A recent Reuters report revealed that PDVSA’s contributions to the state over the span of 2011 have tripled those of 2010. The report states that funds being transferred to the Bolivarian Missions have doubled in 2011 (reaching $8.5 billion) and that Chavez’s new program, “Great Housing Mission” received $2.4 billion. However, without discussing what Chavez’s social “missions” are or their track record of success the article does little to explain the actual significance of this increase.
The Bolivarian Missions are written off as “social projects” that have “assured Chavez’s popularity among the poor” without explaining how exactly these programs have been able to achieve such support. Looking at the declining unemployment, growing female labor participation rate, and increasing primary education attendance, the budget’s focus on such programs is encouraging. Although the drastic increase in spending may be a campaign move by Chavez, no more support would be gleaned if the programs proved to be ineffective.
Agreeably, the article closes alluding to the growing pressure being placed on the national oil company, making note of it’s growing debt and increasing need for investment. As operating costs rise and government’s dependence on PDVSA funding for programs grows we’re left wondering how much longer the company can carry on.
Venezuela is the world’s 11th largest net oil exporter. To understand the country’s economy it is necessary to have a grasp of it’s oil industry. Below I have provided information that I feel is crucial to understanding Venezuela’s oil industry.
In comparison to other countries in the Western Hemisphere, Venezuela has the largest amount of oil reserves and produces about 2.36 million barrels a day. [1 Barrel = 42 US Gallons]
Reserves and Production
Of the 19.1 billion barrels of oil Venezuela has in its reserves, an average of 2.36 million barrels are produced everyday. As we can see below, this amount has been falling for the past 10 years.
Total Oil Supply
Which begs the question, why is it that Venezuela is slowing production? As one of the United State’s main suppliers of oil, it appears that the US is weaning itself off of Venezuelan oil, reasons which shall be explained in a later post. In reaction to this decline Venezuela has looked to diversify its export destinations.
Although the USEIA does not have all the data for the past 3 years, we can see an overall trend of declining exports and increased domestic consumption.
Knowing that oil revenues account for 95% of total export earnings for the country this data is does not look promising for Venezuela’s economic future. The GDP growth rates for the past three years are evidence of this impending problem. In 2010 the country experienced -1.9% growth in the GDP, a slight increase from the -3.3% growth in 2009. With US demand for oil on the decline Venezuela is up against a two-fold issue of necessary diversification. 1st, there needs to be an increase in markets for Venezuelan oil, 2nd, the country needs to begin diversifying domestic industry to steer away from the impending (perhaps already arrived) case of “Dutch Disease.”