Venezuela's oil production is left a shambles by the strike - Best-case scenario: By year-end, still a shrunken economy

www.miami.com Posted on Sat, Jan. 25, 2003 BY PHIL GUNSON Special to The Herald

CARACAS - Repeated assurances by the government of Venezuelan President Hugo Chávez that the country's vital oil industry will soon overcome the effects of a seven-week-old strike are not credible, independent analysts suggest, especially if there is no agreement with the opposition.

The nationwide strike, organized by Chávez opponents in a bid to force the president into an early election, has decimated the oil industry's production capacity.

''If there is no solution and Chávez remains in power,'' said economist Orlando Ochoa, ``average oil production this year will be approximately 1.3 million barrels a day -- just 40 percent of normal.''

Even if the oil workers were to return to their jobs next month through some kind of amnesty, maximum production by the end of the year would still be only 85 percent of the 3.2 million barrels the country was producing before the strike, Ochoa's research suggests.

Under such a scenario, the economy would probably still shrink by 10 percent, but at least hyperinflation and a balance of payments collapse could be avoided, Ochoa said.

In his penthouse office, PdVSA chairman Alí Rodríguez, a former guerrilla fighter and friend of Fidel Castro, faces what is probably the greatest challenge of his life. The industry, which represents more than three-quarters of Venezuela's export earnings, has been brought to its knees by the strike.

''Progressively, we will return to normality,'' Rodríguez says. It will take, he admits, ''a certain amount of time'' -- just how much, however, he declines to predict, although he reluctantly agrees to put a figure on current crude oil production.

''I can tell you we're close to 900,000 barrels a day, and it's possible we've exceeded that,'' the PdVSA chairman said. Later, President Chávez said oil production had reached 1.2 million barrels a day and would pass the 2 million barrel mark by early February.

Before the strike, Venezuela produced about 3.2 million barrels of oil per day and was the world's fifth largest exporter.

ESTIMATES IN DOUBT The official figure, however, is widely disputed, not just by the strikers but by oil industry analysts and other independent observers. On Friday the opposition increased its estimate to 855,000 barrels per day and, in Washington, the U.S. Department of Energy said Venezuela's oil industry had boosted production to 600,000 barrels per day.

Some observers feel the crisis has dealt the company a blow from which it will recover, if at all, years from now.

''The longer this drags on,'' said a foreign oil company executive who requested anonymity, ``and the more you see changes within PdVSA -- and maybe some foreign suppliers or service companies withdrawing people -- to get all that back up there is going to take time, if it's possible at all.''

TOP ALLY Venezuela, which before the strike provided about 14 percent of U.S. imports, has traditionally been among the world's most secure suppliers, especially during times of war and international crises.

''While Chávez is in power,'' says former energy minister and former chairman of PdVSA Humberto Calderon, ``it will never recover that position.''

Some recall the fate of the Libyan oil industry after Col. Moammar Gadhafi's 1969 revolution, and Iran after the overthrow of the shah in 1979. Both countries experienced massive production cuts, from which neither has fully recovered. Their respective revolutionary governments remain in power.

Rodríguez rejects the comparison. He said Venezuela aspires not only to fulfill its current OPEC quota of more than 2.8 million barrels per day, ``but much more, because the market is growing and not every country has the same capacity as Venezuela to satisfy increased demand in coming decades.''

Ochoa, however, points out that in recent years PdVSA has spent an average of $2.7 billion just to maintain production levels. This year, because of the cost of repairing wells damaged by the shutdown, that could rise to between $3.5 billion and $4 billion -- money the corporation does not have.

The nature of the Venezuelan oil fields, which are widely dispersed geographically, complicates the task. Before the strike, more than 9,000 wells were in operation, each producing relatively small amounts of oil.

''If you recover a well in Saudi Arabia,'' said former PdVSA executive Alberto Quiros, ``you've recovered 10,000 barrels a day. In Venezuela you recover a well and you've got an average of about 300 barrels a day.''

Additionally, with production, refining and port operations being run by skeleton staffs, many less than adequately trained for the job or brought back from retirement, maintenance capacity has all but disappeared, and the chances of serious accidents occurring are very high.

LIGHT DUTY One field -- San Tomé in Anzoátegui state -- for example, which normally requires 280 people to run it, is currently being operated by 50 people, sources said.

There are also two major bottlenecks, both of which prevent production being raised beyond a certain level. One is the ports, where a lack of personnel, along with militarization, has caused insurers to withdraw cover and shipowners to keep their vessels away, crippling the export trade.

The other is the refineries.

''It would take between 45 and 60 days, with full staff, to recover the Amuay-Cardon refinery,'' with its 940,000 barrel-per-day capacity, Ochoa says. With exports and refining disrupted, the availability of storage tanks becomes a crucial limiting factor.