Venezuela Keeps OPEC Puzzled With Oil Production Figures
sg.biz.yahoo.com Tuesday March 11, 1:25 AM By Fred Pals Of DOW JONES NEWSWIRES
VIENNA (Dow Jones)--How much oil is Venezuela pumping? And how much spare capacity does it have?
OPEC ministers want to know, because the numbers could be essential in preparing any contingency plan for dealing with a supply disruption when the war in Iraq starts.
Delegates from the members states of the Organization of Petroleum Exporting Countries are, of course, hearing numbers.
Venezuela's Oil Minister Rafael Ramirez publicly says that output of state-owned Petroleos de Venezuela (E.PVZ), or PdVSA, is at 2.65 million barrels a day, and that Venezuela will reach its OPEC output target of 2.819 million b/d by the end of the month. In the event of an Iraq war, the country could push output to around 3.5 million b/d by sometime in April.
But given the crippling impact of the two-month oil strike on PdVSA, Ramirez's figures are hardly credible, some OPEC sources say. During the strike, PdVSA's production dropped to as low as 150,000 b/d from the usual level of 3 million b/d as key staff walked off their jobs. A total of around 35,000 workers abandoned offices and oil fields in an effort to force Venezuela's President Hugo Chavez to resign.
"It's hard to believe Venezuela got back to those levels that soon and that they will hit their OPEC target by the end of this month," one senior OPEC delegate said. "It is just too good to be true. We estimate it stands at around 1.5 million b/d and they may get to 2 million within a month or so."
Spare Capacity Key To OPEC War Response
Although OPEC ministers are expected to leave the formal output ceiling of 24.5 million b/d unchanged at their meeting here Tuesday, they are eager to deliver the message that they'll pump as much as is needed to cool sizzling world oil prices.
But among market watchers there are serious doubts over the amount of spare capacity OPEC can call on if Iraqi exports - in excess of 1.7 million b/d - go offline. And if the war drags on or escalates, further supply disruption in the region is likely.
Only Saudi Arabia is seen capable of adding significant oil, with a little more than 1 million b/d of spare capacity. But that would leave the OPEC kingpin producing at full throttle, and producers prefer to leave at least 10% of total capacity idle in order to continue maintenance operations.
For Venezuela's part, secondary sources see current production at 1.8 million b/d, while average production in March is seen at 1.7 million b/d. Output level over the month of February stood at around 1.5 million b/d and will reach 1.8 million b/d, according to the U.S. Energy Information Administration department. The International Energy Agency, or IEA, has estimated a permanent loss in potential output capacity of 400,000 b/d.
Most analysts agree Venezuela won't get back to its pre-strike level of 3 million b/d anytime soon because of the loss of human capital and the multibillion dollar loss in oil revenue.
"It's difficult to determine the exact production level, but I'm not buying production is over two million b/d given the impact the strike had on PdVSA," Jan Stuart, energy analyst at ABN AMRO in New York, said. "The only thing OPEC can do in this matter is just send out the message that they will do anything they can to ease prices."
Analysts say PdVSA will struggle to reach the 2 million b/d production level. After focusing on fields that don't require much added pressure to get the oil flowing, PdVSA will face difficulties as mature oil fields are more labor- and capital-intensive.
While it's not clear whether Ramirez holds up the 2.65 b/d production level in private bilaterals with his OPEC colleagues, Venezuela isn't likely to give its real and potential output levels as market share needs to be guaranteed, even if it is only on paper. During January's oil output agreement - in the midst of Venezuela's crisis - Ramirez and PdVSA president Ali Rodriguez fought hard to get an OPEC guarantee its market share would be respected.
Meanwhile, even though the current emphasis is on the possible lack of spare capacity among OPEC members in the case of a severe disruption, fears of a sharp drop in oil prices are also embedded in OPEC minds. And that could a create a different set of problems for Chavez.
By the time Venezuela comes close to its 2002 output level of 2.5 million b/d, the Iraqi war may be over and the joy of reaping additional oil revenue from high prices could be gone with it.
OPEC members might then be forced to rein in production to avoid a serious price crash - and that could leave Venezuela's fragile fiscal state of affairs even more vulnerable.
The economy is seen contracting by 15%-20% while the fiscal deficit is seen 8%-10% of gross domestic product. Venezuela's oil revenues account for half the government's income, 80% of exports and a third of GDP.
-By Fred Pals, Dow Jones Newswires; 0043-664-544-6846; fred.pals@dowjones.com