Saturday, April 22, 2006

"On Chavez's dead body" 

Today the opposition is supposedly holding an anti-crime and anti-violence rally. Certainly such a rally would be oppertune as crime and violence are out of control in Venezuela.

But there is a reason I used the word "supposedly". The opposition, being what it is, can't seem to miss any opportunity to not only criticize Chavez but to threaten him, even with violence. In an interview with Globovision, Venezuela's opposition led 24 hour news network, an opposition supporter talked about laying down on the pavement and "on the cadaver of Chavez" to protest violence (see the video here). Its a rather interesting notion that in a protest against violence you would threaten more violence.


Friday, April 21, 2006

Playing hardball works 

A month or so ago the Venezuelan opposition, who in their free time like to pond hop over to Miami, were in a tizzy about the Venezuelan government threatening to ban U.S. airlines from flying to Venezuela.

Why was Venezuela threatening to do that? The problem dates back to more than 10 years ago when the Venezuelan civil aviation system had deteriorated to such an extent (under the Fourth Republic please note) that the U.S. banned Venezuelan airlines from flying into the U.S. with Venezuelan aircraft and crew. If a Venezuelan airline wanted to fly to Miami they had to rent an aircraft and crew from a country with a higher level of certification, such as Colombia or the U.S. itself, to do the actual flying. This is expensive and put Venezuelan airlines at a serious disadvantage. Over 90% of the market for flights between the U.S. and Venezuela is held by U.S. airlines.

Over the past number of years Venezuela has made significant improvements in its civil aviation standards (under Chavez, thank you very much) and thought it merited being upgraded to Category I which would enable Venezuelan airlines to resume flying with their own planes and crews to the U.S.

However, the U.S. didn't change Venezuela's category. So Venezuela decided to force the issue by saying that if the U.S. didn't review Venezuela's system and consider upgrading it to Category I it would ban most flights by U.S. carriers to Venezuela. The opposition, in typical kneejerk fashion, said it was an outrage that Venezuela was doing this, how dare they challenge the U.S. on something like this, this is just typical Chavez bluster, now we won't have anyway to fly in and out of the country, etc, etc, etc.

Well, look what happened today:

U.S. Raises Venezuela's Safety Ranking

CARACAS, Venezuela — U.S. aviation authorities upgraded Venezuela's safety ranking on Friday, averting a ban that would have blocked most U.S. airlines from flying to the country.

The U.S. Embassy in Caracas said in a statement that the "Federal Aviation Administration is raising the safety rating of Venezuela to Category 1."

The Venezuelan government had protested its category 2 ranking, which prohibited Venezuelan airlines from flying their own planes to the U.S. or from launching new services such as expansions in routes.

The restrictions, in place since 1995, forced Venezuelan airlines to rent planes for flights to or from the United States.

Venezuela had set an April 25 deadline by which the FAA had to drop restrictions or face retaliatory measures.

Once again Chavez was right and the opposition was wrong. Anyone keeping score on how many times Chavez has been right and the opposition wrong? I lost track a long time ago.


Thursday, April 20, 2006

The Fourth Estate out of control 

I don’t normally quote from other blogs, much less there comments section but there was something in the comments section of the opposition blog, Caracas Chronicles, that just cried out for comment. Here is an exchange in its comments section:

I was stunned to see today that El Nacional decided to publish in front page the news that Teodoro was announcing his candidacy tomorrow, while pushing SUMATE’s announcement to a small article inside.

A successful primary might be the turning point of the crisis.
Gustavo | 04.19.06 - 3:55 pm | #

M.H. Otero, RCTV and Globovision are all in the Petkoff bandwagon. Y si te digo que el burro es negro, es porque tengo los pelos en la mano.
Katy | 04.19.06 - 4:11 pm | #

For those who may not follow this exchange let me do a little interpreting. El Nacional is one of the larger opposition newspapers in Venezuela. And according to Gustavo that paper [which is by subscription only so I can’t show it] played up the candidacy of Teodoro Petkoff while virtually ignoring the major news of the day, that opposition NGO Sumate would be organizing primaries.

In response to that observation another reader, Katy, who has interviewed Petkoff, pointed out that the TV networks RCTV and Globovision and Miguel Otero, the owner of El Nacional, are all supporters of Petkoff.

The clear implication? That El Nacional intentionally changed its coverage of the days news to favor Petkoff by playing up news of his candidacy while downplaying potential primary elections which, not incidently, Petkoff opposes.

Before going any further let me back up a bit. Anyone who has followed Venezuela at all can’t help but be aware of the extreme bias that has permeated its reporting. Much of the media is completely dedicated to removing Chavez from power and is willing to completely slant its reporting and even lie to accomplish that. In fact, Miguel Otero told Juan Forero in a PBS Frontline interview that "we have to get Chavez out". And certainly no one who saw “The Revolution Will Not Be Televised” will easily forget the military officers on TV thanking “los medios” for their role in the coup.

So that most of the Venezuelan media has very little in the way of journalistic standards and is willing to let their political biases and aims color their everyday reporting is hardly news. Yet many people will assume this is driven by anti-Chavez fanaticism and that if Chavez weren’t around Venezuela would have a healthy and vibrant press.

Gustavo’s and Katy’s comments show just how wrong that idea is and how much deeper the problems are. The Venezuelan opposition is now carrying out an internal debate as to who their candidate should be that stands against Chavez in the upcoming elections. If Venezuela had journalists that practiced responsible journalism the media would be full of news about all of the potential candidates, their proposals, and what was being done to arrange primaries.
Of course, different news outlets would have different editorial stances and could even endorse candidates but presumably they should at least make some effort to keep their actual reporting objective and balanced.

But that is not what happens in Venezuela. In this example we can see that El Nacional blocking out coverage of things it is against (primaries) and playing up news about candidates its favors (Petkoff). This clearly shows that their lack of journalistic ethics and determination to shape the news rather than just report it transcends the struggle against Chavez. They are carrying out their standards manipulations in this case when the only people involved are opposition supporters and the matter has nothing to do with Chavez!

When I first read these comments for a second it took my breath away. Clearly these media barons think of themselves not only as people who have the right to try to overthrow a president who they don’t like but they also view themselves as king makers who should be able on their own to chart the future of the country and determine who will lead it. Unfortunately for Venezuela this arrogance is backed up by their immense fortunes and great power.

What can be done about this? I have no idea. I certainly don’t condone censorship or the closing of media outlets. Yet it looks highly unlikely that the Venezuelan media will change of its own accord. So in the end I can’t do anything more than make the observation that if what Gustavo and Katy have pointed out to us doesn’t show how dysfunctional the Venezuelan opposition and the society it claims to represent are I don’t know what does.


Wednesday, April 19, 2006

Finally, something positive from the opposition 

It's been a long time coming but it looks like maybe - just maybe - the opposition is finally getting its act together and is about to finally taking some good steps. It was announced yesterday by SUMATE - the opposition electoral NGO supported by the U.S. - that they will be organizing primaries for opposition candidates who want to run against Chavez in the upcoming presidential election.

This is a positive development on a number of levels. First, Venezuelan political parties have been notably undemocratic. Their leaders are generally self-appointed. Even within the Chavista political movement there has been no consistent allowing of the bases to have a voice through internal elections much to the consternation of many Chavez supporters. The opposition has been even worse with all of its leaders simply self-appointed or creations of the media. If finally your average opposition supporter gets a voice in who speaks for them that is certainly a positive development. Hopefully, this will be the start of a trend.

Also, by having primaries the various would be candidates will have to compete. This should bring about a healthy debate on the issues that has been sorely lacking up to this point. The opposition has for the past four or five years largely limited itself to attacking Chavez without putting forth and detailed plan as to what they would do differently. But if Borges and Petkoff, the two opposition front runners, have to fight for votes they may well be compelled to offer such details. That would truly be a positive development for all Venezuelans, not just opposition supporters. Even the government itself has said it would welcome a serious and responsible opposition.

A couple of other notes on this. First, SUMATE is very closely tied to the U.S. It receives funding from them and its leaders meet and consult with top U.S. officials. So I strongly suspect that what is behind this is U.S. frustration at the inability of the opposition to get its act together and mount an effective challenge to Chavez.

Second, it will be interesting to see SUMATE actually do something positive like run an election instead of just peddling bogus exit polls and fraud theories. I wonder how they will react if there are allegations of fraud in these primaries.


Tuesday, April 18, 2006

Oil Bubble? 

The price of oil is spiking upwards yet again and is setting new highs almost daily. Certainly this is a good thing for oil exporters such as Venezuela. The additional revenue that comes from these high prices will translate into more economic growth and more social spending.

The $64,000 question though is where is the price of oil going from here. Will it continue to climb, stabilize, or fall abruptly? Of course, no-one knows the answer to that. But evidence is mounting that the current high prices owe more to speculation than actual fundamentals of supply and demand and that prices could therefore be set for a big drop. Here are some excerpts from an article in today's Wall Street Journal:

Oil Settles Above $70 a Barrel, Despite Inventories at 8-Year High

Crude oil closed above $70 a barrel for the first time, highlighting a phenomenon reshaping the petroleum world: invasions flows into oil futures are supplanting nitty-gritty supply-and-demand data as prime drivers of prices.

In contrast to past bull markets in crude, this year's run-up has occurred even though oil inventories in the U.S., the world's largest market, have swelled to their highest levels in nearly eight years.


The answer to the puzzle posed by rising prices and inventories, industry analysts say, lies not only in supply constraints such as the war in Iraq and civil unrest in Nigeria and the broad upswing in demand caused by the industrialization of China and India. Increasingly, they say, prices are also being guided by a continuing rush of investor funds into oil markets. Institutional money managers are holding between $100 billion and $120 billion in commodities investments, at least double the amount three years ago and up from $6 billion in 1999, says Barclays Capital, the securities unit of Barclays PL.

The flow of money into oil, analysts say, has been prompted by a spreading belief that demand for oil will continue to rise with global economic activity as supply tightens under the influence of several factors - among them, the West's escalating nuclear standoff with Iran; growing political violence in Nigeria; and more broadly, steadily growing economic activity. The three year bull run in oil has been underpinned by strong global demand for fuel coupled with a prolonged shortage of spare capacity to pump and refine crude.

"What's been happening since 2004 is very high prices without record-low stocks," says Jan Stuart, global oil economist at UBS Securities. "The relationship between U.S. inventory levels and prices has been shredded, has become irrelevant."

It remains to be seen whether this belief in a paradigm shift that permanently buoys oil prices will stand the test of time.


A crash looks unlikely now, both because supplies remain tight and because of the large volumes of money that investors are pouring into oil markets. Money managers such as pension funds are investing in commodities to diversify away from stocks and bonds, and appear willing to buy commodities through, passive, index-linked investments at ever-higher prices. But if the investment tide turns prices could fall quickly.

During their meeting in Vienna last month, officials from the Organization of Petroleum Exporting Countries expressed concern about rising inventories and the growing role of financial players. Their fear: Money flows could reverse on the proverbial dime, while any move by the cartel to reduce supply would take months to affect markets.

OPEC also fears a return to "backwardation" - the opposite of contango - with near-term prices higher than long term contracts. Such a flip-flop could prompt speculative buyers to dump inventories; prices could quickly drop to $20 a barrel or more, OPEC officials said.

"More and more people are going to recognize that the fundamentals just aren't there to support these prices," said John Gault, an adviser to the energy industry with Geneva-based firm Nalcosa

Along with the article was a nice chart showing U.S. commercial inventories of oil climbing from about 260 million barrels to 346 million barrels over the past two years.

I have to say, this does very much look like a speculative bubble. Which means oil prices could drop very abruptly.

What does this mean for Venezuela? First, it is unlikely to have any immediate impact. Even if prices dropped tomorrow Venezuela would still do well at least this year. Oil invoices are typically paid after 90 days so they would still be paid at the current high rate at least for the next 3 months. Further, much of the oil is actually sold on long term contracts. That means when oil prices spike upwards Venezuela isn't necessarily getting the benefit of that as much of the oil is still sold at an already agreed upon price. But the reverse is also true. An abrupt drop in prices wouldn't completely devastate Venezuela's revenue stream as it would still be able to sell a fair amount of oil at prices that are locked in.

More importantly though, this does show that Venezuela and Iran were right to push for production cut-backs at the last OPEC meeting. They correctly saw that although prices were pushing higher the market itself was oversupplied and inventories were increasing. Sooner or later that will lead to an abrupt drop in prices. It is hard to predict when the drop might occur but when it happens it will be very fast - prices would be back down to $20 per barrel in a matter of months with OPEC not being able to counter that drop.

Clearly the prudent thing to do is for OPEC to cut back now to stop this buildup in inventories and forestall a price drop. Unfortunately the other OPEC members shot a proposal for cutbacks down. Their reasoning was that with prices so high how could price boosting cuts be justified. Certainly it would get them a lot of bad publicity. Worse than that, it would probably make the price bubble even worse for a while as traders used production cutbacks as an excuse for further speculation.

So what to do? One idea might be for OPEC to agree behind closed doors to production cutbacks but not announce it publicly. That way they wouldn't feed the speculative frenzy yet they would get some of the overhang off the market and help stop the build up of inventories that will send prices crashing down. Who knows, maybe they did do that and we, of course, just don't know it.


Sunday, April 16, 2006

Venezuelan oil numbers confirmed 

Be for-warned this is a technical and numbers oriented post; some may have their eyes glaze over reading it. Nevertheless, given this blog’s emphasis on all things oil, the centrality of oil to the ongoing struggle in Venezuela, and some of the very large lies peddled by the Venezuela opposition this is an important post.

Both the Chavez administration and its opponents struggled for control over the Venezuela’s oil policy, and hence control over the state oil company PDVSA, from the inception of the Chavez administration. In December 2002 the PDVSA management led a strike aimed at toppling the government by shutting down all oil production. Their attempt to topple Chavez failed as oil production was restored and they were fired after ignoring repeated requests to return to work. Of course, given that jobs at PDVSA were well paid they didn't take kindly to being fired. They lobbied hard to get their jobs back and claimed both PDVSA and the country as a whole would collapse without them. As we know, neither of those collapses ever came about, as both Venezuela and PDVSA seem to be thriving.

However, it has been a recurring piece of opposition agiprop to say that PDVSA never recovered, that oil production is way down, and that Venezuela is therefore losing tens of billions of dollars due to the incompetence of the current PDVSA management. One reads this not only in opposition blogs, websites, and media but it has also made its way into the international media where agencies such as Bloomberg, AP, and others will often say that Venezuela is only producing 2.5 or 2.6 million barrels of oil per day versus the over 3 million barrels that the government has said it is producing.

Last fall, PDVSA released its audited financial statement for 2003 (filed with the U.S. SEC) which showed that Venezuela was indeed producing over 3 million barrels. Unfortunately, even compelling evidence such as this didn't change the propaganda coming from the opposition. Quite frankly, that they don't accept the audited numbers on production filed with the U.S. SEC, which no one in their right mind lies to, shows just how irrational they are. Be that as it may, even large segments of the international media kept on repeating the false opposition numbers on oil production.

One argument given by people who challenge the government numbers was that international organizations such as the International Energy Agency and OPEC supposedly pegged Venezuela's production at 2.5 or 2.6 million barrels a day. You see, they would say, the opposition is right when it gives those numbers and the government is lying when it says it is producing over 3 million! Of course, they would conveniently ignore a rather technical, but very important, point. The numbers that those organizations were reporting were in charts for "Crude Oil", i.e. oil as it is when it comes out of the ground. The problem is a significant portion of Venezuelan oil isn't "Crude Oil" - it is synthetic oil. The reason is that Venezuela has vast deposits of "extra heavy crude" in the Faja del Orinoco that have to be processed to convert them into something akin to regular oil before they can be refined in a standard oil refinery. Because they have to undergo this processing before they are exported they have been classified as "synthetic oil" not "crude oil". Venezuela produces about 600,000 barrels per day of this type of oil and when you add it to the other 2.5 or 2.6 million barrels of oil you the over 3 million barrels of oil that Venezuela has always said it is producing.

Undeterred by this fact that opposition continued with their lies. They would claim that the 600,000 in heavy oils were already counted in the numbers given by the international agencies and that Venezuelan production was indeed 2.6 million. For example, this graph from El Nacional puts production as per non-official sources (most likely the former PDVSA executives that were fired) at 2,406,000 barrels per day:

Further, they claimed they reports by the IEA and OPEC didn't indicate that the heavy oil wasn't included (as if the bolded words "Crude Oil" at the top weren't clue enough) and so they claimed those numbers were the total amount of oil produced in Venezuela.

Finally the International Energy Agency has been nice enough to settle the matter. What is the International Energy Agency? It is an organization created by the main oil consuming nations to monitor world energy supply and demand and lobby for more and cheaper oil. In this sense, it is the opposite of OPEC and it often actually underestimates oil production as a way of saying there is a shortage and prodding oil exporters to produce more oil.

In their "Oil Market Report" of March 14, 2006 they have a whole section on this topic where they indicate that they had NOT been counting the 600,000 in heavy crudes in their numbers and will now be counting them. Here is the relevant portion of the report, starting on page 18:

You will note from the chart where total Venezuelan production is calculated by year that as of 2005 Venezuela was producing 3.08 million barrels per day. This matches their OPEC quota of 3.1 million barrels per day and shows that Venezuela is at full production – as long as Chavez is in power it is hard to envision Venezuela breaking OPEC quotas. Also note from the chart that Venezuela’s production in 2001 was 3.142 million barrels - i.e., Venezuela’s production in 2005 essentially matched the pre-strike production of 2001 (the slight underage in 2005 was due to some temporary production problems publicized and acknowledged by Venezuela).

So there you have it confirmed. Venezuela is producing at its OPEC quota and its pre-strike level. That it isn’t producing more results from a decision to abide by quotas, not from any technical difficulties. It is really high time the opposition media and their counterparts in the internet such as Miguel Octavio, Gustavo Coronel, and others to stop lying about this. But given their complete lack of ethics I won’t hold my breath waiting for that to happen.

An additional point on these numbers is that the composition of Venezuelan oil has changed. The traditional light oil that Venezuela produces has indeed declined. That is because with the increase of production of heavy oils Venezuela has been forced to reduce production of other types of oil to stay within its OPEC quota. This is not optimal for Venezuela as it makes much less profit on the heavy oils than on lighter oils for several reasons. First, the royalties charged on the heavy oil were until recently much lower than regular royalties due to previous governments negotiating a virtual giveaway royalty of 1%. Also, Venezuela only has partial ownership of the heavy oil projects as they are principaly run by big international oil firms. Lastly, heavy oil is more expensive to produce than lighter oils. For all of those reasons Venezuela loses money by virtue of these heavy oils displacing lighter oil that it could be producing.

So why did Venezuela ever allow big international oil companies to come in and start the heavy oil projects? Part of it is that previous administrations were more beholden to the notion that foriegn investment and increased production were desirable. Given that they did not believe in honoring OPEC quotas they had no intention of reducing other production to accomadate the increase in heavy oil being produced. The Chavez administration, which stopped the self-defeating policy of breaking OPEC quotas, would almost certainly never have initiated these projects. But given that they inheritted them already well under way they had no way to stop them even if they were creating significant losses for Venezuela.

Now that we have established what Venezuela’s true production situation is and hopefully no-one, or at least not readers of this blog, will be easily confused regarding them I’ll take the opportunity to talk about Venezuela’s heavy oils a little more. First you may want to know what the term “Faja del Orinoco” is that keeps being used all the time. It is literally the old flood plain on the northwest bank of Venezuela’s principal river, the Orinoco. Here is a map that shows its location:

And why is the Faja del Orinoco so significant? Because it is estimated that there is so much oil there that if it is all counted in Venezuela’s totals Venezuela would then have the worlds largest oil reserves as this graph from the Christian Science Monitor shows:

Note how once the heavy oils are included Venezuela blows past Saudi Arabia to have the worlds largest reserves of oil. You might want to keep this fact in mind when some dismiss out of hand the possibility that anyone would be interested in overthrowing the Venezuelan government or even invading the country. Looking at that graph it is easy to see a possible motive.

From the graph one can also see that Canada has important extra-heavy oil reserves that put that country in third place overall. In fact, Venezuela’s Orinoco belt is often compared to Canada’s “tar sands”. The comparison is not really valid. As was pointed out in the IEA report the Venezuelan heavy oil is pumped out of the ground and transported through pipes just like regular oil. By contrast the Canadian oil sands are mined with shovels and hauled away by huge dump trucks.

But the main difference is it is much more difficult and expensive to convert the Canadian Tar Sands into usable oil. The production cost per barrel for the Orinoco oil is about $8 per barrel while for the Canadian Tar sands it is about $12 per barrel. And this does not even include the cost of the huge environmental problems created by the open strip mines used to get the Tar Sands.

The bottom line is that as longer the world depends on fossil fuels and other countries see their resources depleted Venezuela will more and more take center stage.


This page is powered by Blogger. Isn't yours?