PDVSA's Rodríguez: Venezuela a reliable US oil supplier

ogj.pennnet.com   Maureen Lorenzetti Washington Editor Venezuela is a reliable US oil supplier, the head of state-owned oil company Petroleos de Venezuela SA said Thursday in an exclusive interview with Oil & Gas Journal. "Of course we are," said PDVSA Pres. Alí Rodríguez Araque, when asked to respond to concerns by some Bush administration officials that the country is now an unreliable supplier to the US because of its internal political problems. "For many, many years, through war and peace and through different types of governments, we have maintained a good relationship with the US," he said. "We maintain that same position, and the US needs supplies from Venezuela," he said. Rodriguez and Rafael Ramirez, Venezuela's minister of energy and mines, sought to deliver that message in Washington Wednesday. They met members of the Bush administration and Congress and said that, despite the firing of thousands of striking PDVSA workers, production is recovering to prestrike levels.

The trip to Washington comes as heating and motor fuel prices become a growing worry for policymakers who are under pressure from consumers to take corrective action. In Congress, lawmakers have spared little time calling for various measures, most of which are too expensive for a fiscally conservative White House. These have included: Strategic Petroleum Reserve releases, federal gasoline tax suspensions, and new tax initiatives that encourage domestic production. Meanwhile, analysts testifying before Congress have cited Venezuelan's labor woes as a contributing factor for recent price runups, although market jitters over Iraq, and basic supply and demand market fundamentals are also factors.

Meetings and assurances Venezuela's top energy officials met with House members of the Venezuela Caucus and the House Western Hemisphere Subcommittee and Energy and Commerce Committee. They also met with senior officials from the departments of State and Energy. Sources present at the meetings said the Venezuelans stressed that both crude and gasoline exports from their country were expected to be on the rise next month, helping ease price pressures in US markets. But their reassurances were not sufficient for some Bush administration officials, according to government sources. Department of State officials said the Venezuelan delegation was told that the US still has "serious concerns" over the Venezuelan supply disruptions and that the only way to restore confidence and attract foreign capital is to negotiate with strike leaders, many of whom are former PDVSA managers. In an interview in New York City the next day, Rodríguez insisted that the conversations over oil supply reliability were not "official" US policy, and he claimed that, in fact, Bush administration officials at the meeting pledged to support a "democratic, peaceful and constitutional end" to the strike.

Political impasse Venezuelan President Hugo Chávez as recently as Feb. 25 rejected calls by the US and the Organization of American States to negotiate with opposition leaders. Chavez's stance has now led the White House to openly wonder if oil exports may again be put in jeopardy because of escalating civil strife. Opposition leaders say the economy continues to spiral downward, and basic needs such as food and fuel are getting scarce. For the oil sector, the financial impact of the strike, now in its third month, is not in dispute: $4 billion has been lost in oil revenue and another $2 billion in tax-generated income. And both sides acknowledge there is a credibility issue that the state oil company must overcome. "There has been damage done that is both tangible and intangible," Rodríguez said. "How can you estimate it?"

Opposition leaders have accused Chávez of using PDVSA as a cash cow to finance a corrupt government that is not serving the needs of its people. Responding to those criticisms, Rodríguez said that opposition leaders do not have the interests of Venezuelan citizens at heart, because they are politicizing oil supplies for their own means and hurting the country's relationship with key allies in oil-producing and consuming countries. "OPECcountries have the commitment not to use oil as a political weapon. But in our country some have used oil as a way to impose their will on society and the state," he said.

Prior to the strike, Venezuela exported about 2.3 million b/d of crude and products, with about 1.5 million marketed to the US. In December and January exports dropped dramatically but now appear to be recovering slowly, according to the US Energy Information Administration. Sec. of Energy Spencer Abraham told a US Senate Energy and Natural Resources hearing earlier this week that he expected levels of imports from Venezuela to return to normal within 3 months. Rodriguez said that DOE's estimate was "accurate," although he did not speculate on whether Venezuela—as a member of the Organization of Petroleum Exporting Countries—will be allowed to make up oil exports it didn't ship in December and January, when the full impact of the strike severely limited exports. "At this point, nobody know what will happen," he said, referring to possible US military action against Iraq that may start before the Mar. 11 OPEC meeting.

Production, exports increasing Meanwhile, production is "increasing every day", Rodríguez said, now standing at about 2 million b/d; it should increase "more or less" to 2.5 million b/d next week. And by the end of March, he expects levels to be at about 2.7 million b/d. On Feb. 25, the company lifted force majeure on three crude export contracts in the eastern region; foreign companies started to lift supplies for the first time since the strike started Dec. 2. Downstream, PDVSA's 635,000 b/d Amuay refinery, a major source of product exports to the US, is expected to be repaired and at full capacity in mid-March, the PDVSA chief and former OPEC secretary general said.

Upstream issues Rodríguez declined to speculate on how much production may have been permanently lost from the strike because of poor field management or what he characterized as possible acts of sabotage by some PDVSA workers, now dismissed. The International Energy Agency estimates that about 400,000 b/d of crude output capacity may have been permanently lost. "It is possible there has been damage to some wells," Rodriguez said.

Opposition leaders dispute both PDVSA's estimates of current production levels and its estimates for the future. They say production is now only at 1.6 million b/d, and that billions of barrels of reserves may have been lost because of poor field management. Opposition leaders have also warned that the wave of what they see as politically-motivated firings that have taken place in the past month may damage the company's ability to keep up with technical challenges, such as making low-sulfur fuels.

Rodríguez said that at least 7,000 of the 12,300 dismissals were justified as cost-cutting measures to trim back a 33,000 member workforce; in many cases, employees were fired because they did not show up for work, he said. More technical people, in the refining sector and elsewhere may be needed in the long term, he acknowledged. Later this year PDVSA will receive a management consultant's report on ways to improve performance and may take further action then. In the meantime, PDVSA has had success recruiting retired employees to assist in technical areas, Rodriguez said. "Our plans are not conditioned by these people," he said, referring to fired PDVSA managers "There are many different factors involved in these firings. These are the new realities of the oil market. We continually need to increase productivity and obtain better revenues."

While there is evidence to suggest Venezuelan oil exports may be increasing enough to bring in some much-needed cash to the country's coffers, there may be longer-term investment implications from the strike, opposition leaders suggest. Opposition leaders say that PDVSA is looking to sell its US downstream subsidiary Citgo Petroleum Corp. Opposition groups allege oil interests in Nigerian were unsuccessfully approached; an offer to Petronas, the Malaysian state petroleum country, is now on the table, they say.

Rodríguez said that any talk of a Citgo sale is "speculative." He said that the company will look at the consultant's recommendations and then move forward. "If necessary, we will sell some assets, maybe we'll buy some assets." He also expressed hope that foreign investment will continue to be robust. "I am sure, in the next round of bidding, we will have many, many companies tender offers.," he said. Rodríguez sees an opportunity for companies as soon as this summer. The fate of Citgo is of special concern to US policymakers because of the amount of refinery capacity it controls. Selling Citgo also creates potential problems for PDVSA, because that subsidiary's refineries provide a special outlet for heavier crudes that are difficult to market. And in the mid to long-term future, a rebuilt Iraq could be a formidable challenge to PDSVA's future success, analysts say.