2006 June 04 Sunday
Venezuela Oil Production Declining?

Danna Harman of The Christian Science Monitor reports that Venezuela's oil production is probably declining.

While the government denies it and high oil prices mask it, analysts say Venezuelan oil production is declining. Since Chávez took over in 1999, production in the state-run oil fields has fallen almost 50 percent, say analysts at PFC Energy, a global energy consulting firm based in Washington, D.C., who spoke on condition of anonymity rather than risk the wrath of the Venezuelan government.

The article reports that high oil prices mask the decline in production because the price rise has been so great that it swamps the effect of declining production. I do not expect Venezuela's government to allocate enough money to invest in their oil fields. Also, the nationalization is going to scare away private sector money.

Outside experts think the Venezuelan government is exaggerating national oil production.

That Venezuela, the world's fifth-largest oil exporter, is moving backwards is not clear to everyone.

The state oil company, PDVSA, reports production of 3.3 million barrels a day. There is no way to independently confirm this, and most outside analysts, including the International Energy Agency, say PDVSA's numbers are inflated and production is closer to 2.6 million barrels per day. The Financial Times reported this month that Venezuela's shortfall in production is such that it was actually forced to strike a $2 billion deal to buy about 100,000 barrels per day of crude oil from Russia to avoid defaulting on contracts - a claim the Chávez government says is false.

I look around the world and can't figure out where additional oil could come from that would allow world oil consumption to rise substantially. The number of countries experiencing declining oil production keeps getting longer.

Check out a recent report for the National Energy Technology Laboratory, Economic Impacts Of Liquid Fuel Mitigation Options (PDF) (and an associated interview of report co-author Roger Bedzek) which discusses alternatives to oil for liquid fuels. They claim that technologies to make vehicles radically more efficient are more expensive than coal-to-liquid (CTL) or oil shale extraction. My guess is that oil prices will remain high enough for long enough that we'll start seeing new CTL plants getting constructed in 2 or 3 years. But eventually the cost of hybrids will fall and so making cars more energy efficient will become cheaper as well.

Share |      By Randall Parker at 2006 June 04 08:52 PM  Economics Energy

Half Sigma said at June 5, 2006 6:37 AM:

Not surprising, because all countries eventually reach peak oil production, and socialist economies are bad at pulling out the last drops of oil from declining fields.

Even big oil companies are too bureacratic to do that well. It's the small U.S. companies that are extracting the last drops of oil from declining fields in Texas.

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