Venezuela's Real Enemy

Por Venezuela Real - 28 de Febrero, 2007, 9:56, Categoría: Prensa Internacional

Steve Christ
Energy and Capital
February 19, 2007

Taking a page from the Nigerian playbook, the menacing voices of al Qaida barked again last week. Once again they reiterated their threat to drain the West of the oil it needs to survive. In a statement posted on an al Qaida website, the group urged its fellow Muslim militants to attack oil facilities all over the world, including those in Canada, Mexico, and Venezuela.

And despite the apparent coziness with its newfound friends in Iran, Venezuela was quick to act.

In response to the threats, Venezuelan General Raul Baduel told reporters that security and intelligence agencies would "take actions and implement previously established security plans, but reinforce them with the goal of guaranteeing security."

Calling for calm, the general also said that President Hugo Chavez would provide further instructions about how to deal with the threat.

But given the current direction of the Chavez government, al Qaida is the least of its worries in regard to its oil production.

That's because, even in the absence of an attack, Venezuela's oil production is declining at an alarming pace.

According to a report released by the Paris-based International Energy Agency (IEA), Venezuelan oil production dropped 5.5% last year to an average of 2.56 million barrels a day. The decline marked the largest drop of any Latin American oil producer.

Moreover, the IEA estimated that Venezuela's spare production capacity is a mere 210,000 barrels a day. And even those levels, the IEA warned, would be hard to meet, since the country has "impediments to raising actual production" that "render this portion of spare capacity inaccessible."

Those "impediments," of course, are related to ongoing efforts to nationalize oil and overhaul existing contracts on the four heavy oil projects in the Orinoco, which produce nearly one fifth of the country's production.

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Those moves, the IEA said, "are widely seen as threatening existing plans to expand capacity at those four units."

Socialism, it seems, is a far greater threat to production than terror.

In fact, since the socialist aims of the Chavez government have become more widely known, foreign investment in Venezuela has plummeted. Foreign oil investment in the country fell some 55% in 2006 as firms continued to scale back in the face of contract uncertainties. The result has hampered growth.

"Nationalism is certainly having an impact on supply growth potential," said Ed Morse, chief energy economist at Lehman Brothers. "In the case of Venezuela it has been either an unwillingness or an inability to attract capital to maintain current production, let alone to grow it."

But it's not just the major oil companies that have felt the brunt of the Chavez regime's plans. Oil service companies have also had to work under the grip of its socialist polices.

Last year the Chavez government forced foreign oil service companies to include "good works," such as clinic and school building in impoverished locales, as requirements for new contracts.

The increased costs of those requirements and the continued uncertainty of the business climate have, in effect, forced those companies to take their much needed services elsewhere. The increasingly tight market for drillers worldwide has only quickened their departure.

Like any other business, the drillers have chosen to work in markets that provide the greatest chance to profit with the least amount of hassle. The result has been a shortage of rigs.

Industry watchers now expect that drilling activity in Venezuela will slow down appreciably this year, further jeopardizing the country's long-term plans to double production by 2012.

"There are no win-win deals out there," a drilling executive said, referring to the current state of Venezuelan service contracts.

The result, of course, is the expectation of further declines, since foreign investment in Venezuela is key to maintaining the flow of oil. Profits, after all, provide in ways that promises cannot.

The Chavez government, it seems, will do far more damage to the Venezuelan oil industry than any terrorist attack could ever accomplish.

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