Can Venezuela solve Europe’s energy crisis?

Russia has slashed gas supplies to Europe following its invasion of Ukraine, prompting fears of shortages and surging prices of the fossil fuel. Venezuela has emerged as a possible solution to the crisis, despite US sanctions that limit the scope of international companies in the South American nation. 

Francisco Monaldi, a Latin American energy policy expert at Rice University in Houston, tells BNamericas why geopolitical factors could change Venezuela’s oil and gas landscape and ease fears of an impending catastrophe across the Atlantic. This is the first of a two-part interview.

BNamericas: Late last year, the Biden administration granted Chevron a license to resume oil production in Venezuela. In April, the South American country’s oil exports reached a 16-month high of 560,000b/d. Are we seeing the start of a long-awaited recovery and do you think [President] Nicolás Maduro’s target of 1Mb/d is achievable in the near term?

Monaldi: Venezuelan exports have increased although you have to be careful because every month there is very significant volatility. Chevron’s JVs have contributed to the increase in production but even the CEO [Mike Wirth] has said that they will not be able to fully reach the goals of full production capacity, which is something like 220,000b/d or 240,000b/d. The expectation is that it will reach around 150,000b/d by the end of this year, approximately 30,000b/d more from now, which I think is feasible. 

BNamericas: What is preventing further increases?

Monaldi: The reason why Chevron cannot fully increase production is because its license so far is limited and it cannot drill new wells or build new infrastructure. 

Without sanctions flexibility, I think what we will see is production from Chevron of 150,000b/d, maybe eventually a little bit more. The bottom line is that Venezuela’s production limit is not far away. If you look at the International Energy Agency and the Energy Information Administration’s capacity figures, Venezuela has about 100,000b/d that they believe they could add in the next, say, 90 days. 

I don’t think Venezuela could go above 900,000b/d during this year in a sustainable manner. And in fact [state oil company] PDVSA is saying that it is already producing more than 800,000b/d but I don’t think anybody else believes that. They have a limit that is set by sanctions and all of the other difficulties that PDVSA itself has. 

BNamericas: What could production look like if sanctions were to be lifted or eased?

Monaldi: If there is a political negotiation and a greater easing of sanctions, then we could see a further [production] increase and that will be led by Chevron, which could produce as much as 240,000b/d, and then you could have Eni and Repsol also producing some barrels. All of that could see production on the JV side reaching 300,000b/d and then we could see something closer to the 1Mb/d. But it’s yet to be seen if there will be an agreement that could lead to that. 

If there is even more flexibility, secondary sanctions are lifted and India can buy oil from PDVSA directly then we could perhaps see a little bit more. In the current price environment there are a lot of opportunities to make a profit in Venezuela and so despite all of the problems – corruption, etc – I think in that case there will be an additional increase. 

The bottom line is that there will be higher production this year, mostly due to Chevron’s JV increase, but there are also limitations preventing the 1Mb/d target from being reached. 

BNamericas: According to Venezuelan oil minister Pedro Tellechea, the country will issue a license to Italy’s Eni and Spain’s Repsol to export natural gas this month from their jointly run Cardón IV project. The companies are hoping to raise production in the offshore area to 1.3Bf3/d, more than double the current level. Do you see this happening and if so, how soon? 

Monaldi: The problem is that this has been a gas production project for the domestic market. And it cannot generate dollars. They have only been paid occasionally with swaps for diesel that have been authorized by US authorities. So the first thing that PDVSA, Eni and Repsol need to make the project viable, which so far is not the case, is the capacity to export the liquids from natural gas, in other words condensates plus natural gas liquids. That’s around 10,000-12,000b/d of liquids per day. That will allow Repsol and Eni to generate some dollars and in exchange they will expand production a little with very low-hanging fruit. It’s an expansion that was already planned but hasn’t eventuated because of a lack of payment. 

BNamericas: What role will natural gas have in Venezuela’s efforts to reclaim its position as a major producer and exporter of hydrocarbons?

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