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Venezuela slashes oil exports to Cuba

Saturday, 09 July 2016 12:00 Written by  font size decrease font size decrease font size increase font size increase font size

By Caribbean News Now contributor

CARACAS, Venezuela -- During the first half of this year, Venezuela's state-run oil company, Petróleos de Venezuela SA (PDVSA) has slashed its oil exports to Cuba, where some joint ventures and state-owned firms were recently ordered to reduce power usage as a result.

Cuba, long reliant on Venezuela as its top energy supplier, has received some 53,500 barrels per day (bpd) of crude from PDVSA this year, a 40 percent decline from the first half of 2015, according to the company's internal trade data, Reuters reported.

PDVSA said this month its sales revenue fell more than 45 percent in 2015.

The dramatic decline may signal an unraveling of the PetroCaribe oil diplomacy agreement pioneered by Venezuela's late socialist leader Hugo Chavez to win political support by sending oil on advantageous terms to a number of Latin American and Caribbean countries.

Cuba, which receives some four percent of Venezuela's total oil exports, has been the biggest beneficiary of the PetroCaribe program and until this year was spared the fallout from PDVSA's growing cash flow problems, which have already undermined oil supplies to Jamaica, Dominican Republic and its refinery in Curacao.

Venezuela has partially offset the smaller crude shipments to Cuba by boosting exports of refined products such as fuel oil, diesel and liquefied petroleum gas (LPG).

But overall shipments to Cuba, including both crude and refined products, still declined 19.5 percent to 83,130 bpd in the first half of this year.

Given a slump in oil prices and a mounting economic crisis at home, PDVSA is struggling to keep up investment and production and some oil analysts believe the country's oil output this year will fall to its lowest level since a devastating strike at the company in 2002 and 2003.

Meanwhile, Venezuela’s proven oil reserves of 297 billion barrels, the world’s largest crude oil reserves, may have to be reassessed in the light of the decline in oil prices.

However, not all of that oil can be technically or economically recovered. The portion that is technically AND economically recoverable is the proven reserve.

There are many variations of the definition of proven reserves, but most of them are similar to that of the Securities and Exchange Commission (SEC): “Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations.”

By the time oil prices reached $100/bbl, the estimate of Venezuela’s reserves had grown to nearly 300 billion barrels. But that number has not been adjusted back down as oil prices have declined. The amount of oil that can be economically produced at $50/bbl is a lot lower than what can be economically produced at $100/bbl, which suggests that, at current prices, Venezuela’s proven reserves are substantially overstated.

Further obscuring the true numbers is that Venezuela apparently reports official reserves as including as yet undiscovered oil.

According to Forbes, in the most extreme case, if oil prices remain at $50/bbl for very long Venezuela could have to write down its reserves to where they were a decade ago. That would imply removing some 220 billion barrels from the books.

Meanwhile, a new independent study by Norwegian research group Rystad Energy shows that the US now holds the world's biggest recoverable reserves of oil, putting it ahead of Venezuela and Saudi Arabia, as well as Russia.

The new report also confirms that Venezuela only holds 95 billion barrels of reserves under the widest measure, well below the official estimates of 301 billion barrels.

In fact, excluding estimates of “yet to be discovered” oil in Venezuela, its oil reserve is 41 billion barrels, the data show.
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