BMI View: W e maintain our cautious outlook for Venezuela's oil & gas sector d espite vast below- ground potential and ambitious production plans by state-owned PD VSA . We expect Venezuela to continue to underperform given the large scope of operational challenges, including excessive political interference, chronic underinvestment, an unattractive operating environment , and the precarious financial situation of P D VSA . Moreover, the sustained fall in global oil prices will deteriorate produc tion growth prospects as both PD VSA and international investors face declining revenues and a reduction in available capex funds.
|e/f = BMI estimate/forecast. Source: EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||2,675.0||2,675.0||2,605.3||2,550.0||2,496.5||2,440.0||2,378.6|
|Refined products production & ethanol, 000b/d||1,108.5||1,163.9||1,179.1||1,194.4||1,209.9||1,225.7||1,241.6|
|Refined products consumption & ethanol, 000b/d||746.0||762.8||776.1||791.7||807.5||825.7||844.2|
|Dry natural gas production, bcm||21.8||22.0||22.9||24.3||25.4||26.2||27.1|
|Dry natural gas consumption, bcm||23.6||24.5||25.3||26.6||27.7||29.3||31.1|
Key developments include:
The sharp decline in world oil prices over the past several months has hit Venezuela particularly hard. State-owned Petroleos de Venezuela (PDVSA) provides approximately 95% of the country's total exports and nearly 42% of the country's total revenues. Given the unlikelihood of a price recovery, there is a rising risk of a PDVSA default, though we believe this remains unlikely in 2015.
Venezuelan heavy crude has been trading near record lows over the past three months, falling to USD50.70/bbl at time of writing. This will continue to weigh on national oil company (NOC) PDVSA's capex plans given the high cost of developing the country's heavy crude resources coupled with decreased returns amid lower oil prices.
Given the company's high debt and inability to access capital from the international market, the NOC will likely have to reassess its future capex spending plans, significantly hampering production growth in the coming years.
Our production forecast for crude and other liquids has remained constant this quarter, citing a 2.3% average yearly decline through 2018 as previously planned developments fail to come online within a lower oil price environment. Moreover, we note the continued underperformance in oil production is a result of chronic underinvestment, deficient infrastructure, and a lack of maintenance to existing facilities.
Production of gas will rise an average of 2.4% per year over the coming decade. However, this is significantly short of the country's total consumption demands. Venezuela will remain highy susceptible to external supply shocks, as was seen with the closure of the Trans-Caribbean gas pipeline in H214.
PDVSA has maintained its strong hold over the country's oil and gas sector and will continue to do so for the foreseeable future. This will stymie overall hydrocarbon production throughout our forecast period as the NOC continues to divert limited funds away from operations and into costly social programmes.
Rising public debt and soaring inflation, now at over 68.0% y-o-y, will make it increasingly difficult for the NOC to operate as they face declining revenues in the wake of sustained lower oil prices. Moreover, the ongoing economic downturn in Venezuela will perpetuate frequent and debilitating attacks on oil infrastructure by its citizens, undermining the sector's overall productivity in spite of its vast below-ground rewards.