Venezuela-- The Unmentioned Oil Superpower

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Summary

  • Venezuela has larger oil reserves than Saudi Arabia.
  • The country only produces 20% of Saudi Arabia's production level.
  • Venezuela needs higher oil prices for success - this may result in increased production and therefore market supply.
 

Introduction

Venezuela is a significant player in the oil markets. The country has several hundred billion barrels worth of oil according to their data, which represents ten years of the world's production by itself.

The country currently has a production of 30.41 million people up from 24.41 million in the year 2000 and 19.74 million in the year 1990. The country's oil allows it to have a relatively high $14,414.75 GDP per Capita. This compares to $11,208.08 for Brazil and $41,787.47 for the United Kingdom.

Reserves

Venezuela Oil Holdings - Deep Resource

As we can see here, much of the country's reserves are from the Orinoco Belt in Venezuela. The Orinoco Belt has an estimated 235 billion barrels of oil in place, slightly ahead of the Athabasca Oil Sands in Canada. The US Geological Survey has increased the estimated oil reserves to 513 billion barrels but did not determine what portion of this was economically feasible.

OPEC Share of World Crude Reserves - FT Data

In fact, compared to other oil producing countries, Venezuela has more reserves than any other oil country in the world including Venezuela. So with so much oil, why do we hear so much about the Saudi Arabia versus Venezuela.

Production

Venezuela Oil Production - Energy Insights

The reason for this is simple. Venezuela's oil production is roughly 2 million barrels per day compared to Saudi Arabia's production of 10 million barrels per day. In fact, at Venezuela's level of production the country's current reserves will provide it with enough oil for 100,000 days (274 years) at its current production rate. Comparatively, Saudi Arabia's reserves will serve it for just 55 years at its current production rate.

Consumption

With a population of 30 million people, Venezuela can provide significant growth as a result of growing consumption. The United States consumes roughly 20 million barrels of oil per day. Assuming Venezuela consumed the same amount of oil, the country would consume 2 million barrels of oil per day.

Venezuela Oil Production and Consumption - Hammerstrung

Instead, Venezuela consumes only 500,000 barrels of oil per day. The country's consumption would have to quadruple to match the United States. More so, having a consumption this high would have nearly matched Venezuela's production exactly.

Petrol Prices by Country - Dailymail

More so, the country has some of the cheapest oil compared to other countries. Venezuelan oil prices are extremely low at just roughly $0.40 per gallon. This is 20% what American gasoline currently sells for at the pump where I am.

Breakeven

Fiscal Break-even Oil Price by Country - Business Insider

However, Venezuela is in trouble. Low oil prices have put the country in a difficult position.

The country needs 2015 oil prices of $117.50 for fiscal break-even. With current oil prices at $67, oil prices are almost at half of where they need to be for Venezuela to breakeven.

The country needs to significantly increase its oil production to have a hope of fiscal breakeven - a production increase that will most likely not occur.

However, should this occur it would significantly increase the time it takes for oil prices to recover - several million barrels more per year in low-cost production could take years for the market to balance for.

Conclusion

In this article, we talked about the production and consumption of oil in Venezuela. We also talked about the country's reserves and the prices necessary for break even.

However, Venezuelan oil production has remained relatively stagnant and in fact, has dropped since reaching its peak production. The company needs an extremely high oil price for breakeven. So far, Venezuela has not managed to reach its breakeven costs. The country has bigger oil reserves than Saudi Arabia but is talked about much less so far.

Venezuela as a country has significant potential. This potential comes from the country deciding to increase its production. However, a significant increase in production could also crash the oil markets.

I expect the country to focus on expanding in these difficult oil time periods in order to manage its finances.

http://seekingalpha.com/article/3181876-venezuela-the-unmentioned-oil-su...