Hello! Enjoyed and agreed with your piece especially on the strategic side. Other driving forces that have aligned to create this opportunity would be the fact that (1) Florida is now a clear Republican stronghold; with midterms over, gives Biden admin some impetus to move ahead, and (2) higher willingness from new wave of leftist LatAm leaders to negotiate with Maduro (e.g., Colombia).
When it comes to oil, I think your cases don't seem realistic. The optimistic case scenario sounds wildly optimistic in any 1-2-3 year outlook, and your pessimistic scenario sounds optimistic. I wonder how you arrived at this 2 mmb/d production wall?
As you said, Chevron's output (from its four joint-ventures, two of which are not operating at the moment) is minimal. And so is the scope for increases. Some of the news floating around are misleading as well, as Chevron is prohibited from expanding operations into any new areas (and JVs) besides those in which they were involved in as of early 2019. That's according to the new General License 41 issued by OFAC.
So even after assuming they can ramp up existing ventures to what they were producing before (around 200 kb/d), that would only be an additional 150 kb/d of output. Most estimates place Venezuelan production currently at around 700-800 kb/d. So with Chevron, they can potentially stabilize at 800-ish kb/d in the next 6-12 months. In the best case scenario, we are looking at around 900 kb/d in a few years. And this is assuming the US continues to renew the new license (which is valid for 6 months and must be renewed on a monthly basis thereafter). All in all, I struggle to see how production would get much higher than 1 mmb/d within the next 2-3 years.
One caveat is that Chevron can now import diluent, which needs to be blended in especially for some of their heavy and extra-heavy oil production. That could create some space for PDVSA to use imports of Iranian condensate/diluent for other joint ventures/fields (i.e., some synergies could exist!). When Venezuela's strategic partnership with Iran began in earnest in September 2021, that allowed them to ramp up production by some 100-150 kb/d. (Venezuela needs diluent, especially as production of lighter grades such as Santa Barbara as dwindled in recent years. These lighter grades are vital, as they can be mixed with heavier ones to make exportable grades, such as Merey.)
But the point remains: PDVSA cannot take profits from Chevron ventures and they still have huge investment needs, not to speak of very poorly maintained loading infrastructure. Even with help from Iran, they have struggled to increase exports significantly, which ends up placing a barrier on production as they have limited storage. They recently even had problems with Merey crude quality for their Asian buyers. The list of problems is long and varied.
TLDR: I think the cases you set out on the production levels are both very optimistic and do not reflect reality. There is no way out for Venezuelan production to get much higher than 1 mmb/d without serious investment, and this license won't do that for them. One would need to have other Biden admin concessions in mind to imagine production seriously ramping up in the next 2-3 years.
Hello! Enjoyed and agreed with your piece especially on the strategic side. Other driving forces that have aligned to create this opportunity would be the fact that (1) Florida is now a clear Republican stronghold; with midterms over, gives Biden admin some impetus to move ahead, and (2) higher willingness from new wave of leftist LatAm leaders to negotiate with Maduro (e.g., Colombia).
When it comes to oil, I think your cases don't seem realistic. The optimistic case scenario sounds wildly optimistic in any 1-2-3 year outlook, and your pessimistic scenario sounds optimistic. I wonder how you arrived at this 2 mmb/d production wall?
As you said, Chevron's output (from its four joint-ventures, two of which are not operating at the moment) is minimal. And so is the scope for increases. Some of the news floating around are misleading as well, as Chevron is prohibited from expanding operations into any new areas (and JVs) besides those in which they were involved in as of early 2019. That's according to the new General License 41 issued by OFAC.
So even after assuming they can ramp up existing ventures to what they were producing before (around 200 kb/d), that would only be an additional 150 kb/d of output. Most estimates place Venezuelan production currently at around 700-800 kb/d. So with Chevron, they can potentially stabilize at 800-ish kb/d in the next 6-12 months. In the best case scenario, we are looking at around 900 kb/d in a few years. And this is assuming the US continues to renew the new license (which is valid for 6 months and must be renewed on a monthly basis thereafter). All in all, I struggle to see how production would get much higher than 1 mmb/d within the next 2-3 years.
One caveat is that Chevron can now import diluent, which needs to be blended in especially for some of their heavy and extra-heavy oil production. That could create some space for PDVSA to use imports of Iranian condensate/diluent for other joint ventures/fields (i.e., some synergies could exist!). When Venezuela's strategic partnership with Iran began in earnest in September 2021, that allowed them to ramp up production by some 100-150 kb/d. (Venezuela needs diluent, especially as production of lighter grades such as Santa Barbara as dwindled in recent years. These lighter grades are vital, as they can be mixed with heavier ones to make exportable grades, such as Merey.)
But the point remains: PDVSA cannot take profits from Chevron ventures and they still have huge investment needs, not to speak of very poorly maintained loading infrastructure. Even with help from Iran, they have struggled to increase exports significantly, which ends up placing a barrier on production as they have limited storage. They recently even had problems with Merey crude quality for their Asian buyers. The list of problems is long and varied.
TLDR: I think the cases you set out on the production levels are both very optimistic and do not reflect reality. There is no way out for Venezuelan production to get much higher than 1 mmb/d without serious investment, and this license won't do that for them. One would need to have other Biden admin concessions in mind to imagine production seriously ramping up in the next 2-3 years.