Saturday, May 13, 2006

The myth of declining Venezuelan oil production 

The status of the Venezuelan oil industry and its production levels has been a contentious issue for some time now. And in spite of previous posts which aimed to clarify matters and show that production had NOT declined I believe the highly technical and involved nature of the discussion left many people still sitting in the dark. So I decided I would would produce a graph showing Venezuelan production levels over the past number of years so that people could see in a simple visual format precisely what is going on.

Please note that the information on this graph comes from the International Energy Agency which is the organization that represents oil consuming nations (ie. it is the opposite of OPEC which represents oil exporting nations). So this information is not coming from the Venezuelan government but rather is from independent third party sources. Also note that there are two components to total Venezuelan oil production - standard oil in blue and condensate and Orimulsion in red which are slightly different than standard oil but are still considered oil. Because a lot of the misinformation on Venezuelan production involves counting that those latter types of oil in some cases and leaving them out in others I break them out on the graph.

Two technical notes on the graph: The Orimulsion and Condensate are actual numbers from 2001 to 2005. Prior to 2001 they were not available so I projected the 2001 numbers backwards to the prior years. OPEC quota numbers are from the IEA except for 97 and 98 when they didn't give them and I got them from Alexanders Oil & Gas.

I will add to this post later and show how the graph shows that the opposition has been lying about the true situation of the Venezuelan oil industry and the Venezuelan government has been telling the truth. But for now let me make a couple of observations. First, of late Venezuelan oil production has NOT been declining. Between 2003, 2004 and 2005 it was consistently INCREASING. That is, since the end of the 2002/2003 oil strike production has been on the upswing so opposition assertions that Venezuelan production is declining are flatly false.

Secondly, the main time that Venezuelan oil production was reduced was in 1999 when the Chavez administration intentionally had production cut back to more closely conform to OPEC quotas. As can be seen, in 1997 and 1998 Venezuela was way overproducing its OPEC quota and this played a part in send oil prices down to $8 per barrel. Upon taking office Chavez set a new policy of conforming to OPEC quotas which helped prices immediately recover to over $20 per barrel. Note that overall production in 1999 and 2005 are virtually the same.

I will go into more detail on this later and show how it relates to some of the stuff coming out of the opposition media. Stay tuned.

Ok, now updating this post to show how the graph of Venezuelan oil production blows out of the water some of the more common lies regarding what is happening in the Venezuelan oil industry:

First, we have this little gem from our friendly anti-Chavez blog Publias Pundit:

"That’s been killing oil production to the point of oil shortages in the oil giant. Oil production is down 60% from the pre-Chavez days. Sixty stinking percent! Venezuela is the only OPEC member besides Indonesia that is now producing below quota, what should be a sign to everyohe that Chavez’s rape-and-pillage philosophy toward Venezuela’s oil resources is literally destroying its productive capacity."

No not quite. Production is definitely not down 60%. Ten or fifteen percent maybe and that decrease was made right when Chavez first came to office to get more in line with OPEC quotas. Since then it has been very stable, 2005 production is essentially the same as 1999 production, save for during the oil strike. What’s more, oil production is increasing, not decreasing.

Now, we wouldn’t necessarily expect Publius Pundit to know anything about the Venezuelan oil industry but we would expect people like Luis Giusti who was the President of PDVSA to know something about it. Yet he fares no better. For example:

"Luis Giusti detailed that 'when one takes into account that Venezuelan production instead of being the almost 3.5 million that it was in 1999 is today 2.6 million, then we see that there has been a decline in production of 1.8 million barrels per day....'"

Again referring back to the graph note that in 1999 oil production wasn’t almost 3.5 million barrels – it was about 3.1 million barrels which is about the same as it was last year. So that statement is totally bogus but lets say the guy was just off a year and meant 1998 (incidently here is another board member saying that production was 3.4 million in 1999, so rather than misspeaking they seem to be bullshitting). Ok, in that year, as per the graph, production was almost 3.5 million barrels. But to get that you have to include the condensate and Orimulsion, the red part of the graph. Yet he then goes on to say that current production is only 2.6 million barrels which is true only if you leave out the condensate and Orimulsion (again, the red part of the graph).

This is one of the most common tricks the opposition uses when trying to show that there has been a decline in production – count ALL oil types (blue and red in the graph) when referring to oil production when they were running the shop but leave out some of those oil types (the part in red) when giving current numbers. Thoroughly dishonest but they do it all the time.
[BTW, it should also be mentioned his saying a decline from 3.5 million to 2.6 million is a decline of 1.8 million shows arithmetic is not his strong point]

Of course, many many similar examples could be found. Hopefully what people will take away from this is Venezuelan oil production has a) remained fairly constant over Chavez’s term b) is not declining at the present time, rather it is increasing and c) the opposition assertions of dramatic declines are made by giving completely false numbers and switching within the comparisons what they count or don’t count as oil.

And just one final point, while the opposition has clearly been lying about Venezuelan oil production the government has been telling the truth. For example here is a quote from a Wall Street Article where rabid anti-Chavez columnist Maria Anastasia O’Grady scoffs at Chavez saying Venezuelan production is 3.1 million barrels:

"Today Chávez claims that production is down by a mere 200,000 b/d for a daily output of 3.1 million barrels. Industry experts dispute this and this month critics grew more vocal."

As it turns out, as can be seen from the graph Venezuela was producing 3.1 million barrels in 2005. As I’ve said before, I love it when they catch Chavez telling the truth !!!!


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