Chavez successor to face battle to revive Venezuela oil

06 March 2013 02:41  [Source: ICIS news]

Hugo ChavezBy Al Greenwood

HOUSTON (ICIS)--Hugo Chavez's successor, whoever it may be, will struggle to rejuvenate the nation's oil industry, which has been decimated by years of mismanagement, under-investment and brain drain, a former advisor to the country's state oil producer said on Tuesday.

Hugo Chavez died on 5 March following a battle with cancer. His anointed successor, Vice President Nicolas Maduro, will run the country until new elections are held within the next 30 days.

Chavez was re-elected for a fourth term in October, winning 54% of the vote and defeating opposition leader Henrique Capriles.

While Capriles did unexpectedly well against Chavez, he will not automatically win against the relatively uncharismatic Maduro, said Michael Economides, a professor of chemical and biomolecular engineering at the University of Houston.

Economides was a senior advisor for Petroleos de Venezuela (PDVSA), the state oil producer. He has written a book about Chavez with Andres Cala, titled America's Blind Spot.

Maduro could prevail in elections because Chavez had won over Venezuela's military, Economides said.

"Chavez played the military card very well," he said. "That was the key to Chavez's longevity."

While Capriles has some momentum, "I still think the Chavistas hold all of the marbles", Economides said. "Without any threat from the military, I think they will do well."

In fact, Venezuelan firm Hinterlaces recently conducted a poll asking Venezuelans who they would vote for in elections should Chavez die. The poll had Maduro getting 50% of the vote and Capriles 36%.

Regardless of who wins, the new president will face daunting problems in reviving the nation's oil industry.

PDVSA is critical to Venezuela because it provides a significant share of the country's GDP, government revenue and export earnings, according to the Energy Information Administration (EIA).

Venezuela is a potential oil powerhouse, having the world's second largest oil reserves, according to Oil and Gas Journal.

However, the country's oil production has fallen to 2.47m bbl/day in 2011 from about 3.5m bbl/day in 1995, according to the EIA.

Economides said Venezuelan oil production has not been so low since the 1970s.

Since Chavez rose to power, Economides said Venezuela has squandered its oil profits on what he called superficial social programmes.

Not only did this divert money away from maintenance and improvements, the programmes created no returns, Economides said.

"Everything is falling apart because PDVSA was really the national treasury to be looted for the political agenda of Hugo Chavez," he said.

In 2002, nearly half of PDVSA's employees walked off the job in protest against the rule of Chavez, the EIA said. The company responded by firing 18,000 workers. It then reorganised the company to strengthen government control.

As a result, the Venezuelan oil industry suffered a massive brain drain, as engineers and technocrats left the country, Economides said.

PDVSA was left with managers ill-suited to run the company, leading to mismanagement, he said.  "It's going to be very difficult because no one is there right now."

Downstream, Venezuela is importing 30% of its gasoline needs, partly because the Amuay refinery is running at 60% of capacity after last August's explosion, according to the EIA. The blast killed 42 people.

Meanwhile, Venezuela continues to struggle with plastics shortages, despite its massive hydrocarbon reserves.

A large devaulation of the country's currency has caused worries among Venezuela's polyethylene (PE) and polypropylene (PP) transformers, who rely on imports for some of their supplies.

While petrochemical producer Pequiven has announced plans to nearly triple its resin nameplate capacity, it is unclear how the company would add so much capacity, given feedstock, power and financing constraints.

Additional reporting by Simon West and George Martin


By: Al Greenwood
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