US government reviews oil supply relationship with Venezuela

Oilgram News
www.platts.com
January 13, 2005


Secciones
• US government reviews oil supply relationship with Venezuela (In English)
• Platts Oilgram News - Volume 83 / Number 9 / Thursday, January 13, 2005 (In English) - PDF document
• Letter that Senator Richard Lugar, chairman of the Committee on Foreign Relations in the US Senate, sent to the Government Accountability Office on the matter of Venezuelan Oil (PDF)
• U.S. Senator Worried About Cutoff of Venezuelan Oil (Reuters)
• EEUU alerta ante inestabilidad del suministro venezolano (In Spanish)







• US government reviews oil supply relationship with Venezuela
General Accountability Office preparing study on reliability

Caracas—The US is currently reviewing Venezuela’s position as a leading oil provider following damage to its reputation as a reliable supplier during the presidency of Hugo Chavez, according to documents obtained by Platts.

Sen. Richard Lugar (Republican-Indiana), chairman of the Committee on Foreign Relations, has ordered the Government Accountability Office (GAO) to prepare a study on all aspects of the Venezuelan oil industry and the impact any supply interruption may have on the US. He also called for alternative oil supplies to be investigated as part of a contingency plan.

In a letter dated Nov 29, 2004, and addressed to the comptroller general, Lugar stated: “The prospects of achieving the reliable energy relationship with Venezuela that this country has had for decades has diminished, particularly over the last two years.” He added contingency plans should be in place in case of a supply disruption from Venezuela, “as this could have serious consequences for our nation’s security.”

Investigation team
Committee spokesman Andy Fisher told Platts late Jan 11 the GAO is currently assembling a team to carry out the investigation, but no results are expected for several months.

“Something like this is long overdue,” said one US-based industry analyst, who declined to be identified. “The US government does need to understand how real these threats are that Chavez makes.”

In Lugar’s letter to the GAO, he cites the two-month oil strike in Venezuela in 2003 that halted oil exports, together with more recent threats to cut off supplies to the US as proof an extensive policy review is needed.

US oil majors are also disgruntled over Venezuela’s surprise decision last October to raise royalties on four extra-heavy crude upgrading projects. Populist Chavez caused a stir last year when he vowed “not one drop” of Venezuelan oil would reach the US in the event of military aggression against him.

Venezuela, the world’s fifth-largest oil exporter and a key member of OPEC, has since sought to diversify its client base. Chavez has offered discounted oil to several countries in Latin America and the Caribbean, and promised to help meet China’s growing energy needs during an official visit to Beijing over Christmas.

China competition
Venezuela is now studying a pipeline across Panama that would give it access to Pacific ports. However, foreign minister Ali Rodriguez said last week any increase in shipments to countries like China would not affect supplies to the US, as Venezuela plans to increase output by 1.5-mil b/d over the next five years.

State-owned PDVSA says it is currently pumping 3.1-mil b/d, of which 2.7-mil b/d is exported. Industry observers doubt these figures and put total output closer to 2.6-mil b/d.

Michael Gavin, head of Latin American Research at UBS Warburg, said he doubted anything would come from the GAO review. “There’s not much they can do to replace the country’s third- or fourth-largest oil supplier. There aren’t many plausible alternatives,” Gavin said in an interview.

News of the study comes the same week as a visit to Venezuela by three US senators, who included a meeting with Chavez in their timetable.

Sen. Christopher Dodd (Democrat-Connecticut), also a member of the Foreign Relations Committee, stressed the mutual dependence of the relationship with Caracas Jan 10. He said he was optimistic a new page could be turned in US-Venezuelan relations, pointing out the US receives 13% of its oil imports from Venezuela, while Venezuela counts on the US for most of its exports.

State Department changes
Committee spokesman Andy Fisher denied the visit was linked to the GAO review. However, an industry source told Platts the US State Department, soon to be under the new leadership of Condoleezza Rice, may be considering a wholesale review of policy toward Venezuela.

A State Department spokeswoman said Jan 12 she had no information of any change in policy toward Venezuela.

Chavez described Rice as “a true illiterate” last year when she called on him to accept the democratic vote of Venezuelans in a recall referendum that he went on to win, and he frequently criticizes President George W. Bush during speeches.

The State Department and the Department of Energy are reported to be sending a team to Venezuela next month to look at the oil industry.

Whether the GAO review signals a shift in US-Venezuelan relations remains to be seen, but Sen. Lugar’s motivation is clear.

In a Miami Herald opinion column published shortly before the review request was sent to the GAO, he said: “We must recognize that even though we buy 90% of Venezuela’s oil, Chavez could temporarily try to cut off sales to us. Arrangements with other regional oil producers to replace any Venezuelan shortfall are long overdue.”—Steve Ixer



• U.S. Senator Worried About Cutoff of Venezuelan Oil
Reuters, January 13, 2005
WASHINGTON (Reuters) - The chairman of the Senate Foreign Relations Committee wants to know what contingency plans the United States has in place to counter a disruption in crude oil and petroleum product imports from Venezuela.
Venezuela is the fourth-biggest petroleum exporter to the United States, even though the State Department has said the OPEC member is not a reliable supplier.

There is continuing political unrest in Venezuela and a workers' strike several years ago severely disrupted oil shipments to the U.S. market for months.

Sen. Republican Richard Lugar of Indiana, who heads the foreign relations panel, asked the Government Accountability Office to investigate what the United States can do to handle a cutoff in Venezuelan oil supplies.

"We must make sure that all contingencies are in place to mitigate the effects of a significant shortfall of Venezuelan oil production, as this could have serious consequences for our nation's security and for the consumer at the pump," Lugar said in a letter to the GAO.

Lugar made the request on Nov. 29, but the GAO has not yet begun its review, said a staffer in the senator's office who make the letter public on Thursday.

Lugar also wants to know if there are any significant oil installations in Venezuela that could be targeted for attack by opponents to the country's controversial president, Hugo Chavez.

"In today's climate of high oil prices, the politics and conditions of the U.S.'s fourth largest oil exporter are of critical importance to our country," Lugar said.

Separately, the senator is concerned the changes Venezuela has made to its oil industry rules and tax regulations could hurt foreign oil companies investing in the country.

Venezuela implemented an updated hydrocarbons law in January 2002 that raised royalties paid by private companies to 20 to 30 percent from the previous 1 to 16.66 percent. The law also guaranteed state oil company PDVSA at least a 51 percent stake in any project regarding exploration, production, transportation and initial storage of oil.

"These factors might affect not only future investment but also seasoned investments in the development" of Venezuela's oil reserves, particularly in the country's Orinoco oil region, Lugar said.

The senator asked the GAO for the reaction of U.S. oil companies to the new regulations, and if the firms have requested the Bush administration intervene on these matters.



• EEUU alerta ante inestabilidad del suministro venezolano
El Universal, 13 de Enero de 2005
Richard Lugar solicitó una investigación de los planes de provisión
Una extensa carta enviada por el Senado de EEUU a la Oficina de Responsabilidad Gubernamental de la Contraloría de esa nación revela la preocupación que mantiene el gobierno estadounidense ante una eventual interrupción del suministro de hidrocarburos venezolanos.

En la misiva, fechada el 29 de noviembre de 2004, Richard Lugar, jefe del Comité de Relaciones Exteriores del Senado, solicita a la Contraloría revisar los planes de ese gobierno para la provisión de crudo y refinados de Venezuela.

El parlamentario afirma que la inestabilidad política que a su juicio ha habido en el país en los últimos dos años ha derivado en "amenazas directas" de suspensión de los envíos de crudo a EEUU. Tras plantear los tropiezos que trajo consigo el paro petrolero, Lugar recuerda que, en medio del actual clima de altos precios, las políticas y condiciones de Venezuela son de "suma importancia" para EEUU.

"El Departamento de Estado ha expresado en varias oportunidades que Venezuela ha dejado de ser una fuente confiable de energía. No obstante, seguimos contando con las importaciones procedentes de Venezuela para satisfacer aproximadamente 15% del suministro de petróleo en el país. Además, Venezuela continúa siendo uno de los principales actores en el mercado interno de productos refinados de EEUU a través de las importaciones de la subsidiaria directa de Pdvsa, Citgo Petroleum".

La carta menciona el interés del gobierno venezolano en mantener una industria saludable, pero añade que reportes sobre la industria dibujan un "panorama sombrío" del actual estado de Pdvsa y sus operaciones, a lo cual se suma la nueva Ley Orgánica de Hidrocarburos y los cambios en el régimen fiscal del sector (principalmente el aumento en la regalía de los contratos existentes), los cuales "han alterado las condiciones bajo las cuales el sector privado, local y foráneo, puede invertir".

"Estos factores pueden afectar no sólo las inversiones futuras, sino también las inversiones estacionales en el desarrollo de la Faja del Orinoco que fueron establecidas mediante asociaciones estratégicas entre Pdvsa y un importante número de compañías petroleras internacionales".

"Las posibilidades de volver a establecer la relación confiable que en materia energética ha habido con Venezuela durante décadas han disminuido, en particular en los últimos dos años. Debemos asegurarnos de adoptar todas las precauciones a fin de mitigar los efectos de un déficit significativo en la producción de crudo venezolano, toda vez que ello podría tener serias consecuencias para la seguridad del país y para los consumidores en las estaciones de servicio".

Interrogantes
Tras analizar minuciosamente el actual estado del sector, Lugar solicita a la Contraloría realizar una investigación que responda las siguientes interrogantes: ¿Tiene el Departamento de Energía de EEUU y el Departamento de Estado algún plan de contingencia en caso de otra suspensión de las exportaciones petroleras venezolanas?, ¿hay algún plan de contingencia para garantizar la operación continua de Citgo si se suspende a largo plazo el suministro de Pdvsa?, y ¿qué agencia en EEUU ha estudiado las implicaciones para Citgo si hay una confrontación prolongada entre los gobiernos de EEUU y Venezuela?

Sobre las empresas radicadas en el país, Lugar se plantea si las petroleras estadounidenses han diseñado algún plan de suministro alternativo, de suspenderse las importaciones petroleras venezolanas, y qué cantidad de empleados extranjeros laboran en compañías estadounidenses en Venezuela.

También se pregunta en qué estado se encuentra Pdvsa (reserva, producción, refinación, calidad gerencial y calidad de los reportes de Pdvsa a las autoridades locales y extranjeras sobre sus asuntos financieros y operativos) y qué consecuencias económicas tendría en el consumidor estadounidense una eventual suspensión de largo plazo en el suministro desde Venezuela.

En el terreno político, Lugar se pregunta si, dada la "continua inestabilidad política en Venezuela" y los reportes de violencia ocasional, existen instalaciones petroleras relevantes que pudieran ser blanco de ataques y si la seguridad es adecuada en el Complejo Refinador Paraguaná y Jose.

Por último, solicita respuesta sobre la reacción de las firmas petroleras estadounidenses ante los cambios en la legislación local, si han solicitado la intervención de ese gobierno, si esos cambios han formado parte de la agenda de las conversaciones bilaterales y cómo se califica la calidad del diálogo entre gobiernos.

"Una revisión adecuada de las políticas actuales y de las contingencias garantizará que la inestabilidad política en Venezuela no se traduzca en una carga adicional para los consumidores estadounidenses o en una amenaza para la seguridad energética americana", concluye la misiva.