The recent decision by the Biden administration to ease sanctions on Venezuela has raised expectations for a potential increase in the country's crude oil production. However, the poor state of Venezuela's oil infrastructure poses challenges that could limit the extent of these gains. The U.S. Energy Information Administration (EIA) predicts that the increase will likely be less than 200,000 barrels per day (b/d) over the next year, and any further growth will require significant new investments.
The administration's move, implemented on October 18, lifted most sanctions on Venezuela's energy sector for a period of six months. This decision opens the door to the possibility of resuming U.S. imports of heavy, sour crude from Venezuela. Several refineries in the United States are specifically equipped to process this type of crude, which has experienced rising prices due to production cuts by OPEC and its allies, leading to a disproportionate impact on heavy crude supplies.
Imposing sanctions on Venezuela began in early 2019 following a disputed presidential election, resulting in halted oil imports from the country. Import volumes had already been declining in recent decades due to a gradual decline in Venezuela's oil industry.
According to the EIA, Venezuelan crude production, which reached approximately 3.2 million b/d in 2000, plunged to 735,000 b/d as of September 2023. Similarly, U.S. imports from Venezuela dwindled from 1.3 million b/d in 2001 to approximately 510,000 b/d in 2018.
In November, waivers were granted by the administration to Chevron Corp., allowing them to resume exporting crude from their joint venture in Venezuela. These exports commenced in January and totaled around 153,000 b/d in July, as reported by the EIA.
Chevron's Exports and Venezuelan Oil Imports
Chevron, a prominent player in the oil industry, primarily exports its products to Gulf Coast refineries. In addition, any additional imports of Venezuelan oil by the United States are also expected to make their way to the Gulf region. Citgo Petroleum Corp., owned by Venezuela's national oil company, operates three refineries in different locations within the U.S., namely Lemont, Illinois; Lake Charles, Louisiana; and Corpus Christi, Texas. These refineries have a combined capacity exceeding 800,000 barrels per day (b/d) and are specifically designed to process heavy oil, as highlighted by the Energy Information Administration (EIA).
The lifting of sanctions is likely to have a positive impact on Venezuela's oil production by increasing the supply of diluent. The scarcity of this essential material has led to a reduction in Venezuelan output. EIA predicts that Chevron will be able to boost its output in Venezuela to an average of 200,000 b/d by the end of 2024. Other ventures operated by ENI, Repsol, and Maurel & Prom could also contribute an additional 50,000 b/d in the short term.
Collectively, all these ventures could potentially increase Venezuelan output to approximately 900,000 b/d by the conclusion of next year, according to EIA. However, the agency cautions that sustaining further growth beyond that point will become increasingly challenging due to years of underinvestment and mismanagement within Venezuela's energy sector. As a result, crude oil production growth is expected to be limited to less than 200,000 b/d by the end of 2024. Achieving additional growth will demand both more time and investment.
Reporting by Steve Cronin, Editing by Michael Kelly