Donnie"s oil pipe dream
Here is a short blurb from an Economist newsletter I get via email.
It is about the Trump follies of trying to make money and control the global market of oil.
They estimate that at current prices for oil Venezuela only has the world's 17 largest amount of oil reserves.
This is largely because the reserves were inflated and their crude is crude.
Mr Trump’s team is now high on hydrocarbons. On January 7th his energy secretary said that America would “market” Venezuela’s oil “indefinitely” and deposit the proceeds into “accounts controlled by the US government”. Combining Venezuela and Guyana (where American firms have a big presence) with Uncle Sam’s own stash, JPMorgan Chase notes that America could soon have 30% of global oil reserves “under its influence”. Others observe that, should Mr Trump bring more producers in the Americas under his thumb, “Donroe Doctrine” nations could come to account for 40% of global output—more than all members of the Organisation of the Petroleum Exporting Countries combined. Enough, perhaps, to control prices, rule global energy markets and starve China of fuel. The prospect has the MAGA world giddy with excitement.
Will the Don’s great oil empire pan out? This week I assessed his chances. My first step was to look at Venezuela’s geology. I quickly discovered that the country’s oil reserves are vastly overstated. As Priya Walia of Rystad Energy, a consultancy, told me, the official figure reflects volumes booked under highly optimistic price assumptions in the late-2000s oil boom. Those estimates have hardly been revised since, despite big falls in prices, the imposition of harsh sanctions and plenty of operational difficulties. The true amount recoverable in Venezuela today, Ms Walia says, is closer to 40bn barrels than the 300bn often suggested. And a lot of the untapped oil, deemed “extra heavy”, is hard, costly and polluting to extract. To be bankable, Venezuela’s biggest new projects need Brent, the global price benchmark, at $80 a barrel. This year Brent is forecast to fall towards $50.
When you are pitching to America’s oil giants, a risk-averse bunch, that’s not a good start. And Venezuela, which confiscated many of their assets in 2007 without compensating them for the trouble, has other problems. It lacks the type of sound legal system, stable politics and functioning economy that foreign companies like to see before opening their wallets. So my next step was to gauge whether, despite all this, American oil firms might be willing to take a punt. I found that a few mavericks may well raise some private money to snap up Venezuelan assets. But to move the needle, Big Oil needs to return, and insiders told me the majors, which spent decades trying to solve their PR problem, are wary of becoming involved in Mr Trump’s project. During talks with American officials yesterday, oil executives insisted they would need “serious guarantees” from the White House before unleashing capex.
Still, for the sake of argument, I assumed the majors could be persuaded. A new question emerged. To whom would the extra oil be sold? Today the world is awash with petroleum and may well be so for the rest of the decade, owing to new production from Brazil, Guyana and elsewhere. Beyond 2030 global oil demand is set to peak as the world economy electrifies. And few refineries other than America’s, and a handful of China’s, are designed to process the type of gloopy crude that Venezuela cranks out. Perhaps many more Bolivarian barrels can be pumped. But it’s not clear anyone wants them.