U.S. President Donald Trump recently urged oil executives to invest significantly in reviving Venezuela’s struggling oil sector, but his appeal received a lukewarm response. The heads of major oil companies expressed skepticism regarding the viability of investing in a country grappling with complex regulations and a troubled history of nationalization.
Exxon Mobil’s CEO Darren Woods labeled Venezuela “uninvestable” under its current commercial frameworks. Ryan Lance, CEO of ConocoPhillips, echoed this sentiment, recounting the billions lost by his company when it exited Venezuela during the regime of Hugo Chávez. The nationalization of oil assets in 2007, which transferred control to the state-owned oil company PDVSA, marked the beginning of a steep decline in Venezuela’s energy sector.
Despite the bleak outlook, Trump did receive some positive feedback. Jeff Hildebrand, head of Hilcorp, indicated his company’s readiness to assist in rebuilding Venezuela’s energy infrastructure. Additionally, Chevron stated it could ramp up production to 240,000 barrels per day “essentially effective immediately.” Currently, Venezuela’s production hovers around 1 million barrels per day, with Chevron contributing about a quarter of that output.
The Complexities of Refining Venezuelan Crude
U.S. refiners have a keen interest in Venezuelan crude due to its unique properties, which are especially advantageous for complex refineries capable of processing heavy oils. Venezuelan Merey crude, sourced from the Orinoco belt, has one of the lowest API gravities and the highest sulfur content globally. This necessitates specialized refinery units to effectively break down the crude and remove impurities. Yet, less than half of U.S. refineries possess the necessary coking capacity to handle this type of oil.
Refineries with significant coking capabilities include major players such as Valero, Exxon, and Chevron. Coking and hydrocracking are essential processes in upgrading heavy crude oil into lighter, more commercially viable products like gasoline and diesel. Coking employs a thermal, carbon-rejection method, whereas hydrocracking uses high-pressure hydrogen to produce cleaner fuels with fewer solid byproducts. Highly complex refineries can achieve distillate yields of 33%, which is notably higher than the 30% yield from medium-complexity plants.
While increased availability of Venezuelan crude could benefit U.S. refiners, it may negatively impact demand for Canadian crude and other heavy oil grades. The U.S. currently purchases approximately 80% of Canada’s crude output. This holds true despite improvements in access to Asian markets following the expansion of the Trans Mountain Pipeline.
Investment Needs and Infrastructure Challenges
Despite the potential gains for U.S. refiners, experts note the urgent need for substantial investment to restore Venezuela’s oil production to its historical levels. According to Rystad Energy, only about 300,000 to 350,000 barrels per day can be quickly reinstated with minimal expenditure from the current production rate of roughly 800,000 to 1 million barrels per day. To increase production beyond 1.4 million barrels per day, significant and sustained financial investment will be necessary.
Rystad further estimates that Venezuela will require approximately $53 billion over the next 15 years just to maintain its production at 1.1 million barrels per day. To achieve a target of over 3 million barrels per day, investment could soar to as high as $183 billion. This funding requirement is comparable to the entire capital expenditure for North American oil production in a single year.
The state of Venezuela’s energy infrastructure has been described as “catastrophic” by analysts at Kayrros, who point to decades of under-investment and neglect. Many oil storage facilities, such as those at the Bajo Grande and Puerto Miranda terminals, are reportedly out of order due to corrosion and lack of maintenance. In fact, Kayrros estimates that nearly one-third of Venezuela’s storage capacity is currently inactive.
Operations at the large interconnected Amuay and Cardón refineries are also underperforming, with capacity running below 20%. This low output has led to these refineries effectively serving as “de facto storage centers.” The country’s pipeline network is similarly deteriorated. A leaked internal document from PDVSA revealed that Venezuela’s oil pipelines have not been updated in over 50 years. The National Oil Company estimates that restoring the pipeline network to optimal conditions could require as much as $58 billion, with some estimates exceeding $100 billion.
For context, Venezuela’s operational oil pipeline network spans approximately 3,442 kilometers, a stark contrast to the United Arab Emirates, which produces around 3.2 million barrels per day and maintains a pipeline network close to 9,000 kilometers.
The challenges facing Venezuela’s oil sector are multifaceted, requiring coordinated efforts and substantial investment to address infrastructure deficits and regulatory hurdles. As discussions continue among U.S. oil executives and government officials, the path to reviving Venezuela’s once-thriving oil industry remains fraught with obstacles.
