World’s biggest proven oil reserve holder will pump less in 2019

Venezuela, the South American country known to possess the biggest proven oil reserve in the world will pump less oil in 2019 and Nigeria in 12 years has not added new discoveries to its reserves stock.

Venezuela has reportedly warned eight international customers that it would not be able to meet its crude oil commitments to them in June. Venezuela’s state oil company PDVSA is contractually obligated to supply 1.495 million barrels per day to those customers in June, but only has 694,000 barrels per day available for export, according to a report by Platt.com, an oil and gas publication.

Similarly, Nigeria, Africa’s largest oil producing country is far from attaining its full potentials in its oil and gas industry as its proven oil reserves are not rising to replace as much oil as it pumps on a daily basis due to lack of exploration and decreased investment in the sector over the past years.

The reserves replacement ratio, measures how many new barrels come in to replace the ones pumped out.

In the last twelve years, Nigeria’s oil reserves and daily production had remained almost stagnant hovering in the region of 37 billion barrels and two million barrel production day (bpd) respectively, data from Organisation of Petroleum Exporting Countries (OPEC) showed.

With over 302.25 million barrels of proven reserves, Venezuela has the largest amount of proven oil reserves in the world. The country’s oil is a relatively new discovery. Previously, Saudi Arabia with 266.21 million barrels of proven reserves had always held the number one position, according to data obtained from the Organisation of Petroleum Exporting Countries (OPEC) website.

The oil sand deposits in Venezuela are similar to those in Canada. Venezuela also boasts plenty of conventional oil deposits. Venezuela’s Orinoco tar sands are significantly less viscous than Canada’s, so the oil sands there can be extracted using conventional oil extraction methods, giving it a considerable advantage over the Northern American rival in terms of capital requirements and extractions costs. There is a snag.

“Crude oil production in Venezuela is practically falling at an average of 10 percent every quarter and has been since mid-2017. A scenario with oil production in the country losing at least another 500,000 barrels per day by the end of the year is not unrealistic” Adrian Lara, Oil and Gas Analyst at GlobalData, a data and analytics company, stated.

The drop in Venezuela’s daily output is due to a number of factors, some immediate and others remote. On May 21, President Donald Trump signed a new executive order prohibiting certain oil-related transactions with Venezuela.

“Having full additional sanctions imposed would certainly send a strong geopolitical message from the U.S. at the risk of generating more instability in the world supply markets” Lara said.

A remote factor contributing Venezuela’s woes is that its crude oil is primarily heavy oil, which means that it is more costly to extract and also more difficult to process in a refinery. The Middle Eastern oil, primarily Saudi Arabian oil is light and sweet (it means with fewer impurities). Therefore, the demand for this oil is less as compared to Middle Eastern oil. Given the high cost of extraction, the hydrocarbon policies of Venezuela have to be even more generous than elsewhere to make economic sense for international oil companies to operate in the country.

GlobalData also forecasts that Venezuelan crude oil production would fall to around one million barrels per day by the end of 2018. This is a steep decline from the three million barrels per day that Venezuela produced in 2011.

Venezuela also reportedly has a severe backlog of crude deliveries at its main terminals, and this could temporarily halt PDVSA’s supply contracts if they are not cleared soon. The company has told some customers it may declare force majeure if they do not accept new delivery terms, including higher-cost and riskier seaborne transfers. Brent crude prices moved higher on the news.