Venezuela’s Crumbling Oil Industry Is An Environmental Time Bomb

Venezuela’s Crumbling Oil Industry Is An Environmental Time Bomb

Venezuela’s Crumbling Oil Industry Is An Environmental Time Bomb

Venezuela’s Crumbling Oil Industry Is An Environmental Time Bomb | OilPrice.com

Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com’s Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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  • The collapse of Venezuela’s oil industry could lead to significant environmental consequences.
  • Oil spills are likely to increase due to a lack of infrastructure investment and maintenance. 
  • A key part of resurrecting Venezuela’s petroleum industry is conducting urgently required maintenance and overhauls on severely corroded industry infrastructure including vital pipelines as well as refineries.

Oil Environment

Venezuela’s profound economic and humanitarian crisis fails to attract the headlines it once did, particularly after the U.S. recognized interim president Juan Gauido’s May 2019 uprising failed. While the autocratic Maduro regime’s actions continue to gain some media attention, it appears that the world’s worst modern economic collapse outside of war is no longer the breaking news it once was. This is despite the humanitarian crisis deepening to the point where nearly all Venezuelans live in poverty and the growing regional threat posed by terrorists as well as other non-state armed groups operating in Venezuela’s territory. What many international commentators are failing to acknowledge is the environmental time bomb created by Venezuela’s vast petroleum reserves, which at 304 billion barrels are by far the world’s largest. Two decades of mismanagement, malfeasance, and corruption coupled with ever harsher U.S. sanctions have caused Venezuela’s once-mighty oil industry, which saw the OPEC member become a leading world oil exporter, to implode. In the space of just over two decades, petroleum output has plunged from over three million barrels per day to an average of 527,000 barrels for September 2021, according to the latest OPEC Monthly Oil Market Report. That rapid disintegration is the result of chronic underinvestment in industry infrastructure and operations including regular maintenance as well as overhaul operations. Aside from profoundly impacting Venezuela’s petroleum production the heavily corroded state of the OPEC member’s energy infrastructure means that hydrocarbon emissions and oil spills are becoming an everyday occurrence.

A recent Reuters article estimated there were 53 oil spills in Venezuela from January to 30 September 2021, which is a stunning number for a country only pumping around half a million barrels daily. In comparison, the world’s largest oil producer, the U.S., which according to the U.S. EIA is pumping an average of 11,300 barrels per day or 21 times greater than Venezuela’s petroleum output experienced an estimated 131 spills for the same period. The authoritarian Maduro regime’s unwillingness to collate and make petroleum industry data publicly available, including environmental incidents, makes it extremely difficult to track the full extent of the problem. For that reason, it is likely that the volume of oil spills is far greater than those being recorded by non-government environmental and industry bodies. Most of the recorded oil spills for 2021 have occurred on the Caribbean coast where Venezuela’s refining infrastructure is located. Ramshackle refineries and heavily corroded feedstock pipelines pump oil, hydrocarbon debris, and fumes into the environment every time aging distilling and other processing units are activated.

Falcon state is a prime location for oil spills in Venezuela. The state contains a significant portion of the OPEC member’s refining capacity including the Paraguaná refinery complex, which with a nameplate capacity of 940,000 barrels daily is classified as the world’s third-largest complex. Most, if not all, of Venezuela’s petroleum processing infrastructure, is decrepit and heavily corroded making it an environmental time bomb. One of the worst reported spills this year, by Venezuelan newspaper La Prensa de Tachira (Spanish), occurred in Falcon State at the Paraguaná Refining Complex. A Cardon Refinery gasoline holding tank developed a crack in its base seeing it spill 3.6 million liters of gasoline into the surrounding Gulf of Venezuela marine environment causing severe damage. The facility in question, reportedly, had not undergone any maintenance since 2016 despite requiring two-year reviews. Then in October 2021 another spill at the Paraguaná facility was identified. This was caused by a ruptured underwater hydrocarbon pipeline that pumped crude oil into the sea for 10 days before being sealed in early October 2021.

Venezuela’s chronically troubled 140,000 barrel El Palito Refinery, in Carabobo State, suffered a major spill last year pumping 26,730 barrels of crude oil into the Caribbean Sea in August 2020 after a troubled restart following an overhaul by Iranian technicians. During the facility’s reactivation, a leaking catalytic cracker forced PDVSA to implement emergency shutdown protocols because of the risk of an explosion. This led to questions over the quality of the work conducted by Teheran’s technicians and why Caracas had paid for the work by transferring gold to Iran. Since September 2021 Caracas has been pushing to restart the facility in a bid to ease Venezuela’s crippling gasoline shortages, ratcheting up the risk of yet another oil spill in the region.

Related: Why Iraq Can, But Won’t, Reach 8 Million Bpd Of Oil Production

Lake Maracaibo, the largest lake in South America which is connected to the Gulf of Venezuela by a narrow strait, is so heavily polluted that oil slicks and algae blooms regularly occur. NASA satellite imagery from 25 September 2021 shows a series of slicks and algae blooms on the surface of the lake’s waters. According to local communities Lake Maracaibo’s shores are covered in a film crude oil. The severity of the pollution has devastated fish stocks and other wildlife, destroying the local fishing industry one of the few livelihoods left to Venezuelans after the petrostate’s economic implosion. Caracas and PDVSA rarely if ever undertake clean-up efforts, leaving the crude oil in situ to continue causing environmental damage. It is for that reason the damage to Lake Maracaibo, which for over a century has been the focal point of Venezuela’s petroleum industry, is so severe.

A key part of resurrecting Venezuela’s petroleum industry is conducting urgently required maintenance and overhauls on severely corroded industry infrastructure including vital pipelines as well as refineries. While Caracas has arranged deals with China and Iran for the skilled technicians, parts, and labor required to repair derelict energy sector infrastructure there has been little progress, explaining why Venezuela’s oil production is in decline. Much of Venezuela’s oil infrastructure is so decrepit that it cannot be repaired with major overhauls or new facilities required. That will take large sums of capital which, to date, Teheran and Beijing have shown they are incapable or reluctant to provide. The only way Venezuela will be able to generate the vast sums of capital, estimated to be as much as $220 billion, is by attracting investment from Western Energy majors which will not occur until Washington eases sanctions. Until that occurs there will be little to no capital available to a near-bankrupt Caracas nor PDVSA to perform urgent maintenance and overhauls of pipelines, refineries, and other infrastructure. For that reason, oil spills and other accidents leading to the release of damaging hydrocarbons into the environment will remain a persistent problem which is further exacerbated by Caracas’ inability to undertake even basic clean-ups.

By Matthew Smith for Oilprice.com

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