Tuesday, October 31, 2023

Between the uncertainty of war and the economy.

 El Taladro Azul  Published  originally in Spanish in LA GRAN ALDEA   

M. Juan Szabo and Luis A. Pacheco



The combination of the geopolitical risks with an expansion of the conflict in the Middle East, the under-supply of oil, and the recurring threats of an economic recession and its effect on the demand mark the terrain where the oil market moves.

These variables, interacting unpredictably, have kept oil prices between $88 and $90/BBL for Brent Crude, with marked volatility in response to daily news, which to a greater or lesser degree reflects the probability that the conflict between Israel and Hamas expands.

Israel seems to have delayed its campaign to counterattack Hamas. However, after an incursion last Thursday, it resumed its military activities in northern Gaza with more intensity on Friday night. The Israeli Defense Forces (IDF), with ground troops supported by fighter jets and drones, attacked anti-tank missile launch sites and underground command and control centers. Separately, US military forces in the area carried out airstrikes against two facilities in eastern Syria used by Iran's Islamic Revolutionary Guard Corps. American officials said the strikes were in response to attacks against US personnel based in Iraq and Syria.

However, to the surprise of analysts, oil prices were headed for a slight decline during the week, despite signs of escalating conflict in the Middle East.

On the economic front, the European Central Bank (ECB) left official interest rates unchanged on Thursday, after 10 consecutive increases. However, ECB President Christine Lagarde said it was premature to talk about rate cuts and did not confirm that interest rates had even peaked. She also warned about the threats that loom over the world economy, derived from the Israel – Hamas conflict.

In the world of big oil companies, a trend of consolidation appears to have begun. The mega acquisition of Pioneer Natural Resources (NYSE: PXD) by ExxonMobil (NYSE: XOM), is now followed by the announcement of the purchase of Hess Corporation (NYSE: HES) by Chevron Corporation (NYSE: CVX), and ConocoPhillips' appears to be in talks to buy the private company CrownRock LP, a prominent producer in the Permian Basin in Texas, a transaction that could be valued between $10-15 billion. As an interesting note, these two mega consolidations do not involve cash disbursement, which leaves the investment capacity of the resulting entities intact.

On the other hand, Royal Dutch Shell announced that it will reduce at least 15% of the workforce in its low-carbon solutions division and reduce its hydrogen business. This is part of new president Wael Sawan's strategy to increase profits by focusing on higher-margin projects, stable oil production, and increased natural gas production. This strategy could include acquisition transactions of companies in the industry, given the trend in its competitors.

The US economy has proven to be a difficult enigma to decipher. After more than a year of aggressive interest rate increases to cool the economy and curb inflation, the labor market continues to make progress, with GDP growing by 4.9% over the past quarter. Treasury Secretary Janet Yellen claims that such a growth rate is unsustainable, but it is not the first time that her assessments have been misplaced. The last time US bond yields rose this much and this fast, in 2007/8, the US experienced a recession, but everyone who has predicted a recession since early last year has turned out to be wrong. For now, the Federal Reserve will continue to feel pressure to keep rates high to combat price increases.

Meanwhile, the Chinese central government formalized a process for local governments to obtain loans for next year, starting in the fourth quarter of this year, which was welcomed by China's economic players, moving stock markets higher. However, earlier this month, the International Monetary Fund cited real estate problems and cut its growth forecast for China to 5% this year and 4.2% next year.

OPEC+, the dominant player in the oil market, has maintained its policy endorsed at the ministerial meeting on October 4, in which it urged member countries to strictly adhere to agreed production levels. Some member countries have not been able to achieve their production quotas – euphemistically called over-compliance. The organization will review the results and its strategy on November 26 at its next ministerial meeting.

Finally, in Guyana, they announced their 46th deep-sea discovery. This is the Lancetfish-2 Well, drilled by the consortium led by ExxonMobil.

Thus, oil prices showed strong volatility during the week, closing at levels somewhat lower than the previous week. As long as the war does not affect produced volumes and supply routes, the war premium will remain attenuated.

At the close of the markets, on Friday, October 27, Brent Crude Oil, after a recovery compared to the previous day, was trading at $90.48/BBL, while WTI was trading at $85.54/BBL.

 

ENERGY TRANSITION

Ice and Fire. Heat pumps

Heating and cooling homes, businesses, and industries require a lot of energy. In many parts of the world, indoor climate control represents one of the largest end uses of energy. Heating and cooling represent a considerable fraction of the energy consumed in the global industrial and construction sectors.

In colder northern regions such as Canada, the United States, and Northern Europe, space heating typically accounts for 60% or more of the total energy demand in residential buildings. Home heating bills can account for more than 40% of household energy costs in these cold places. Commercial buildings such as offices and hospitals also require significant amounts of heating during cold seasons.

In warmer southern climates, the picture changes, and air conditioning becomes the driving force for electricity demand. Cooling a home or business in warm regions such as the southern US, the Middle East, and the tropics can require 30-50% of a building's energy use during peak summer periods. Air conditioning use is expected to increase in developing countries as global temperatures rise.

Industrial facilities also rely heavily on heating and cooling for essential manufacturing processes. Thermal needs such as steam generation, cooling, drying, or other temperature-sensitive operations can account for 10-20% of an industry's energy footprint. Facilities typically use both primary fuels and electricity for process heating and cooling. This time we will deal with non-industrial use.

In general terms, heating technologies are based on the direct use of heat generated by the combustion of fossil fuels: gas, diesel, etc. Cooling systems are variations on the principle of extracting heat from indoor air to the outdoors by consuming energy (electricity): air conditioners, evaporative coolers, absorption coolers, and natural ventilation.

Hence, designing and operating efficient, low-carbon heating and cooling systems plays a key role in the transition to a more sustainable energy future. It is in this context that heat pumps have been rediscovered and are emerging as a cooling and heating option that is gaining popularity.

 

A heat pump uses technology like that found in a refrigerator or air conditioner. It extracts heat from a source, such as surrounding air, geothermal energy stored in the ground, nearby sources of water, or waste heat from a factory. It then amplifies and transfers the heat to where it is needed. Furthermore, it can be used to heat or cool air or water in homes, buildings, or industrial processes. It moves thermal energy in the opposite direction to spontaneous heat transfer, which is from hot to cold, by using external energy.

While no one inventor can take sole credit for heat pumps, the early history of this technology includes several pioneers who helped develop and advance the technology as we know it today.

In the 1820s, Nicolas Léonard Sadi Carnot established the key thermodynamic theory for understanding heat pumps and refrigeration. His work laid the scientific foundation for the heat transfer cycles and reversibility that heat pumps enable. In 1852, William Thomson (Lord Kelvin) devised a “heat multiplier” that used vapor compression to move heat from one place to another against the natural direction of heat flow. This pioneering device is considered the first real heat pump. In 1855, Peter von Rittinge, an Austrian engineer, designed and built the first heat pump that employed a vapor compression cycle to provide heating.

The most common type of this device is the air heat pump, which transfers heat between indoor air and outdoor air. It consists of an external coil, a compressor, an internal coil, and an expansion valve. The refrigerant fluid circulates through these components in a closed circuit.

During heating mode, the liquid refrigerant in the outdoor coil absorbs heat from the outside air, causing it to evaporate and turn into a gas. This gas is compressed, increasing its temperature. The hot gas then circulates through the indoor coil, releasing heat to the indoor air to warm the home. During cooling mode, the cycle is reversed. The indoor coil absorbs heat from the indoor air, causing the refrigerant to evaporate. It is then compressed and sent to the outdoor coil, where it condenses back into a liquid, releasing heat to the outside.

Reversing refrigerant flow is what allows a heat pump to provide heating and cool air in a single device. It takes advantage of differences in outdoor and indoor air temperatures to efficiently move heat in any direction as needed. This makes it much more energy efficient than oven heating or electrical resistance heating.

Today, the primary uses of heat pumps are heating, ventilation, and air conditioning (HVAC systems) of home and office buildings, hospitals, schools, retail stores, and other facilities; water heating; heat recovery in industrial processes; geothermal systems; dehumidification: cabin climate control in electric vehicles.

In the context of the energy transition, heat pumps have certain advantages:

·       Reduce reliance on fossil fuels for heating – Heat pumps can heat homes and water more efficiently using electricity instead of burning natural gas, oil, or propane, reducing emissions.

·       Increase energy efficiency – Heat pumps can reduce heating and cooling energy use by up to 50% compared to alternative systems.

·       Improve resilience – Heat pumps diversify energy options while using the thermal energy available in the ground or air. This provides alternatives if a certain fuel supply is interrupted and makes communities more resilient.

 

However, like any technology, heat pumps have limitations and challenges:

·       Standard air source heat pumps become less efficient and effective at very low outdoor temperatures. This makes them less suitable for icy regions without supplemental heat.

·       While heat pumps save money over time through energy savings, the initial purchase and installation cost is higher than alternatives such as gas boilers.

·       Replacing an existing heating system with a heat pump often requires electrical upgrades, ductwork modifications, and installer training.

·       In some areas, the increase in demand for electrical energy, due to heat pump utilization, may require upgrades to the utility network. This requires a modernization of the network.

 

According to the International Energy Agency (IEA), heat pumps are a critical technology for heat decarbonization and have received increasing political support in several countries recently. The agency estimates that heat pumps globally have the potential to reduce global carbon dioxide (CO2) emissions by at least 500 million tons in 2030, equivalent to the annual COemissions of all cars in Europe today.

But as with any massive replacement, in this case of cooling and heating systems with new technology, progress is plagued by potholes. An example of this is the recent decision of the British government to postpone the obligation to replace domestic boilers with heat pumps, from 2030 to 2035, citing high costs and installation complexities in old buildings; a decision not very popular in many sectors, but with obvious electoral implications; The same decision was made regarding the prohibition of the sale of cars with internal combustion engines.

In any case, this is a technology that is here to stay, even if it takes a little more time to be massively deployed.

 

VENEZUELA

Political Events

Venezuela has not yet recovered from the surprise of the massive attendance at the opposition primary elections, which resulted in an organizational and political success. The overwhelming victory of María Corina Machado was also unexpected, obtaining 92% of the almost 2.5 million valid votes, which at this time makes her the opposition standard-bearer for the 2024 presidential elections.

However, MCM will not only have to fight against the administrative disqualification that weighs on her but will also have to overcome all the other obstacles that the regime will try to put in her way. The regime's noisy reaction to MCM's victory is a reflection of the hard political blow that the primaries represent. The attempt to prosecute the organizers of the primaries, in violation of the first article of the Barbados agreements, gives us an idea of the thorny path forward.

The political and economic media have talked a lot about the potential effects of lifting sanctions in terms of activity and incremental income for the State. As we indicated last week, due to the temporary nature of the oil licenses granted, the precedents of non-compliance by the regime, and the uncertainty regarding the valuation parameters of the Biden administration, estimating the effect of the licenses is only possible in the form of scenarios.

Under a relatively optimistic premise of full compliance with the agreements reached in Barbados, which would extend the validity of the new licenses over time, incremental activities and income can be estimated. Meanwhile, we have to content ourselves with identifying the potential contracts or deals that the parties have brought up, without being able to ensure whether they come to fruition.

So far, the process seems to have motivated interest in the oil and financial market, both due to the sale of crude oil and products, and in the bond market of the Republic and PDVSA.

In the field of operational activity, we know that Chevron continues with its plans to begin drilling early next year; Maurel & Prom appears to intend to begin the recovery of the western Urdaneta Field, located on the western coast of Lake Maracaibo, with current production of about 9 MBPD. The rest of the announcements correspond, for the most part, to cases associated with the recovery of debts in default or interest in marketing Venezuelan hydrocarbons.

Among these, we can mention the interest of ONGC (National Company of India) to participate in the commercialization of Venezuelan crude oil or products to recover more than $500 million in dividends pending since 2014 for its participation in mixed companies. On the other hand, a total of about 200 MBPD of crude oil, currently destined for China, could be redirected to the US market and even the European market, which will take a few months to implement.

The transparency imposed on the crude oil export process as a result of the original Chevron license, and the recent ones granted as a result of the agreement signed in Barbados, could be overshadowed when the actors who today participate in the “alternate” marketing route try to keep trading.

The three fundamental catalysts of the process are:

·      The Venezuelan regime's compliance with the Barbados agreements, the initial actions cast a veil of doubt on this element,

·      The Biden administration's willingness to implement its ultimatums.

·      The interest of companies and intermediaries to invest in Venezuela under the prevailing conditions.

Meanwhile, relations with Guyana have become more complicated. It is no longer just a matter of stirring the nationalist fiber of the Venezuelans, but it has even led to threats of military action in the disputed territory.

The most interesting element in the controversy with Guyana is the presence, following the acquisition of Hess, of Chevron in both production and exploration operations in new blocks. Half of the participation in the blocks in Guyana is in the hands of companies that are also partners of PDVSA: Chevron and the State Company of China

Hydrocarbons Sector.

Several PetroMonagas wells came into production, slightly raising production potential, while exports began to adapt to the opening to the most remunerative markets for Venezuelan crude oil. Thus, crude oil for condensate exchanges with Iran tend to disappear. Baker Hughes reports only one active rig in the country, Drilling for PetroMonagas.

Production: The month of October will close with an average production of 746 Mbpd, distributed geographically as shown below:

·      West:             132 (Boscan 54)

·      East:               151

·      Orinoco Belt:   463 (Chevron 79)

·      Total:               746 (Chevron 133)

Chevron's production is in line with volumes of recent months. The North American operator is starting work at PetroIndependencia (Orinoco Belt) for the start of the development drilling campaign starting in January 2024.

Refining: Although the 4 main refineries are operational and process or reprocess about 290 MBPD of crude oil and intermediate products, none are operating as they should. Amuay works as a simple distillation refinery. Cardón falls short of its gasoline production goals due to the lack of its catalytic cracking unit (FCC). El Palito practically processes intermediate products due to problems in the distillation unit, and Puerto la Cruz operates at low levels due to the shortage of light crude oil. So the national supply of gasoline will continue to depend on imports, which are now facilitated by the opening of the markets.

Exports: Exports for October are on track to average exceeding 560 Mbpd of crude oil and 90 Mbpd of products. Exports handled by Chevron averaged in October 150 Mbpd.

The changes in destination are in full development, but there are still no reliable numbers. Under the premise that 30% of the volume subject to change of destination was achieved during the month, let us remember that the licenses were published on October 18, the income from commercially sold hydrocarbons, net of debt payments and crude oil delivered in barter, It would be $630 million for October; Some $120 million would be dedicated to reducing outstanding debts with Chevron, ENI, and Repsol.

 

 

Tuesday, October 24, 2023

THE CHESSBOARD OF WAR AND THE MARKET

El Taladro Azul  Published  originally in Spanish in LA GRAN ALDEA   

M. Juan Szabo and Luis A. Pacheco



Every week, in a normal world, oil market analysts review the variables that determine the dynamics of the oil market. The policies of central banks, the uncertainty between a future recession or a “soft landing”, the movement of commercial crude oil inventories, doubts about the Chinese economy, and whether the production quotas of the OPEC+ countries are met, are some of those variables.

For two weeks now, since the terrorist group Hamas attacked Israel surprisingly and lethally, the oil market has focused its interest on the development of that war and its potential regional expansion, relegating traditional variables to background noise or an agent of volatility, and assigning a “war premium” to oil prices.

The situation is confusing, to say the least. Iran's threats to cut off supplies to countries that favor Israel, the crossfire in the Golan Heights between Israel and Hezbollah, and the interception by a US battleship over the Red Sea of missiles and drones, launched from Yemen by Houthi rebels, presumably heading towards Israel, are fueling fears that the conflict will take on the proportions of a regional war.

However, Israel's failure to unleash a massive assault on the Gaza Strip, President Biden's presence in Israel accompanied by a strong contingent of the US Navy in the Mediterranean, the surprise visit of the Secretary General of the UN, António Guterres, to Egypt's border with Gaza, are signs of interest in containing the expansion of the conflict, which could interrupt crude oil production or transportation outside the Middle East.

The US, in particular, is playing on all boards of simultaneous geopolitics. On the one hand, it deploys active shuttle diplomacy between Israel, Jordan, Egypt, and Saudi Arabia, to underline support for Israel and condemn Hamas. On the military side, its fleet serves as a complement to the Israeli “steel dome”, and functions as a deterrent force to keep Iran and its “alter ego” Hezbollah at bay.

The US also announced that it would begin replenishing volumes in its SPR for energy security reasons, although not necessarily at current price levels. In parallel, the Biden administration temporarily relaxed oil sanctions on Venezuela, a decision whose implications we will analyze in the section dedicated to Venezuela.

At the close of the markets, on Friday, October 20, the Brent and WTI crude markers were trading at $92.16/BBL and $88.08/BBL, respectively, after having surpassed $93/BBL and $90/BBL the previous day, to these same raw ones. Prices, if you like, are modest, given the situation.

In short, with the winds of war as a new element, coupled with the traditional market catalysts that affect prices, and without any real change in supplies and deliveries of crude oil and products, prices have remained at relatively high levels.

Prices will remain elevated as long as the risk of a regional expansion of the conflict between Israel and Hamas persists.

 

Venezuela

Hope and Mirages

The Venezuelan political-economic environment is in a state of general turbulence. The most imminent thing is the holding of the primary elections to choose the opposition candidate this Sunday, October 22. We must recognize the solidity and determination of the Primary Commission, which remained firm in its determination, despite all attempts to sabotage from both ends of the political spectrum.

Late on Sunday, October 22, it was learned that the primaries had been held successfully, with a greater participation than the best expectation; Preliminary counts point to an overwhelming majority for María Corina Machado. However, to no one's surprise, the regime blocked the internet, delaying the final scrutiny process: proof of its anti-democratic disposition.

Perhaps the most significant news in this complex environment has been the signing of an agreement between the regime and the Democratic Unitary Platform (PUD), outlining a route to free and verifiable elections, regularization of candidates and political parties, and holding of primaries. An additional agreement on the protection of the republic's assets was also signed.

The agreements were signed on the island of Barbados on October 17. These are very general documents, with many gaps that require additional agreements. The agreements, for the most part, represent only a promise that the regime agrees to comply with what is established in the Constitution; an implicit recognition that, to date, that has not been the case.

As expected, the day after the signing, the Biden administration published six OFAC Licenses that essentially suspend part of the economic sanctions, in the hydrocarbon sector, the gold sector, and the trading of debt papers, among other activities. The continuity over time of all these licenses is said to be conditional on the tangible fulfillment of the intention of the signed agreements, although this condition is not explicit in the licenses.

After the signing, and as a counterweight to the regime's statements about what was agreed, the US authorities revealed a detail of special importance. This is what José Ignacio Hernández called the “Blinken appendix”, an early checkpoint to ensure that the process maintains the desired course. Secretary of State Anthony Blinken himself detailed that, before November, the regime must begin the release of prisoners with US citizenship and political prisoners, and must commit to eliminating candidate disqualifications. The intention of US policy seems to indicate that, in the event of an initial non-compliance, in November they would return the sanctions process to the state before the agreements.

As far as the hydrocarbon sector is concerned, the fundamental changes to sanctions are described in General License 44 (GL44); and in clarifications made in writing by OFAC. The changes appear to be broader than expected, but their temporality and conditioning limit their impact.

Particularly, General License No. 44 authorizes the following for 6 months, without automatic extension:

• Production, extraction, sale, and export of oil or gas from Venezuela.

• Payment of invoices for goods and services related to sector operations.

• New investments in sector operations, and

• Delivery of oil and gas to creditors of Venezuela or PDVSA as part of payment

All the above refers to actors that fall under the jurisdiction of the North American nation and implicitly extends to the so-called secondary sanctions, which limit non-North American actors.

Likewise, OFAC clarifies on its website that prohibitions on the marketing of oil and gas from Venezuela to the United States are suspended, as well as prohibitions on the payment of taxes, royalties, costs, tariffs, dividends, and profits related to operations of the sector or transactions involving PDVSA. The latter, by the way, could generate a secondary market for shares of the Joint Venture Production Companies (JV), in which some B partners could offer all or part of their shares at par with PDVSA shares, limited, by now, to maintain a state majority in the MS.

This temporary suspension of sanctions leads to two possible scenarios. One, which we will call the Authoritarian Abortion Scenario, and the other the Democratic Gestation Scenario. The Scenarios differ in the fulfillment or not of the commitments by the regime and the willingness of the US to enforce the “red line”.

In the Authoritarian Abortion Scenario, the US would reinstate sanctions on the pre-signing state in Barbados, with an apocalyptic but unlikely variant of also suspending Chevron's original license (GL32). In that case, the economy would suffer a setback that would in turn worsen the already difficult conditions facing the regime in the face of a presidential election. Under these conditions, a possible cancellation of the elections or a call for early elections cannot be ruled out, with the advantage of arbitrary disqualifications of candidates and disoriented opposition.

The Democratic Gestation Scenario implies that compliance with the agreements was considered acceptable by the US and the licenses issued on October 18 remain valid over time (including GL44), which would allow a series of developments in the oil sector that we will analyze below.

We will analyze the potential political-economic effects of this process, but first, we will review the current situation of the operational structure of the hydrocarbon industry in the country, in particular production operations, to establish a baseline and be able to estimate the reaction capacity in the optimistic scenario.

Venezuela currently produces around 740 Mbpd of crude oil, of which approximately 360 Mbpd are produced by Joint Venture companies (JV), and the rest comes from PDVSA fields, although some of these are operated by contractors.

As a result of the migration process of the Oil Opening contracts of the 1990s, and the distribution of the Orinoco Belt into multiple JV, in the process called “Magna Reserva”, almost 50 JV were formed in the country's sedimentary basins, all of them with a majority shareholding of the State. Of this wide range of companies, and after a process of expropriation, resignations, abandonment, and liquidation due to attrition, only 16 companies remain, of which 2 have no production and 5 produce 3000 bpd of crude oil or less.

 

JV

Production

MBPD

PARTNER B

 

JV

Production

MBPD

PARTNER B

PetroBoscan

54

Chevron

 

PetroDelta

3

CTEnergy

PetroIndependencia

10

Chevron

 

PetroSucre

2

ENI

PetroPiar

66

Chevron

 

PetroParia

0

ENI

PetroIndependiente

1

Chevron

 

PetroGüiria

0

Inepetrol

PetroWarao

3

Perenco

 

PetroRegional del Lago

9

Maurel & Prom

PetroMonagas

70

Russia

 

PetroQuiriquire

8

Repsol

PetroSinovensa

89

CNPC

 

PetroCabimas

3

In Litigation

PetroCarabobo

6

Repsol

 

PetroZamora

18

In Litigation

 

We estimate that of these 16 companies, only 6 private partners (B partners) have the financial solvency to initiate a reactivation in light of the temporary suspension of sanctions, namely: Chevron, Repsol, ENI, Maurel & Prom, CNPC and Perenco.

In summary, only these 16 joint companies could react to the relaxation of sanctions, but each one has its strategic portfolio (which may or may not include Venezuela), and the lifting of sanctions, even if they were maintained over time, is not a sufficient condition to induce these companies to expand their exposure to Venezuelan country risk. Some of these companies, especially those with which PDVSA has debts, could choose the “Chevron” route: carry out operations focused only on the recovery of their debts.

An aspect that must also be considered in an environment of suspended sanctions is the financial instrumentation process that must be established or reestablished. Although the license authorizes it, the flow of money between the international and Venezuelan financial systems requires work and time, and solving the obstacles associated with the over-compliance that banks have been implementing with Venezuela and in particular with PDVSA. So far, only Chevron has the process designed and operating.

In this environment of suspended sanctions, it is necessary to distinguish between the activities that Chevron already carries out and those that would now be added to it. In turn, in the latter, there are two categories: 1) the mere sale of Venezuelan crude oil in more commercially attractive markets, redirecting the crude oil that today goes to the Asian market with discounts, and 2) the activities of generating incremental production for export under advantageous conditions.

The relaxation of sanctions can also impact the supply of fuel for the domestic market, by allowing the import or exchange of crude oil for refined products, under less onerous conditions than today, and, on the other hand, by facilitating the procurement of parts and accessories for refineries.

For change of destination exports, only requires implementing the flow of funds. The management of the foreign currency disbursed by the buyer must follow a course drawn up to comply with the limits set between banks until reaching the Central Bank of Venezuela, or they could hire Chevron's "trading" services to use a structure already in operation.

Projects to begin the recovery and development of production in the MS that decide to do so, similarly to Chevron, will have to solve problems related to the flow of foreign currency, obtain permits, contract drills, build locations and roads, drill wells, and connect them to the production system; This process requires time, which only in rare cases would be less than 6 months.

With all this in mind, we have estimated the incremental income that would result in the Democratic Management Scenario, at least over the next two years.

The oil income is estimated utilizing prices of Venezuelan crude oil (Merey 16) in the Gulf of Mexico market: they start at $62/BBL and gradually rise until reaching $76/BBL at the end of the period. On the other hand, the exported volumes are net of those used for Chinese debt and shipments to Cuba, which, we assume, will continue.

 


 

 

The graphs show that:

·      Except for Chevron, production growth would begin around mid-2024, as a result of drilling in Urdaneta Oeste, Barúa/Motatán, and the Orinoco Belt.

·      Destination change transactions are the easiest to implement and once all the crude oil available for this change materializes, incremental income could reach $500 million per month.

·      During the year 2024, income from the sale of hydrocarbons would practically double compared to current income; these amounts do not include income from the sale of fuels in the domestic market.

This scenario describes a gradual growth in production and trade activity, accompanied by a process that would lead the country to free, fair, and verifiable elections that would lead the country to an internationally recognized Government.

If the Democratic Abortion Scenario were to occur, today's difficult conditions would be weakened even further, with impacts difficult to estimate for the national economy and politics.

 

Hydrocarbons Sector.

Current production seems to have reached a plateau, not being able to reduce deferred production due to different failures in services, this week we find ourselves with a lack of continuous electrical flow, problems with the distribution of diluents, and operational setbacks in the dehydration of the crude oil from the Belt. The low availability of light crude oil to dilute crude oil from the belt guided the mixing units to produce more DCO (Diluted Crude Oil) instead of Merey 16.

Baker Hughes reports only one active rig in the country, Drilling for PetroMonagas.

Production: the geographical distribution of production for the last week is shown below in MBPD:

·       West:               130 (Boscán 54)

·       East:                 150

·       Orinoco Belt:    460 (Chevron 78)

·       Total:               740 (Chevron 132)

Chevron's production is in line with production recently.

Refining: Venezuela's refining system processed 300 MBPD of crude oil and intermediate products. As of Sunday, October 15, the catalytic cracking plant in Cardón was stopped, reducing gasoline production for the national market, which now depends on supplies received from Italy.

Exports: Exports for October are on track to average 550 MBPD of crude oil and 70 MBPD of products. Exports handled by Chevron are averaging, 147 MBPD

 

GEOPOLITICS, OIL MARKET DYNAMICS AND A TURBULENT YEAR FOR VENEZUELA

El Taladro Azul    Published  Originally in Spanish in    LA GRAN ALDEA M. Juan Szabo   and Luis A. Pacheco   This last delivery of the year...