case study Venezuela oil Flashcards
Venezuela’s Positionas Oil Producer:
- World’s 5th largest oil exporter
- Has world’s largest proven oil reserves (~296.5 billion barrels (20% of global reserves, as of 2012)
- Crude oil production was world’s 10th highest – at 2,394,020 barrels per day in 2008
Pre-Discovery Year
1907
- Before the arrival of Spanish conquistadors, indigenous people used crude oils (known as mene) from petroleum seeps for lightand caulking
- In the early 16th century, Spanish conquerorslearned uses of bitumen for caulking and treating weapons
- In 1539, a barrel was shipped to Spain to treat Emperor Charles V for gout
The Birth of the Venezuelan Oil Industry
1908-1940
Early 1910s marked beginning of oil well construction
- 1908, Juan Vicente Gomez granted concessionsto explore, produce, and refine oil.
- April 15, 1914, Mene Grande (1st important oilfield in Venezuela) was discovered, marking the influx of foreign oil companies.
- In 1914-1917, more oil fields were discovered, but industry slowed during WWI
- By 1918, Venezuelan export of petroleum at 21,194 metric tons
The Birth of the Venezuelan Oil Industry
20 years after first oil drill
1908-1940
20 years after first oil drill, Venezuela became world’s largest oil exporter, 2nd largest oil producer
- Oil exports boomed from 1.9% to 91.2% between 1920 and 1935
- By end of 1930s, Venezuela had become 3rd leading oil producer in the world, after US and Soviet Union
- In 1922, dictator Juan Vicente Gomez allowed US to write petroleum law.
Dutch Disease
Oil became the dominant industry in Venezuela at the expense of all others
Dutch Disease is “when a commodity brings a substantial increase of income in one sector of the economy, causing a strengthening of currency which in turn harms exports of manufacturing and other sectors.”
Dutch Disease venezuela
- By 1929, Venezuela was the 2nd largest oil producer behind the USA
- The oil sector started to dominate all other economic sectors in the country
- Agriculture, which used to be a staple industry, began to decline dramatically from 1/3 to 1/10of the economy in the 1950s
- The sudden increase in oil production limited other industries.
- This led to serious social problems – decline in education, health, infrastructure, etc.
Xenophobia
Xenophobia comes from the Greek words xenos, meaning “strange, foreigner” and phobos, meaning “fear”
Xenophobia venezuela
With the large influx of foreigners, xenophobic sentiments began to surface
Novelist Jose Rafael Pocaterra described the oilmen as “the new Spaniards”:
“One day some Spaniards mounted a dark apparatus on three legs, a grotesque stork with crystal eyes. They drew something (on a piece of paper) and opened their way through the forest. Other new Spaniards would open roads…would drill the earth from the top of fantastic towers, producing the fetid fluid… the liquid gold converted into petroleum.”
Toward Nationalization
1940-1976
In 1941, when Isaias Medina Angarita took power, one of his most important reforms was the Hydrocarbons Act of 1943:
- This law was the 1st move toward taking more control over the oil industry.
- The Act stipulated a 50/50 split in profits between the government and the oil industry.
Toward Nationalization & the Creation of OPEC
In 1944, the Venezuelan government granted concessions for the discovery of more oilfields.
- This was due to an increase in demand during WWII(Venezuela supplied the Allied forces)
- After the war, increased demand continued with USbooming auto industry.
- By the mid-1950s, countries in the Middle East began contributing significant amounts of oil to the international market
- As a result, the US started to implement oil import quotas.
- The world experienced an over-supply of oil, and prices plummeted.
In response, to the chronicallylow oil prices, oil producing countries met in
Baghdad in Sept 1960 to form OPEC
- The main goals of OPEC was to work together to secure and stabilize international oil prices to ensure their interests as oil producing nations.
- This was managed largely by maintaining export quotas that helped to prevent overproduction
- In 1970s, Persian Gulf countries began to negotiate more participation in ownership with oil companies.
- By 1972, OPEC Gulf countries went from 25% to 60% participation in ownership
- 1973 marked the oil crisis, as oil prices went up and embargos were placed on the US and the Netherlands
OPEC
OPEC(Organization of the Petroleum Exporting Countries) was formed by Venezuela, Iran, Saudi Arabia, Iraq, and Kuwait
Duringthe Oil Crisis, Venezuela
saw an increase in oil production profits
- During this time, there was an increased sense of optimism in Venezuela
- Former President Carlos Andres Perez pledged a number of programs to improve the economy and diversify the economy
- During the 1980s, oil prices fell drastically, and Venezuela declined deeper into debt.
During the early 1970s, Venezuelahad taken a number of steps toward nationalizing the oil industry
- In 1971, under President Rafael Caldera, the natural gas industry was nationalized
- During the same year, the law of reversion was passed, which stated that all assets, plants, equipment would revert to the nation
- Decree 832 stipulated that all exploration,production, refining, and sales programs of oil companies had to be approved in advance by the Ministry of Mines and Hydrocarbons
- In 1976, the oil industry officially nationalized under President Carlos Andres Perez and marked the beginning of PDVSA
PDVSA
PDVSA (Petroleosde Venezuela S.A.) is the Venezuelan state-owned petroleum company
