Editorial Comment
Iraq aside, Venezuela’s oil crisis could really hurt. While everybody’s mind is on Iraq, Saudi Arabia and the Middle East, and their potential effect on world oil supplies, a more serious crisis is brewing. An indefinite-duration, general national strike protesting the Hugo Chavez regime was launched in Venezuela last month. This is the latest in a series of one-day general national strikes in a continuous state of protest that marred the entire year. Critical to the outcome of the current protest is whether oil workers of state oil company PDVSA will support the next general strike, according to Michael Economides of the University of Houston and Liugi Saputelli PDVSA engineer. After all, oil accounts for 80% of the nation’s exports, 50% of government revenues and at least 25% of the entire national economy. The PDVSA workers went out in a huge way, paralyzing the nation’s oil activities with enormous future implications. It’s too early to predict how this will affect Venezuela, and the impact on the rest of the world, particularly the U.S., is still unfolding. Everything started when armed forces were sent to the streets to replace mutinous metropolitan police in Caracas. Troops also were sent to guard oil facilities and many other state-owned organizations, in an effort to pre-empt government opposition actions. This was quickly followed by a shut-down of marine terminals along the Venezuelan coast, which stopped almost all crude and gasoline shipments. The entire upstream and downstream supply chain was affected. Saputelli said the El Palito, Jose and Paraguana refinery complexes, totaling 1.2 million barrels per day of refined products were all shut down. Chavez has tried to mitigate gasoline and crude distribution by replacing oil workers with armed troops or urban guerilla militants. But it will take a lot more than a show of force to operate the oil industry. Effects of the strike are already cascading, and they are moving north. Refineries in Curacao and on U.S. Gulf Coast did not receive their usual shipments. Venezuelan oil storage in the Caribbean may ameliorate the shortfall for a few days, but it will take a long time to get back to normal. Saputelli and Economides say the consequences of an oil disruption of about 2.7 million bpd (of which 1.2 million bpd are refined products), the overwhelming portion of which goes to the U.S., will be severe. There should be no doubt that, at least, oil prices will go up. Even if other countries, such as Saudi Arabia attempt to cover the shortfall, the problem will still be too complex. Venezuela’s crude oil is far heavier than Middle East oils, and refineries around the Gulf of Mexico are designed for such feedstocks. Refineries using high conversion capacity (heavy oil cracking) will be negatively impacted. Shortages could be devastating. This does not bode well for Venezuela and the Western World, coming at a highly inopportune time when the U.S. and its allies are assuming a high stakes war footing in the Middle East. Saputelli, who works for PDVSA, is on assignment in Houston. Economides is a professor at the University of Houston. Hu’s on the phone. Admittedly, it’s a stretch to say that the following conversation is directly related to oil and gas, but it’s just too clever to pass up. Besides, U.S. President George Bush is a former oilman and, even in his current job, he can significantly affect global oil issues. It seems that playwright James Sherman experienced one of those special brainstorms when the Communist Party chose Chinese Vice President Hu Jintao as its new general secretary. Sherman penned the following dialog between Bush and his National Security Advisor, Condoleezza Rice (Condi):
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