After Chavez death, what of oil industry?

Brazil's former president, Luiz Inacio Lula da Silva (right), and Hugo Chavez at an oil drill in Venezuela in 2006. AP
Brazil's former president, Luiz Inacio Lula da Silva (right), and Hugo Chavez at an oil drill in Venezuela in 2006. AP ((right), and Hugo Chavez at an oil drill in Venezuela in 2006. AP)
Posted: March 07, 2013

HOUSTON - Venezuela, which is a member of OPEC and sits on the world's second-largest oil reserves, faces near-term political uncertainty after Hugo Chavez's death that could bring further turmoil to its beleaguered oil industry.

Even under the best circumstances it would take years to increase production and exports, analysts say.

Venezuela's oil industry saw exports fall by nearly half during Chavez's time as president. He died Tuesday.

But any new government would have a powerful economic incentive to make that a priority.

Exports fell from three million barrels per day in 2000 to 1.7 million barrels per day in 2011. Chavez relied heavily on the country's oil income to fund social programs, but reinvested relatively little of it to exploit new oil fields and replace depleted ones.

There has been no indication from the country's national oil company, Petroleos de Venezuela S.A. (PDVSA), whether it will invite more foreign investment or increase its own investment in new production. Chavez held such sway over the company's direction that his death means the direction could change dramatically.

The discontent in Venezuela that grew with the decline of oil prices in the late 1990s helped Chavez get elected. The high oil prices that followed helped him consolidate power by allowing him to fund programs popular with Venezuelans and make allies in the region by offering cut-rate oil deals, according to Daniel Yergin, author of the Pulitzer Prize-winning book The Prize: The Epic Quest for Oil, Money, and Power.

But his refusal to reinvest in the industry, along with a strike at PDVSA in 2002 that sapped the company of some of its best talent, led to deep decay in the country's most important industry. Chavez nationalized some oil and gas assets owned by international oil companies, such as Exxon Mobil, in order to make PDVSA the majority stakeholder in all Venezuelan projects. That prompted Exxon and others to abandon work in the country, further reducing the country's access to oil and gas technology and expertise.

Citgo, the company's U.S. division, operates refineries in Texas, Louisiana, and Illinois, and sells fuel through thousands of gas stations.

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