According to the latest annual report of OPEC, Venezuela now ranks number one in oil reserves with 296.5 billion barrels followed by Saudi with 264.5 billion barrels.
Venezuelan Oil reserves have jumped a whooping forty percent over the 2009 figures and if looked at closely, the surge is mainly contributed by OPEC secretariat’s change in methodology which now includes “extra heavy” oil (roughly 800 KBPD of production for Venezuela).
In terms of leadership in the oil, it is not enough to only go by the proven reserves. It is important to deep dive into certain dynamics which affects the overall oil trade. This article aims to provide some pointers which are useful in analyzing who is the real leader when it comes to “Black Gold”.
Key Points to Consider
Readers should bear in mind the unique characteristics of the South American and Middle Eastern oil-producing juggernauts before making any final determinations.
- There are inherent attributes attached to the Venezuelan oil industry. Venezuelan oil is low quality as it is ultra heavy which translates to high cost of exploring and refining. To add to the same, there are bureaucratic and efficiency issues attached with the national oil company, PDVSA.
- Newer reserves are not actually "new". As indicated, these reserves are now a part of the proven reserve due to the new methodology. These additional reserves are “ultra heavy” and now added due to the spike in oil prices, which have made them commercially viable. It is estimated by industry bodies that the yield per barrel of these additional reserves has to be in the range of USD 85-90 for an effective IRR of 15%.
- Operational issues surround these reserves. Despite of the jump in reserves, Venezuelan crude production witnessed a drop of 80bps in 2010 compared to 2009 and currently stands at 2.85 MBPD. In contrast, the neighboring LATAM countries of Columbia and Brazil are witnessing a steady increase. When it comes to refining capacity, Venezuela happens to be the only LATAM country to lose refining capacities which stands currently close to a million barrels which is down by 5.5% compared to 2006 levels.
- Saudi Arabia still retains the top position in terms of oil production, which now stands at 10.3 MBPD, and has proven reserves of 264.5 billion barrels.
- There are questions in terms of Saudi reserves and actual production capabilities which may be the key to analyzing the situation closely.
With these newer figures, it is quite clear that the balance of power in the world of oil is changing with countries like Venezuela, Iran, Brazil and Columbia now inching up their overall production higher.
But quite evidently, these countries need to surpass various economic, political, internal and international hurdles realistically in order to secure a superior position in the league tables.
Vijay Narayanan - Visit www.privateequitygcc.com for insightful PE related research on the GCC markets.
