Venezuela Production May Be Less than 700,000 bpd by 2020
Venezuela’s oil production freefall could continue into 2019 and fall below 700,000 barrels per day (bpd) in 2020, according to new research by Rystad Energy.
Less than a month after the Trump administration issued sanctions that prevent Venezuela’s state-owned oil company PDVSA from exporting crude to the United States, Rystad’s estimates show Venezuela’s oil production dropping by 340,000 bpd year-on-year to one million barrels per day (MMbpd) in 2019. In 2020, it slips further to 890,000 bpd.
“In the low case scenario, where the status-quo continues and Venezuela is unable to offset the effects of U.S. sanctions and secure new financing, the country could see an additional 20 percent reduction in crude output this year, dropping to about 800,000 bpd, before sliding to 680,000 bpd in 2020,” Rystad reports.
Bloomberg recently reported that Venezuela’s neighboring country of Guyana would produced 750,000 barrels of crude per day by 2025 – more than estimated production in Venezuela.
Under a high-case scenario in which U.S. sanctions are lifted and new financing agreements are secured, Rystad believes Venezuela will be able to slow the downward trend, with crude production sliding to 1.11 MMbpd in 2019 and 1.06 MMbpd in 2020.
Rystad notes that Venezuela relies on imported diluents mixed with heavy crude produced from the Orinoco Belt to make the product marketable. Currently, the country imports 60,000 bpd naphtha from the U.S., primarily from PDVSA’s U.S. refining subsidiary Citgo.
Rystad expects some operators in Venezuela will run out of the crucial diluent by March and without diluent, the current 200,000 bpd of heavy crude exports are at risk.
Looking at the scenario of a regime change leading to U.S. lifting its sanctions and attracting new financing agreements, Rystad forecasts the following:
- Short-term: Production will slow its downward trend. Fields in the Orinoco Belt, currently operating below capacity, will be fairly easy to rejuvenate. Further production increases will be more complicated as mature fields have reached their natural production decline and significant damage has been done to many wells.
- Mid-term: Arresting production declines and well damage in mature fields – the biggest contributors when Venezuelan production stood at more than 2 MMbpd – will be a major challenge, technically and financially. In order to increase production, Venezuela will have to further develop fields in the Orinoco Belt.
- Long-term: Rystad doesn’t expect massive growth but does see significant upside potential over time. Venezuela sits on massive proven reserves. The cost structure is relatively low and exploration risk is minimum. The Orinoco Belt oil sands are less energy-intensive than the oil sands in Canada given Venezuela’s warmer climate, which means less energy is required to enable the heavy crude to flow. Rystad expects demand for heavy oil to remain high despite potential carbon regulations and IMO 2020 restrictions on shipping fuel, as complex refineries such as those in the United States could still process this type of crude in compliance with environmental regulations.
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