WEEKLY OIL REPORT
Week of 6-10 July 2020

PRICE

The market continues to show signs of instability this week, with the price fluctuating around $40 per barrel. Although the compliance level of OPEC+ cuts has been over 87%, increased COVID-19 infections in the US and new estimates of the world economy contraction continue to impact the prospects for a recovery of oil demand.

BRENT PRICE (March-July 2020)

At the close of the European markets on Friday, July 10¹, the Brent and WTI markers were trading at $43.26 and $40.60 per barrel, respectively. This week Brent remained above $43 per barrel, the highest price since March 4, while WTI remained above $40 during the week; both markers showed a slight increase of 3% and 2%, respectively, compared to the end of June, when they quoted $41.64 and $39.27 per barrel, respectively.

In May, when the OPEC+ cuts came into effect, the Brent and WTI oil price references recovered by 61% and 104% respectively.

BRENT PRICE (May–July 2020)

WTI PRICE (May-July 2020)

Since the implementation of the cuts agreed by the organization, the OPEC basket has recovered 136% of its value.

BASKET PRICE OPEP
(May-July 2020)

PRODUCTION

According to the US Energy Information Administration (EIA)², world production of crude oil will average 90.8 million barrels per day by the third quarter of 2020, an increase of 1.1 million barrels from the previous month’s forecast.

The International Energy Agency (IEA) estimates that world oil production³ stands at 86.9 million barrels per day.

OPEC+

In a study published on July 7 by S&P Global Platts⁴, compliance with the OPEC+ production cut for June is estimated to have reached 106%, which is16% above the May levels estimated by the JMMC monitoring committee.

According to these estimations, OPEC+ production in June would be 22.31 million barrels per day, a reduction of 1.8 million barrels from the OPEC estimate of 24.195 million barrels per day in its June Monthly Oil Market Report.

OPEC+ has closely monitored compliance with production cutbacks agreements, thus achieving adjustments in lagging countries and volume compensation commitments, to cover the overproduction from Angola, Iraq, Nigeria and Kazakhstan, estimated at 835,000 barrels per day in May.

Angola’s Minister of Mineral Resources, Petroleum and Gas, Diamantino Pedro Azevedo, sent a letter⁵ to his Algerian counterpart and OPEC president, Abdelmajid Attar, in which Azevedo assures that his country will make the best of its efforts to compensate, before September 2020, for the excess production made in May.

In the case of Iraq, estimated production in June was 3.70 million barrels per day, an 89% compliance considering that the agreement implied reaching 3.59 million barrels per day.

With regard to Nigeria, the S&P study estimates that production in June was 1.58 million barrels per day, higher than that of the United Arab Emirates and Kuwait, which are estimated to have reduced production by 1 million barrels per day each.

In an official report dated July 9, the Azerbaijani Ministry of Energy reported that June production⁶ in this country was 553,800 barrels per day, 164 MBD (million barrels per day) fewer than in May.

For his part, the Minister of Energy of the Russian Federation, Alexander Novak, assured that there is no decision yet regarding extension of the production cuts set by OPEC+, so, Novak explained⁷, «Under the current agreements, we should have a partial restoration of the volume reductions as of August 1^st«.

As agreed by the countries participating in the cutback agreement, the total decrease in oil production by OPEC+ countries will be 7.7 million barrels per day from August 1^st, a 2 million barrels per day reduction, compared to the May and June agreements.

The next meeting of the OPEC+ Joint Ministerial Monitoring Committee (JMMC) is scheduled for July 15, when an analysis of the implementation of the agreement and the current situation will be made in order to discuss future actions; there is expectation in the market that OPEC+ will continue to extend the same cut levels as it did for July.

Regarding the OPEC countries that did not signed the Declaration of Cooperation (DoC), in Libya production in June⁸ was at 100,000 barrels per day, not far from the 82,000 barrels per day reported by OPEC in May. In the midst of the civil war, the country is trying to lift force majeure in the Es Sider port, so as to reactivate the production and export of crude oil.

In the case of Iran, production in June is estimated⁹ at 1.9 MBD, similar to the figures reported by OPEC in May, which, according to analysts, are the lowest since 1981, during the Iran-Iraq War.

IRAN OIL PRODUCTION
(2016- June 2020)

In Venezuela, different sources estimate that average production in June was 280,000 barrels per day¹⁰, a drop of 290,000 barrels from the 570,000 barrels per day reported by OPEC in May; this production figure reflects management problems, government interventions in PDVSA, and the effect of U.S. sanctions.

VENEZUELA’S PRODUCTION
(2014-June 2020)

The EIA’s Short-Term Energy Outlook¹¹ estimates that OPEC production will decrease to 22.5 million barrels per day in July, including the drop in Venezuelan production, which it is estimated at 325,000 barrels.

In relation to the Non-OPEC countries oil production, the EIA places the reduction at 756 thousand barrels per day in June, of which 337 thousand barrels per day correspond to Canada, 206 thousand barrels per day are produced by the United States and 213 thousand barrels per day to other countries. These figures make evident that 81% of the reduction in supply since May is due to the production cuts agreed by OPEC+.

PRODUCTION CUTS AND DROP ESTIMATES
OPEC AND NON-OPEC COUNTRIES

With regard to the average production of the OPEC countries, EIA estimates that by 2020 it will reach 26 million barrels a day, with an 11% increase in 2021 and an average production of 29.2 million barrels a day.

United States

According to the July 8 EIA’s «This Week in Petroleum»¹², the average crude oil production of the United States was 10.875 million barrels per day as of July 3, which is 25 thousand barrels per day less than the numbers reported on June 26 (10.900 million barrels per day).

DROP IN PRODUCTION IN THE USA
(August 2018 – 2019 and August 2019 – July 2020)

The average US oil production for June¹³ was 11.2 million barrels per day, a volume of production similar to that of August 2018, when an average of 11 million barrels per day was documented. However, US production fell by 13% compared to the volume at the end of 2019.

Moreover, last Monday, July 6, the United States Federal Court ordered the closure of the Dakota Access Pipeline (Dapl¹⁴), which is capable of transporting 570,000 barrels of oil per day. The court order affects production operations in the Bakken region of North Dakota and, according to EIA estimates, could negatively impact oil prices and also future production from the wells.

Drilling activity in the United States

Baker Hughes’ July 10 report¹⁵ on the North America Rotary Rig Count, states that active oil drilling in the United States is down to 181, down 4 drills from the previous count. The downward trend of recent weeks keeps going, and it moves away from the 682 drills operating in the US in March 2020¹⁶, before the COVID-19 crisis.

ACTIVE DRILLS IN THE USA
(March-July 2020)

Economic situation of the producing countries

Oil-producing countries, both OPEC and non-OPEC, are facing the scenario of collapsing oil prices impacting their incomes since the beginning of this year; a situation that worsens -especially in those countries highly dependent on oil income- the effects of COVID-19 on the world economy.

These countries face significant challenges in managing themselves in the midst of the economic crisis and in maintaining their financial and technical capacities to produce the oil that the world economy will require for its recovery.

Looking at the oil market situation in the medium term, it will be very important to assess the impact of the oil price collapse in the producing countries during this year 2020, from the economic, social and political point of view; it is also important to assess such impact on the capacity of each country to maintain or increase its oil supply when demand is restored, probably towards the end of 2021.

At the end of the first half of 2020, the production of the main oil-producing countries (USA, Russia, Saudi Arabia, Canada and the United Arab Emirates) represented 61.8% of total global production, with 53,734 million barrels per day.

MAJOR OIL PRODUCING COUNTRIES 2019-2020
(Million barrels/year)

The International Monetary Fund (IMF), in its World Economic Outlook Update published on June 24, 2020¹⁷, recognizes the positive impact on oil market stabilization of both OPEC+ countries’ production cuts and the gradual revival of economic activities in China, although it acknowledges that the negative impact of the price collapse has been significant in oil-producing countries.

ECONOMIC IMPACT OF COVID-19 ON OIL-PRODUCING COUNTRIES (% OF GDP)

According to the IMF report and making a review of the economies of the aforementioned oil-producing countries, we find out the following:

In Saudi Arabia, the economy will fall by 6.8%, with a fiscal deficit of 11.4%, while Russia will contract its GDP by 6.6%, with a projected gross debt of 18.8%, one of the lowest in the world.

Regarding the overall figure for the Gulf Cooperation Council Countries -Bahrain, Qatar, Kuwait, Saudi Arabia and the United Arab Emirates – the IMF Director for the Middle East and Central Asia, Jihad Azour, said¹⁸ that the recession of the group will be 7.6%.

Norway will see its economy fall by 6.3%, although it is protected in its budget for year 2020, with the government maintaining a neutral fiscal stance¹⁹, and forecasting a contraction of 7.7% of GDP between 2019 and 2020.

In the Americas, the projected economic contraction is greater than 8% among oil-producing countries.

In the United States, the economy will fall by 8%. This country presents the highest fiscal expenditure (23.8%) among the producing countries; while in Canada, the Conference Board of Canada forecasts²⁰ a contraction of 8.2% of the economy for year 2020.

Regarding Mexico, the country will have a 10.5% drop in the economy, although it will have access to a direct credit line of up to 61 billion dollars from the IMF. In Brazil, the economy will fall by 9.1%, while the figure for Venezuela is the highest among the continent’s oil producers, standing at 20%.

In Africa, the IMF estimates that the continent’s tax revenues will have losses of $98 billion. Oil-producing countries will be affected with a loss of nearly 34 billion dollars.

Angola‘s economic projection shows a 4% drop in its economy, being the oil country with the least recession in year 2020.

Nigeria and Algeria, both facing political problems well before the start of the pandemic, have seen their economies shrinking by 5.4% and 6.4%, respectively, although Nigeria received an aid package of over 3 billion euros from the IMF in April to cope with the impacts of the price collapse.

ECONOMY

COVID-19

Infections²¹ due to COVID-19 reached 12.6 million people worldwide, with a global figure of over 552,000 deaths and over 6.6 million people recovered.

The United States continues to lead the list of most affected by the virus countries, with 3 million people infected, while the number of deaths has risen to 130,000. The second most affected country by COVID-19 is Brazil, with more than 1.6 million cases and 65,000 deaths, followed by India with 742,000 people infected and more than 20,000 dead.

On Monday, July 6, Donald Trump’s government officially notified²² the United States Congress the decision to withdraw the country from the World Health Organization (WHO), which implies the withdrawal of the largest contributor to this organization. This announcement comes in the context of a health crisis in which the country is at the top of the list of infections, with 25% of cases active at the global level.

The US decision will affect the amount of funding WHO will have available to combat COVID-19, as well as the organization’s performance in its research efforts and in supporting its members, particularly developing nations, to successfully address the pandemic.

Furthermore, WHO reported²³ on July 7 that «…there  is potential of airborne transmission of COVID-19 in closed, crowded and poorly ventilated places.» The admission of this possibility creates new uncertainties about the nature of COVID-19 and the pandemic spread control, which could lead to new restrictions that will negatively affect economic recovery.

Meanwhile, Zhao Lijian, spokesman for the Chinese Ministry of Foreign Affairs, said at his customary press conference²⁴ on July 7 that they are in close communication with the WHO to advance in the research to determine the origin and transmission of the coronavirus.

Europe

The European Union (EU) is due to meet next July 17 and 18 to assess the economic recovery plan. Juan González-Barba, Secretary of State of EU, said²⁵ in Brussels that it is necessary to finish negotiations in order to avoid the consequences generated by the coronavirus crisis becoming more acute.

The European Commission, in a report²⁶ published on July 7, about Economic Forecasts for the Summer of 2020, estimates that the economic contraction in Europe will be of 8.3% and a recovery by year 2021 will be of 5.8%.

Regarding the European Union nations most affected by the COVID-19 crisis, the report mentions Germany, with a 6.1% drop in GDP; France, with a 10.6% drop; Italy, the most affected of the EU countries, with 11.2%; and Spain, with a projected 10.9% drop in GDP by 2020.

United States

Despite the upsurge in COVID-19 cases in the United States, during an event held last Tuesday at the White House, President Donald Trump insisted that he will put, «a lot of pressure on the governors and everyone else to open the schools» in the fall²⁷.

In opposition to this pressure from Trump, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, warns²⁸ that some states should seriously consider «closing» again if there is a resurgence of COVID-19 cases, although he understands that closures «would not be viewed very favorably», and advises a paused reopening.

In its July 9 report, the Department of Labor reports²⁹  that the number of applications for unemployment assistance in the week ending July 4 is of 1,314,000, a decrease of 113,000 from the revised figure of 1,413,000 of the previous week.

DECREASE IN U.S. UNEMPLOYMENT CLAIMS
(January-July 2020)

Although the percentage of unemployment is getting lower, when compared to other industrialized economies equally affected by the COVID-19, US figure exceeds most European countries, including the United Kingdom (6.7%), Germany (4%), France (10.1%) and Italy (10%), or the European Union average (6%).

The negative effects of the pandemic on the US economy, employment and the loss of life caused by COVID-19, make the political and social situation more acute in the run-up to the November presidential elections, particularly tense because of the protests of the Black Lives Matter movement against racial discrimination and police violence.

In addition, on July 9, the US Supreme Court issued an order³⁰ requesting President Trump to turn over his tax returns to a jury in New York investigating alleged payment irregularities during the last election campaign, which the President has repeatedly refused to do.

China

The Xinhua news agency reports³¹ Chinese specialists’ expectations on the China’s economy growth during the second quarter of year 2020. The specialists estimate a GDP growth of more than 6% in the third and fourth quarters of this year, driven by the recovery of production and investment in infrastructure and real estate, along with increased levels of consumption and exports.

The leaders of China and Russia, the world’s largest oil importer and second largest oil producer, respectively, held a telephone conversation³² on Wednesday, July 9, in which Xi Jinping suggested exploring flexible and diverse ways to accelerate the resumption of employment and production in all fields of the bilateral relationship. They also expressed mutual support for safeguarding sovereignty in their respective countries. President Vladimir Putin highlighted the good development of Sino-Russian relations and expressed his support for China’s actions to safeguard national security in Hong Kong.

Latin America

Regarding the economic situation in the region, the United Nations Secretary General, Antonio Guterres,stated³³: «the coronavirus pandemic will cause the largest economic contraction in a century in the region.» Unemployment, extreme poverty and inequality will increase, while women and indigenous peoples will suffer disproportionately in a region of deep inequalities.

The United Nations report³⁴, «The impact of COVID-19 in Latin America and the Caribbean», estimates that the pandemic will cause a contraction of the regional Gross Domestic Product of 9.1% in year 2020; unemployment will increase from 8.1% to 13.5%, with more than 44 million people out of work; the number of people in poverty in the region will increase by 45 million, to reach a total of 230 million people, while the number of people in extreme poverty will rise by 28 million, reaching a regional total of 96 million Latin Americans; all of this will bring  consequences of increasing inequalities, exclusion and discrimination, which could lead to social unrest.

DEMAND

As we reported in the June 19 Bulletin³⁵, both OPEC and the IEA are maintaining their estimates of downward global oil demand for 2020.

The EIA, in its latest report³⁶ on «Short-Term Energy Outlook», dated July 7, broadens its estimates regarding oil demand for 2020, placing it at 8.15 million barrels per day, which is190,000 barrels per day more than the June forecast.

The US agency emphasizes that the behavior of demand, according to preliminary data, reached 84.4 million barrels per day in the second quarter of 2020. Regarding the demand of the third quarter of 2020, the agency considers that it would be at 94.3 million barrels per day.

Regarding oil consumption in the United States, the EIA highlights that the refineries are currently at 70% of their capacity, 5% less than reported on June 6, with production levels equal to those recorded in 1985.

On the other hand, the International Energy Agency (IEA), in its July 9 publication³⁷, «Oil Market Report – July 2020», estimates that the reduction in world oil demand for the second quarter of the year was 16.4 million barrels per day, mainly due to the reactivation of the economies of China and India.

The IEA forecasts an average demand for this year of 92.1 million barrels per day, and in 2021 they expect a 6% recovery in demand, taking the numbers to 97.4 million barrels per day.

STORAGE

The July report of the International Energy Agency notes that storage in countries belonging to the Organization for Economic Cooperation and Development (OECD) increased by 2.64 million barrels a day, to settle at 81.7 million barrels a day.

In relation to the United States, the IEA estimates that commercial inventories increased by 800,000 barrels a day, led by oil product reserves.

On the other hand, according to the EIA July 8 report³⁸, oil inventories in the United States continue to increase, to settle at 539.2 million barrels, which represents a 6 million barrels increase (1%) in relation to the US agency’s June 26 report, and a 17% increase in relation to the data of the same date in year 2019.

US OIL STORAGE AND WTI PRICE (July 2019-July 2020)

Coverage days continue to fall very slightly, settling this week at 38.6 days, with a slight reduction of 1% (0.6 day) after getting to 38.8 days of coverage on June 26. The current coverage days number is 7% less than the May average after the application of OPEC+ cuts.

OIL STORAGE AT US AND COVERAGE DAYS 2019-2020

A key factor in adjusting inventories was the revival of US fuel consumption which, despite increased COVID-19 infections, got recovered in June.

The EIA projections, as per its June report, indicate that the increase in the oil price will depend on the gradual reduction of inventories, so it estimates for year 2020 an average storage at 6.7 million barrels a day. The US agency also forecasts that average storage will decrease to 3.3 million barrels a day by year 2021. The increase in inventories in the first five months of this year reached 1.3 billion barrels, leading to the collapse of global storage systems.

According to the EIA report, inventories will fall by 1.8 million barrels a day by 2021, a key factor in boosting oil prices.

Floating Storage

After reaching record levels during March-April, floating storage was reduced by 24%, to settle at 141.5 million barrels in June, according to the International Energy Agency³⁹. This reduction is directly related to adjustments in market fundamentals, as we have indicated in our previous Oil Reports.

VENEZUELA

The Venezuelan oil industry continues to plunge into the worst crisis in its history, as a result of the erratic and chaotic management by its various administrators in the period 2014–2020. The government’s incompetent intervention in all the oil industry processes, and the militarization of the Venezuelan National Oil Company since the appointment of general manuel quevedo as head of PDVSA in December 2017; all these factors have led to the company’s operational collapse, with a 91% drop in oil production in the period 2014–2020, and the unfeasibility of producing fuels to supply the country’s consumption.

Sixty days have already passed since the last government intervention in PDVSA, with the creation of the «Restructuring Commission⁴⁰«, a veiled way of decreeing the privatization of the national company and the handing over of Venezuelan oil, an illegal action contrary to the national interest that we denounced last May 1^st. The Vice President of the Economic Area, Tareck Al-Aissami -a lawyer without any knowledge or experience in the oil sector- was appointed as the new Oil Minister, while as PDVSA new President was appointed Asdrúbal Chavez, who comes from the refining sector and who was already oil minister during the years 2014–2018, with a poor performance that saw the dismantling of the ministry as the governing body of Venezuelan oil policy.

There is a great silence about what is happening with the national oil industry, and no authority reports anything about it. The minister does not know anything about the sector, nor about oil policy, at a time when the ministry needs the greatest capacity, experience, and ability to act. He cannot leave the country nor sign agreements with the international oil sector, due to international sanctions, and to accusations and arrest warrants issued by the US Department of Justice against him. Meanwhile, the new president of PDVSA has no decision-making capacity or action capability in such ominous times for the industry.

Despite the secrecy surrounding the management of the government and the national oil company, as well as the dismantling of all control, oversight, and accountability mechanisms in the sector, PDVSA’s situation continues to impact the country: there is no foreign currency income, no gasoline, no diesel, and no gas for domestic use.

The workers who remain in the company are subjected to a fierce surveillance and continue to be victims of the massive deterioration of their quality of life, without salaries that would allow them to face the country’s serious economic crisis, and without medical care, which makes them silent victims of COVID-19 and exposes them to all kinds of accidents that may kill or maim them. The workers’ leaders who raise their voices are imprisoned without any legal guarantees and are accused of «conspiracy» or «treason,» even of being agents of the United States.

Accidents and abandonment of operational areas are a constant. Continuous failures and fires at the Paraguaná Refinery Complex or El Palito Refinery show the unsuccessful attempts at reactivation that  several times were announced by some government spokespersons in the face of the country’s fuel shortage.

Moreover, different sources and agencies continue to reveal the collapse of oil production, which we have been reporting in previous Oil Reports.

On the one hand, in the study conducted by S&P Global Platts mentioned above⁴¹, estimated production in Venezuela for June would be 280 thousand barrels per day, which would represent half of the levels reported by OPEC in June.  These levels represent a 91% drop in production when compared to 2013 levels.

On the other hand, according to EIA estimates⁴² and the report published last week by Reuters, Venezuela’s production for this month would be 380 thousand barrels.

Venezuela, which in 2013 was an active and influential member of the international oil market and was ranked fifth⁴³ as an oil producing country within OPEC, but nowadays not only it has dropped its production to levels of more than 70 years ago, but also became a country without any kind of influence, relevance or leadership within the organization, falling to the 10^th place in the ranking of OPEC producing countries.

The Sanctions

One of the arguments the maduro government has used to try to justify the situation of operational collapse of PDVSA has been the US sanctions⁴⁴ imposed on the company starting January 2019.

The first thing we have to say about such rationale is that economic sanctions and blockades are not only unilateral and coercive decisions, but also illegal. We are firmly against the sanctions set against Venezuela and PDVSA.

There is no international agreement on sanctions, not even within the United Nations (UN). There, at the Security Council, in a very convenient interpretation of Chapter VII of the United Nations Charter, sanctions have been imposed on some countries, with a limited character and with the rejection of the majority of the countries in the General Assembly. But these are powers that the permanent member countries of the UN Security Council have bestowed to themselves.

The second thing we need to highlight is that the US sanctions on PDVSA are not new; they do not exist from this moment on. Our Venezuelan oil company was unjustly sanctioned⁴⁵ in 2011, when the United States extended its policy of sanctions against Iran to our company, thus sanctioning the sovereign decisions of the Venezuelan State in its international policy. The difference between then and now is that at that time, unlike what is happening today, we, at the head of the Ministry of Petroleum and PDVSA, got prepared for that scenario and knew how to respond, which is why our oil production and PDVSA’s operational capacities were able to continue onward, without major setbacks.

Since we assumed the leadership of the Ministry of Petroleum and next of PDVSA, our running of both office and company happened in a background of permanent political tension and violence in the country. We were always aware of the hostile environment in which we had to work and move forward successfully.

It was within this framework and with the goal of preserving PDVSA’s operability in any scenario that we made a series of political and operational decisions to guarantee our activities and to sustain the country’s economy, which depends almost entirely on oil revenues.

In January 2009, in the aftermath of the 2008 oil price collapse, we made the decision -from the Ministry of Petroleum and the PDVSA Board of Directors- to present the Economic Sovereignty Plan to President Chávez, a plan that would allow us to reduce costs and gain sovereignty in the management of our oil operations.

Therefore, after the migration of the Operating Agreements to the Mixed Companies feature, and after the nationalization of the Orinoco Oil Belt⁴⁷ measures that allowed us achieving control of all of the country’s oil production, we advanced in the recovery and nationalization of fundamental activities for oil production, which were privatized during the era of the so-called Oil Opening (“Apertura Petrolera”) and which had left us vulnerable to a highly politicized sector that often answered to foreign  interests.

To strengthen our own capacities, from the 2007, we created oil service affiliates and non-oil affiliates, in order to achieve our technological and operational sovereignty, and we sought alternative sources of financing in China and other Asian countries.

Among the most important affiliates and subsidiaries we created to achieve these objectives are:

PDVSA Services S.A.

Established in 2007, its objective was to provide specialized services in the oil exploration and production business, such as: operation and maintenance of drills, electrical records, seismic, drilling fluids, cementing and stimulation, in addition to other related services, thus promoting the consolidation of PDVSA’s technological sovereignty.

DRILLING RIGS INCORPORATED TO VENEZUELA’S OPERATIONS
(2009-2014)

In the period 2009-2014, the number of drills per year (T/A; Spanish abbreviation) was increased by 100% to consolidate a total of 377 T/A for year 2014. The percentage of chartered drills was reversed, since in 2009, 73% were chartered and by 2014, 52% of the drills in operation were owned by PDVSA.

OWN AND CHARTERED DRILLS
2009 AND 2014

PDVSA Industrial S.A.

PDVSA Industrial was established in 2007 as an industrial conglomerate for manufacturing pipes, valves, metal structures, boats, mineral oils, software, asphalt, coal, among others.

It was made up of 6 industrial groups. In the Heavy Manufacturing area it was organized in 5 companies: Empresa Nacional de Tubos (ENATUB) which grouped the pipe factories «Batalla del Juncal» and «Soltuca«; Empresa Nacional de Válvulas (ENAVAL; Valve National Co.); Empresa Nacional de Estructura Metálica (VHICOA; Metallic Structures National Co.); Reciclajes Cuba-Venezuela (RECUVEN; bilateral Cuban-Venezuela Recycling Co.), Industria China Venezolana de Taladros (ICTV; bilateral Chinese-Venezuelan Drill Co.).

For the development of infrastructure, PDVSA Industrial S.A. also contributed by setting 8 companies in the construction sector; 3 companies in the naval and chemical sectors servicing the infrastructure projects, and 12 companies that made up the light manufacturing and mining sectors. By 2013, an industrial conglomerate of 118 companies had been formed.

PDVSA INDUSTRIAL, S.A.
INDUSTRIAL GROUPS FORMED AS OF 2013

PDVSA Ingeniería y Construcción S.A.

PDVSA Engineering and Construction company was created on January 30, 2008, with the purpose of providing technical assistance to major projects developed by Petróleos de Venezuela and its subsidiaries, as well as other State entities. By 2014, the company had developed 26 oil projects, as well as 22 non-oil projects related to urban infrastructure in accordance with the national development objectives.

PDVSA Naval S.A.

The PDVSA naval company was created on February 6, 2008, to guarantee the country’s autonomy in the purchase, repair, and maintenance of PDVSA’s maritime fleet, thus ensuring the operational continuity of the oil industry. Its fundamental objective was the development of projects in construction, rehabilitation, and expansion of shipyards, as well as the construction and acquisition of vessels, based on the projects “Astilleros del ALBA” (ASTIALBA; shipyards), Diques y Astilleros Nacionales, C.A. (DIANCA; docks and shipyards) and Proyecto Ayacucho, in addition to a program of ships construction and repair, in order to contribute to the business plan of the subsidiary PDV Marina.

PDV MARINA S.A

This was an already existing naval transport subsidiary that was strengthened from 2007 to 2014, when the volume transported directly by PDVSA was 684 million barrels of oil and products; an impressive feat achieved thanks to the availability of 84 vessels (76 of them were owned by this marine division of PDVSA; and out of this number 29 belonged to joint ventures and 27 were chartered vessels). It must be added these figures the acquisition of 20 tugboats to strengthen the national fleet and reduce dependence on third parties. With this fleet, we had the capacity to handle 89% of our oil transported volume.

PDVSA’S FLEET EVOLUTION (2002- 2013)

As politicians who were responsible for the oil sector in the country and also administrators of PDVSA, we took all necessary measures and got prepared for any scenario that could interrupt or block our operations, as happened during the 2002-2003 Oil Sabotage; we did take the measures and get prepared.

But in May 2011 the United States Government announced the imposition⁴⁸ of the following sanctions on PDVSA:

1. Financial sanctions stemming from the denial of assistance for exports by the United States Export-Import Bank (Ex-Im Bank); a sanction that limited external financing for PDVSA’s international transactions.
2. Prohibition on contracting goods and services with the United States Government.
3. Denial of specific licenses and permits under US export control laws.

The latter mainly impacted on the country’s access to the technology that was necessary for the maintenance and development of the industry.

The denial of these licenses made it impossible for our country to export, from the United States to Venezuela, equipment considered technologically sensitive; this had an impact on our oil operations.

Therefore, and in order to counteract these measures, which threatened the continuity of the operations in the oil industry, the Board of Directors of PDVSA, at its meeting named with the code 2011-08, approved a work plan to, on the one hand,  assess the impact of these sanctions, as well as their  associated risks, and, on the other hand, to provide a response to guarantee our operations, in accordance with the work that had been carried out since 2009 with the creation of the new subsidiaries.

In order to handle the complex situation generated by the sanctions, we declared in permanent session the existing PDVSA Technological Sovereignty Committee (Comité de Soberanía Tecnológica de PDVSA-CST), developing a three-phase plan based on market studies and the knowledge owned by the company’s different operational sectors. The plan’s objectives intended to:

•      Diversify the sources of supply and market, identifying and prioritizing alternative Goods and Services.
•      Strengthen with critical substitute technologies the national technological and industrial apparatus, covering the Oil, Gas, Petrochemical and Derivatives sector.
•      Redirect the lines of research (through INTEVEP, the research and development arm of PDVSA) in processes of complexity and impact.
•      Accelerate the creation of National Oil Industrial Conglomerates.
•      Strengthen PDVSA’s human talent in technological matters.

The CST detected 42,000 critical items regarding the industry’s suppliers; also, 32,000 substitute suppliers were identified, covering 77% of our needs, these suppliers were from countries in Europe, Asia and Latin America.

Out of 619 assessed companies, with a focus on supply diversification and technology transfer to PDVSA, 398 potential suppliers were successfully approved. From this study an 80-company base was formed for the implementation of the PDVSA agreements.

TECHNOLOGY SUPPLY AND TRANSFER AGREEMENTS MADE WITH PDVSA (2009-2013)

With regard to critical items, the CST had 77% coverage from 3 substitute providers and 100% of critical items covered with at least one provider.

PDVSA’S SUBSTITUTE PROVIDERS

This plan, aimed to diversify our sources of supply of inputs, products and technology, was comprised in a 57% with companies established in Europe, a 35% of Asian companies, and an 8% set in Latin America and Africa. Our efforts represented a 66% success rate in the modification of PDVSA’s traditional input and product matrix to a more diversified and sovereign one.

PDVSA’S INPUT DIVERSIFICATION

The complex process briefly described above, aimed to guarantee PDVSA’s economic and technological sovereignty, was difficult and capital-intensive, but it got translated into a strategic advantage for the country, by providing our national company with its own capacities and inputs to maintain our operations in any scenario of sanctions, restrictions, blockade or even conflict.

Furthermore, this process, within both the framework of the Full Oil Sovereignty plan (“Plena Soberanía Petrolera”) and the necessary strengthening of PDVSA, led to a recapitalization of the company, as it was evident by PDVSA’s audited financial statements which, at the close of 2013, showed an oil company, the fifth worldwide, with 231.12 billion dollars in assets, 129,831 billion dollars in plants and equipment, and equity of 84,486 billion dollars.

PDVSA ASSETS (2013)

STRENGTHS OF PDVSA (2013)

These were the capabilities and strengths of PDVSA at the closing of year 2013; this was the national oil company we passed on to the absolute control of maduro’s government and his several administrators from August of year 2014.

Now it is of public and common knowledge that the administrators of PDVSA in the years 2014-2020 have squandered those capabilities and strengths; right now PDVSA -Venezuela’s national oil company- is incapable to produce neither oil nor fuel in its own facilities, it is unable to transport oil, it is powerless to face sanctions and restrictions imposed on the company. All of this is mainly because the incompetence of the company’s current leaders and managers; the collapse of PDVSA began in year 2014, when the political razzia against the managers and workers and the wrong intervention of the government started, and it got worse from year 2017, with the militarization process in the company.

The sanctions on PDVSA imposed by the United States in the year 2019 just found a company already obliterated, undergoing a privatization process, and with absolutely no managerial, technical, operational or political capacities.

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