Another State-Run Oil Company Fiasco

And it couldn't happen to a nicer guy (hat tip to a reader):

Venezuela's daily oil production has fallen by a quarter since President Hugo
  Chavez won power, depriving his "Bolivarian Revolution" of much of
  the benefit of the global boom in oil prices...

The state oil company, PDVSA, produced 3.2 million barrels per day
in 1998, the year before Mr Chavez won the presidency. After a decade
of rising corruption and inefficiency, daily output has now fallen to
2.4 million barrels, according to OPEC figures. About half of this oil
is now delivered at a discount to Mr Chavez's friends around Latin
America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay
Venezuela only 30 per cent of the market price within 90 days, with
rest in instalments spread over 25 years.

The other half - 1.2 million barrels per day - goes to America, Venezuela's only genuinely paying customer.

Meanwhile,
Mr Chavez has given PDVSA countless new tasks. "The new PDVSA is
central to the social battle for the advance of our country," said
Rafael Ramirez, the company's president and the minister for petroleum.
"We have worked to convert PDVSA into a key element for the social
battle."

The company now grows food after Mr Chavez's price
controls emptied supermarket shelves of products like milk and eggs.
Another branch produces furniture and domestic appliances in an effort
to stem the flow of imports. What PDVSA seems unable to do is produce
more oil.

Venezuela has proven reserves of 80 billion barrels,
but estimates suggest that it may possess 142 billion barrels - more
than anywhere else except Saudi Arabia....

All
this means that Venezuela has missed much of the benefit from the oil
boom and, now that prices are falling, Mr Chavez faces huge financial
problems. Nobody is sure at what point his government would be unable
to pay its bills, but most sources consulted believe this would
probably happen if oil falls to $80 a barrel. Yesterday, oil was
trading at $79.80.

More on "peak oil" being at least partially a function of state mis-management of promising oil reserves here.  Jim Kingsdale estimated last year, when prices were over $100 for oil, that oil prices would probably trade under $50 if the reserves were controlled by private companies rather than government buffoons.

  • Stan/Tx

    Strange how history repeats itself.

    In 1975 the government of Venezuela created PdVSA and nationalized the oil industry. For the next ten years the Venezuela government spent the oil revenue like a lottery ticket winner. When the price of oil collapsed in the mid 1980’s the government starved PdVSA of operating and development money to maintain government spending. When you don’t feed the goose then the golden eggs stop.

    By the early 1990’s Venezuela went to the private oil companies and opened their oil market to foreign investment. At a time when the price of oil was very low, the oil companies signed contracts to go into Venezuela, explore and develop oil resources. After spending billions of dollars on exploration, research and development to help Venezuela get its production back on track, Mr. Chavez decided to change the terms of the contracts to be more favorable to Venezuela. By effectively re-nationalizing the oil industry, Mr. Chavez has again starved PdVSA of the money it needs to maintain oil production so that he can promote his socialist programs.