For those who need a refresher, in January U.S. forces raided Venezuela and kidnapped Nicolas Maduro, the nation’s brutal, corrupt dictator. Maduro surely deserved his fate. But the Trump administration made no move to help Venezuela’s democratic opposition. Instead, it made a deal with former members of the Maduro cabal, effectively installing a new regime that may well be even more brutal and corrupt than its predecessor. (There’s widespread suspicion that the kidnapping of Maduro was in part an inside job, engineered by his fellow cabalistas.)
In return, Trump got an agreement — details are scarce — that apparently will allow U.S. oil companies to extract and sell large quantities of Venezuelan oil but only if they put tens of billions of dollars into investments in Venezuela’s decrepit oil infrastructure.
[...] In one stroke, Trump has just validated everything the Latin American left has ever said about U.S. imperialism. And we’ll be paying for that, diplomatically and strategically, for decades to come.
[...] Even if the deal holds, oil experts are extremely doubtful that Venezuela can significantly increase its oil production soon, if ever. It would take years to rebuild the oil infrastructure even if corporations are willing to sink in the necessary billions of dollars. There are also issues with the quality of Venezuelan oil. Venezuela appears on paper to have huge oil reserves. But much of these reserves are what I called a “black, sticky fantasy,” created by Maduro’s predecessor Hugo Chavez, when he reclassified oil in the Orinoco Basin that will be difficult if not impossible to recoveras “proved” reserves.
But let’s suppose for the sake of argument that Trump really does manage to seize 65 billion barrels of Venezuelan oil. That sounds like a big number. Is it?
Venezuelan oil currently sells for around $70 a barrel on world markets. But as I said, getting that oil out will require huge investments in infrastructure. Nor does Venezuela oil come gushing out when you drill a well: As one expert put it, “it comes out of the ground with the consistency of cold peanut butter.”
So the profit margin on Venezuelan oil will be at most a small fraction of its market price. Surely $20 a barrel would be a highly generous estimate. So let’s go with that, in which case Trump’s deal might be worth $20*65 billion barrels = $1.3 trillion, a sum extracted over many years.
How big a deal would that be for the United States? Since this would be a many-year process if it happens at all, you want to compare it with U.S. wealth, not GDP (which is only the value created in a single year.) And total U.S. wealth is about $167 trillion.
[...] Oh, and what about Trump’s claim that this will “substantially lower Gas Prices for all Americans”? Since any significant rise in Venezuelan production would take a long time, even crude oil prices won’t show any effects from this deal for years at best. And in any case the prices of gasoline and diesel — which are what people actually burn — have become increasingly disconnected from the price of crude.
So Trump’s Venezuela deal will do nothing for ordinary Americans, while solidifying our reputation for rapacious, short-sighted imperialism.
Levine is the Eugene E. and Catherine M. Trefethen Chair in Business Administration at the Haas School of Business. His research focuses on understanding and overcoming barriers to improving health and economic well-being in poor nations.
Haas News: How do you view the actual economic potential of Venezuela’s 300 billion barrels of oil today?
David Levine: When I heard about the Trump Administration’s actions in Venezuela, I assumed there was money to be made from what we’ve all read are the world’s biggest oil reserves. So I wanted to do a quick estimate of how much money we were talking about. I was surprised that the answer is not very much, and not easily. I want the people of Venezuela to prosper, but it’s not obvious how this will happen.
Venezuela’s oil reserves are largely “stranded” by chemistry. Most of it comes out of the ground with the consistency of cold peanut butter. To even move it through a pipe, you must mix it with costly imported diluents (such as naphtha), which adds roughly $15 per barrel to your costs before you’ve even reached a port. And when it gets onto a tanker, it’s still some of the hardest crude on the planet to turn into something useful. It requires specialized equipment and it emits a lot of carbon for each gallon of gasoline or other useful product. Because it requires complex “coker” refineries to process, it currently sells at a $12–$20 discount compared to global benchmarks like Brent.
DL: I hadn’t seen that line, and it’s not entirely inaccurate. It’s not actually garbage—it has economic value. Once it’s turned into gasoline, it’s just gasoline, but it’s really expensive to do that. And at $60 a barrel, it’s not very economical to ramp up production quickly in spite of the incredible potential for sheer output.
Haas: On Friday, President Trump told American oil executives that he expects their companies to invest $100 billion to restore Venezuela’s broken infrastructure. Do you think that amount would do it?
DL: Nobody knows exactly what it takes to restore Venezuela’s power grid plus the entire energy infrastructure for pumping and distribution. We don’t know whether it’s $75 billion or $150 billion, but I think we can safely say it’s going to be a number with that many zeros. Generations ago, Venezuela was producing more than three times as much oil as it does now, but it would be very hard for it ever to get up to that level. Even doubling production from one to two million barrels a day is going to take an enormous investment.
The above-ground risks are also staggering. Even with Nicolás Maduro in U.S. custody, the nation now is at risk of ongoing civil war, gang violence, or continued conflict with the United States. Beyond civil unrest, Venezuela has a history of nationalizing assets when prices are high and begging for help when they are low. And Venezuela need not nationalize, it can just increase the fees and taxes it charges.
Fiduciary duty makes it hard for a CEO to explain to shareholders why they are sinking billions into a jurisdiction that has historically treated foreign capital as a piñata.
Even if Venezuela were politically stable, it’s a very scary place to invest. It’s hard to think that an oil company exec can look at that spreadsheet and tell their shareholders, “This is the highest risk-adjusted return I have on the planet.” Right next door in Guyana, there’s enormous new discoveries of light crude. [...]
Haas: What was your calculus on how long it would take oil companies to turn a profit?
DL: If oil stays at $60/barrel, a new massive project in Venezuela’s Orinoco Belt might never hit a risk-adjusted break-even. The exception would be if the U.S. government provides unprecedented sovereign guarantees, meaning a taxpayer subsidy guarantees the investments. This approach means it might be profitable for the oil company, but not profitable for the nation because United States taxpayers are at risk.
The story changes if oil prices return to $100 for a decade or more, and we cannot rule out new technologies that substantially reduce the cost to pump and refine Venezuela’s heavy crude. But it’s very hard to see the medium-term trends making Venezuela into a serious oil exporter on a significantly larger scale than they are today. [...]
It’s possible that the price of Venezuela’s heavy crude will rise for a decade or more far above current levels, but it’s at least as likely that the already-unfavorable economics of that investment will worsen over time.
So, Trump's "deal" is Big Oil spending big, or the USA subsidizing something, and that highlighted "power grid *** " touches upon Alejandro Betencort and Derwick, and ProEnergy Services, as discussed in updating an earlier post. So, Trump is using Betencort as a key lever in the "35%" deal and there's money Betencort and Derwick and ProEnergy Services can make, for themselves, from subsidized or bullied US public or private money going in such directions, with little real chance today to see any payout to justify sinking capital into this "artful deal." Artful for some, but not the USA public.
35% of nothing is - nothing. 35% of a Betancort business venture is ?? Holding the snipe hunting bag?
It is worrisome how the business is being promoted, and Marco does have ties to and expectations of the Venezuelan exile community in Florida, some of whom might be friends of Trump, personally. As at one time Jeffrey Epstein was. As Paul Singer still is. There is that stake in things, which would get a substantial pecuniary boost from Trump's proposed USA/Betencort mischief.
There is a miasma to things. As in, why promote that? Circumstantial inferences can reach in many untoward directions. Crabgrass can only guess.
