's petrostates, with China benefiting the most by dominating rapidly growing markets for clean energy products. Yet even if China dominates the production of solar panels, electric car batteries, and other technologies, it will not derive the same measure of geopolitical influence that Saudi Arabia and other Middle Eastern countries have by dominating oil supply. The geopolitical leverage of the two is very different."

On the Petrostates of the Middle East:

More likely, however, is that during the many decades needed to achieve the climate goals of the Paris Agreement, petrostates could enjoy a veritable feast before the famine.

That's because as demand peaks and then gradually declines, it is the lowest-cost producers—such as Kuwait, Saudi Arabia, and the United Arab Emirates—that will be able to keep selling their oil the longest. 

To defy the conventional wisdom further, consider that some of today's petrostates may be tomorrow's electrostates.

On Nuclear: 

Russia could actually get a boost in geopolitical influence from climate action. Like China, it is a dominant player in zero-carbon nuclear power technology, which will be needed around the world as sectors such as transportation and buildings are electrified to curb their emissions. For example, China alone projects it will achieve its new 2060 net-zero emission goal by QUADRUPLING NUCLEAR POWER GENERATION, an even bigger rise than that of wind power. 

Read the whole article on ForeignPolicy

#Chile wants to export as much green #hydrogen by 2050—$30bn worth—, as it does today #Copper.

Chile seeks to turn solar boom into green hydrogen bonanza
Financial Times 

"a green technology revolution has pushed the cost of producing solar power down 80 per cent, and renewables now make up 44 per cent of the mix in a nation no longer dependent on imported energy. 

"Chile is now hoping this will allow it to achieve a similar feat with green hydrogen, a clean alternative to fossil fuels that — unlike solar and wind energy — can be used at any time of day or night and in any weather conditions.

…

"Chile could be exporting $30bn of green hydrogen by 2050," said Juan Carlos Jobet, the country's energy minister. "That's how much copper we export today."

Read the whole article online here: https://www.ft.com/content/16481d72-1495-4b24-9c59-97ea9a856cc1

MasterEnergy

The bet is that #electricity will be the prime means of delivering #CleanEnergy in the future and will grow rapidly.” #Europe’s Big #Oil Companies Taking the Lead In Turning Electric

Under pressure from governments and investors, industry leaders like BP and Shell are accelerating their production of cleaner energy.

From the NY Times:

Europe's Big Oil Companies Are Turning Electric

By Stanley Reed

Aug. 17, 2020, 3:00 a.m. ET

The Italian oil company Eni's Green Data Center. The chief executive of Eni said he wanted it to rely more on green energy. Nadia Shira Cohen for The New York Times

This may turn out to be the year that oil giants, especially in Europe, started looking more like electric companies.

Late last month, Royal Dutch Shell won a deal to build a vast wind farm off the coast of the Netherlands. Earlier in the year, France's Total, which owns a battery maker, agreed to make several large investments in solar power in Spain and a wind farm off Scotland. Total also bought an electric and natural gas utility in Spain and is joining Shell and BP in expanding its electric vehicle charging business.

At the same time, the companies are ditching plans to drill more wells as they chop back capital budgets. Shell recently said it would delay new fields in the Gulf of Mexico and in the North Sea, while BP has promised not to hunt for oil in any new countries.

Prodded by governments and investors to address climate change concerns about their products, Europe's oil companies are accelerating their production of cleaner energy — usually electricity, sometimes hydrogen — and promoting natural gas, which they argue can be a cleaner transition fuel from coal and oil to renewables.

The Last #Oil Drilling Rig Leaves #Venezuela

With production for for June reported at 300'000 Bbl/d by the IEA, it can only continue to decline with no rigs in operation...

The Last Oil Drilling Rig Leaves Venezuela

David BlackmonAug 5, 2020

The last oil rig has officially left the premises. In Venezuela, that is. There, Nabors said it had shut down its final active drilling rig as of Monday. As reported by Sergio Chapa at the Houston Chronicle, this action now brings the active rig count in that formerly prosperous socialist nation to zero. A complete flatline.

Think about that for a moment: Venezuela is home to larger oil reserves than any other nation on earth, including the United States, Saudi Arabia, Iran and Russia. Yet, because of the brutal nature and, frankly, stupidity of the Nicolas Maduro regime, not a single company is any longer willing to try to explore for that massive sunken treasure. Contrast that stark reality to Venezuela's neighboring nations of Guyana and Suriname, democracies in which international companies like ExxonMobil XOM +0.9%, Hess, CNOOC, Apache Corp. APA +2.3% and Total continue to invest billions in new capital in highly-successful offshore oil exploration efforts.

The final Nabors rig had been operating in the prolific Petropiar Field at the behest of a joint venture between Chevron CVX +0.8% and PdVSA, the national Venezuelan oil company. But as the situation in Venezuela has spiraled into chaos over the past half-decade, the operations there had been plagued by delays, equipment theft and power failures.

Chevron's decision to halt its drilling program came months after the Trump Administration had initiated a new round of harsher sanctions on the Venezuelan government. According to the Congressional Research Service, as a part of a comprehensive set of sanctions on the Maduro regime, the U.S. government has sanctioned:

• PdVSA, the Venezuelan national oil company;
• 144 Venezuelan or Venezuela-connected individuals;
• The Maduro government and its central bank;
• Two subsidiaries of the Russian government-controlled Rosneft Oil Company for facilitating exports of Venezuelan crude; and
• Four other shipping companies for transporting Venezuelan oil.

The Trump Administration has also revoked the visas of hundreds of Venezuelans and their familiies. Despite those and other sanctions, the U.S. had issued licenses that allowed Chevron, Nabors, Schlumberger SLB +1.4%, Halliburton HAL +1.4% and Baker Hughes BHI +3.5% to continue doing business in the country.

The breakdown of Venezuelan society at the hands of the Maduro regime has cost Chevron dearly: The company reported an operating loss of $8.3 billion for the second quarter, $2.6 billion of which was due to a forced write-down of the value of its Venezuelan reserves.

Bernadette Johnson, Vice President of Strategic Analytics at Enverus, said in an email that the exit by Chevron and Nabors was not unexpected: "Venezuelan production for June was reported at 300 MBbl/d by the IEA. This is decline from May 2020 and a continuation of the downward spiral the market has observed since 2012 when the country was producing 2.6 MMbbl/d (mid-year data point) and before the economic collapse and general upheaval in the country. The loss of the last remaining rig as a result of concerns that the Venezuelan government could seize it is an unfortunate but not unexpected development."

At its peak in 1998, Venezuela produced almost 3.5 million barrels of oil per day. Perhaps coincidentally, that was the year that Hugo Chavez, Maduro's socialist predecessor in office, was first elected. As Johnson notes, the country's production had collapsed to just more than 300,000 bopd in June. The foothold gained by China in the country in recent years could now become the only factor that might prevent production levels from eventually flat-lining entirely.

The absolute disintegration of the country's once-booming oil and gas industry is just one of many elements in the story of Venezuela's sad collapse under Chavez and Maduro. But it's a big one, since the collapse of the country's oil and gas wealth is directly tied to the collapse of its entire economy. I would flippantly say that someone should turn out the lights as the last oil rig leaves the once-wealthy nation, but sadly for the people of Venezuela, that has already happened across vast swaths of their land.

Follow me on Twitter. 

David Blackmon is an independent energy analyst/consultant based in Mansfield, TX. David has enjoyed a 39-year career in the oil and gas industry, the last 23 years of

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https://www.forbes.com/sites/davidblackmon/2020/08/05/the-last-oil-drilling-rig-leaves-venezuela/

#Caribbean Islands find #PdVSA easier to evict than replace

From Aruba & Curaçao to Jamaica & St. Croix, getting rid of PDVSA was the easy part, finding a replacement, however, has been all but impossible.

Saddled with aging installations that traditionally depended on Venezuela, the islands were orphaned by the Opec country's commercial and operational decline, 

     
This from the Curaçao Chronicle. 

Caribbean finds PdV easier to evict than replace

LOCAL | By Patricia Garip July 22, 2020

Caribbean islands that once formed the bustling near-shore oil refining and logistical network of Venezuela's state-owned PdV are finding that the distressed company was easier to evict than to replace.

The nagging void is most conspicuous in Curacao and Aruba, part of the Dutch Caribbean island chain that hugs Venezuela's coast. Saddled with aging installations that traditionally depended on Venezuela, the islands were orphaned by the Opec country's commercial and operational decline, including the loss of Venezuelan crude feedstock for which several of the facilities were originally designed. Venezuela today is only pumping around 400,000 b/d of crude, a fraction of the 3mn b/d that it produced in the 1990s. And PdV's own refineries inside Venezuela are nearly all out of service.

Since 2017, escalating US sanctions on Caracas have posed another challenge. Islands that relied on Venezuela's oil business, including transshipment and offshore support and financial services, were forced to sever most ties under threat of sanctions themselves.

For islands that relied on oil assets for economic sustenance as a complement to tourism, the relationship with Caracas was fruitful but frustrating once Venezuela's oil star began to flicker. Faced with lukewarm investor interest in the unprofitable refineries abandoned by PdV, the islands are now promoting terminal and storage opportunities, and exploring industrial alternatives such as petrochemicals and LNG. The results have been mixed at best.

Curacao's conundrum

The government of Curacao long relied on PdV to operate its 335,000 b/d Isla refinery and Bullen Bay terminal that are critical to the local economy. After years of neglect, PdV was not allowed to renew its long-term lease when it lapsed in December and Curacao pinned its hopes on a potential partnership with European refiner and commodities trader Klesch.

But a preliminary sale agreement signed in December proved to be fleeting after the collapse in oil prices and pandemic hit demand in March. Curacao's state-owned RdK, which owns the assets, announced late last week that the Klesch deal was terminated, leaving the island to restart the uphill search for a new partner. In a sign of the island's precarious economic conditions,unrest broke out in Willemstad last month.

The short-term upside for Curacao is the potential to lease storage at deepwater Bullen Bay, where only part of the tanks are ready for use in an ongoing tender. RdK is also hoping to monetize PdV's 10mn bl Bopec terminal on Bonaire that it seized in a debt-related action in March.

Better known for its white sands, Aruba is also seeking to lease storage after the withdrawal of PdV's US subsidiary Citgo from a refinery refurbishment project. Aruba's mothballed 235,000 b/d San Nicolas refinery, formerly owned by US firm Valero, was supposed to be renovated into a heavy crude upgrader to process Venezuela's heavy crude under a contract signed in 2016. Unlike Curacao, the Aruba project was tied to PdV Holding, the Venezuelan company's US subsidiary that came to be controlled by the country's US-backed political opposition in 2019. The ambitious $1.1bn project, which PdV's US refining arm Citgo had been carrying out, barely got underway before it ran aground on the rocks of Venezuela's political turmoil. PdV Holding signed a final termination agreement in May.

As in Curacao, government officials in Aruba say they are relieved to have shaken off the unreliable PdV, but they are at odds to find a substitute partner.

Satellite islands

On St Croix in the US Virgin Islands, repeated delays are casting doubt on a $2bn project by Limetree Bay Ventures to convert the mothballed Hovensa refinery into a leaner and more modern 200,000 b/d plant. Hovensa, formerly one of the world's largest and most advanced refineries with a design capacity of 525,000 b/d, was a strategic project of PdV and US independent Hess before it closed amid financial losses in 2012.

Elsewhere in the Caribbean, PdV has been replaced but commercial progress has been halting following years of Venezuelan largess. Under late Venezuelan president Hugo Chavez, PdV forged downstream alliances even where there was little commercial logic in a bid to cement regional support. That strategy, coupled with subsidized oil supply, succeeded in keeping several of the islands in Venezuela's political orbit, frustrating Washington's regional effort to isolate the Venezuelan government of President Nicolas Maduro that it is seeking to force out.

In Jamaica, the government expropriated PdV's minority stake in the 35,000 b/d Petrojam refinery, but the plant is likely to be shut down after state-owned operator PCJ folded earlier this year. PdV still owns a nominal 49pc stake in the Dominican Republic's 34,000 b/d refinery, but the plant does not make commercial sense either.

Read the article online here: 

https://www.curacaochronicle.com/post/local/caribbean-finds-pdv-easier-to-evict-than-replace/

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