BREAKINGVIEWS-Venezuela’s oil claims are a slick, goopy mess

By Robert Cyran

NEW YORK, Jan 7 (Reuters Breakingviews) - As the saying goes, there are lies, damn lies, and statistics. Add to that list Venezuela’s proven oil reserves. The country’s purported 300 billion barrels represent almost one-fifth of the worldwide total. Yet this self-reported figure is probably inflated, and moreover meaningless.

Ever since the United States abducted Venezuelan leader Nicolas Maduro on Saturday, President Donald Trump has been forthright in his vision of a U.S.-led revival of oil extraction. The country really does sit on vast sums of crude, largely thanks to the Orinoco Oil Belt, estimated to account for more than 1 trillion barrels. What’s debatable is how much will be recovered. The gap between potential and actual production in Venezuela is vast. The country produces less than 1 million barrels per day, down from a peak of over 3 million, and uses most of it.

For the immediate future, simply returning to historical production would be significant, if challenging. Here, repairing crumbling infrastructure and lifting sanctions are the key concerns. Yet the accuracy of estimates about Venezuela’s total resources is illustrative when thinking about what its return to the export market would mean for the world, and where the oil industry is heading.

Proven reserves are defined as those with an estimated 90% probability of recovery, based on identified crude and whether existing technology can extract it while remaining commercially viable. It’s those latter two criteria that are most debatable.

Venezuelan estimates used by OPEC are self-reported, like many other nations. There are reasons to suspect they are overly generous. Production quotas among the group of oil-exporting nations have historically been linked to reserves, incentivizing high estimates. Leaders like former President Hugo Chavez also have reason to burnish their international standing.

Furthermore, OPEC declared Venezuela’s proven reserves the world’s largest in 2011, when oil was over $100 a barrel. Orinoco oil is full of impurities like sulfur and nickel, making it expensive to produce, difficult to refine, and filthy. Price is therefore crucial to its viability.

Oil now trades at around $60 a barrel, based on the Brent benchmark. Breakeven prices for new production already average over $80 for Orinoco, according to consultancy Wood Mackenzie. So estimated reserves may remain theoretical unless prices spike. A more realistic estimate, even assuming ideal conditions, is perhaps 60 billion barrels, Rystad Energy reckons.

That’s still a lot of oil, and the march of cost-reducing technologies may yet improve prospects. Yet demand also matters: electric vehicles, despite a U.S. slowdown, are still growing, especially in developing nations like Indonesia or Vietnam. Geopolitical concerns might yet fracture the market. The world probably doesn’t need a lot more high-cost, dirty oil. The dream of a transformational deluge of Venezuelan crude will probably remain illusory.

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CONTEXT NEWS

U.S. President Donald Trump said on January 3 that American oil companies were prepared to enter Venezuela and invest to restore production in the South American country, an announcement that came just hours after Venezuelan leader Nicolas Maduro was captured and removed by U.S. forces.

“We’re going to have our very large U.S. oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, oil infrastructure, and start making money for the country,” Trump said.

Venezuela's oil output is currently about 1 million barrels per day, but its reported proven reserves of around 300 billion barrels are 17% of the world's total, according to the U.S. Energy Information Administration.