I've had several mails and comments about this blog written last night in which I said that Venezuela won't "squirm" unless crude oil drops below U$70/bbl. Quite a few of the mailers wrote words to the effect of "wanna show me how you figure that one, Otto?", so here we go with some ballpark calculations.
First thing to point out is that there is a lot of misinformation about the Venezuelan oil business. Some of it is the typical uninformed crap and can be easily ignored, but other parts are more subtle propaganda. As an example, pro-Chávez propaganda includes the way PdVSA says it pumps 3.1m or so barrels of oil per day (bbl/d). Anti-Chávez propaganda exaggerates to the downside. An example of anti-Chávez oil BS is in this AFP report right here, where ex-central bank head Domingo Maza Zavala says that as Venezuela exports 700m barrels a year, if barrel price goes under $90 in 2009 Venezuela won't be able to support itself. He does this via the following logic:
First thing to point out is that there is a lot of misinformation about the Venezuelan oil business. Some of it is the typical uninformed crap and can be easily ignored, but other parts are more subtle propaganda. As an example, pro-Chávez propaganda includes the way PdVSA says it pumps 3.1m or so barrels of oil per day (bbl/d). Anti-Chávez propaganda exaggerates to the downside. An example of anti-Chávez oil BS is in this AFP report right here, where ex-central bank head Domingo Maza Zavala says that as Venezuela exports 700m barrels a year, if barrel price goes under $90 in 2009 Venezuela won't be able to support itself. He does this via the following logic:
700m barrels X $90 = $63Bn
Venezuelan imports = $50Bn
Venezuela debt servicing = $10Bn
Venezuelan imports = $50Bn
Venezuela debt servicing = $10Bn
With this Maza Zavala says the U$63Bn revenues from oil won't be enough to cover the $50Bn + $10Bn + other stuff obligations that the country faces. But this is just so much BS, and Señor Maza knows it. If you actually go round and do some fact checking you'll see that Venezuela exports around 2.25m bbl/d, which works out at around 820m bbl/year, and when it comes to covering Maza Zavala's U$65Bn or so in external obligations this makes a lot of difference to the calculations. Check out this table and see why:
| Venezuela Gross Export Revenues for Crude Oil 2009 | ||||||
| bbl/d payable export(m) | 1.9 | 2 | 2.1 | 2.2 | 2.3 | 2.4 |
| bbl/year export(m) | 693.5 | 730 | 766.5 | 803 | 839.5 | 876 |
| Avg barrel price | | | | | | |
| $50 | $34,675 | $36,500 | $38,325 | $40,150 | $41,975 | $43,800 |
| $60 | $41,610 | $43,800 | $45,990 | $48,180 | $50,370 | $52,560 |
| $70 | $48,545 | $51,100 | $53,655 | $56,210 | $58,765 | $61,320 |
| $80 | $55,480 | $58,400 | $61,320 | $64,240 | $67,160 | $70,080 |
| $90 | $62,415 | $65,700 | $68,985 | $72,270 | $75,555 | $78,840 |
| $100 | $69,350 | $73,000 | $76,650 | $80,300 | $83,950 | $87,600 |
| $110 | $76,285 | $80,300 | $84,315 | $88,330 | $92,345 | $96,360 |
| $120 | $83,220 | $87,600 | $91,980 | $96,360 | $100,740 | $105,120 |
| source: incakola finger-in-the-air | ||||||
First let's assume that Maza Zavala's numbers are ballpark correct and Venezuela needs to cover $50Bn in imports, $10Bn in debt servicing and a few billion more to break even with the world (i.e. be a net creditor nation). Maza Zavala seems to be suggesting $65Bn as the break even number, but let's make it even more difficult and set the bar even higher to give room for extra imports or growth or whatever. So let's set our minimum at U$70Bn in total exports to cover 2009.
Maza Zavala is saying that Venezuela exports 1.9m bbl/d, and so at $90/bbl we have U$62.415Bn in gross revenues according to the table. But if we use the true export number of 2.2mbbl/d, $90 brings in U$72.27Bn and Venezuela is easily covered. Even if we take our export number at 2.1mbbl/d of payable exports (taking into account the amount of oil that goes to pre-paid customers and Venezuelan oil donation programs) we still end up with $68.985Bn in gross revenues. Hey, we're covered!
However, that's not the whole story. Maza Zavala conveniently forgets that oil is not 100% of Venezuelan exports, but around 90%. So add 10% to all those table figures up there to get the real amount of revenues that Venezuela enjoys from exports. This means that $64Bn from oil is in fact $70Bn in total exports for the nation.. This means that even 2.2m bbl/d at $80 is enough to cover the bills.
BUT WAIT, THERE'S MORE! Oil production is about to go up by 200,000bbl/d thanks to new fields coming on line (because all that recent investment from Norway, Brazil, Iran, Portugal, Russia, China etc isn't just lip-service; they are actually truly ramping production and it starts to come on line very soon). This means that exports are likely to be in the 2.3 to 2.4mbbl/d ballpark in 2009. And by checking that chart again, even U$75 oil covers all obligations once other exports are factored in.
AND THEN FINALLY, there's the one thing Maza Zavala definitely didn't want to mention. In the course of the recent oil boom, Venezuela has squirreled away international currency reserves to the tune of U$38Bn. So if there is any shortfall in the balance of payments, Venezuela does not have to go to the world market and float very expensive new debt paper (that would start a rather nasty vicious circle). It can easily cover obligations by tapping reserves or even buying back its own debt instead of rolling it over. After all, the "safety net" of international reserves is designed to help out at exactly that kind of moment. So if necessary, Venezuela can use up to $10Bn of reserves in 2009, taking the pressure off oil revenues and allowing a $70/bbl average to be enough to pay its way.
Of course, Venezuela can't rely on its currency reserves forever, but one year will not hurt its cause. As a sidebar there's also the austerity plan that Chávez announced on September 19th, and we can expect certain non-Venezuelan expenses to be cut down. For example the ALBA foreign aid costs around U$7Bn a year...that one is likely to be trimmed substantially by popular appeal. Arms purchases can wait a year. Import bills can be cut, of course. Hey, that's what the word 'austerity' means. Etc etc.
Of course, Venezuela can't rely on its currency reserves forever, but one year will not hurt its cause. As a sidebar there's also the austerity plan that Chávez announced on September 19th, and we can expect certain non-Venezuelan expenses to be cut down. For example the ALBA foreign aid costs around U$7Bn a year...that one is likely to be trimmed substantially by popular appeal. Arms purchases can wait a year. Import bills can be cut, of course. Hey, that's what the word 'austerity' means. Etc etc.
So there you have it; a very ballpark lesson in why $70/bbl might not make for a boom year in Chávezlandia version 2009, but it will be enough and the squirm can be delayed indefinitely. Any questions?