The largest reserves in the world and no place to go
It wouldn’t be inaccurate to say that Venezuela is awash with crude oil. According to the BP Statistical Review of World Energy report for 2016, the country had the highest crude oil reserves in the world at the end of 2015.
Meanwhile, as shown in the graph below, nearly one-fourth of Organization of the Petroleum Exporting Countries (OPEC) crude oil reserves are in Venezuela; they amount to 300 billion barrels, higher than 266 billion barrels in Saudi Arabia and equal to that of Iraq and Iran combined.
However, even after being in such an enviable position, these huge oil reserves have not been of exceptional worth for the country of late.
Can’t produce enough
Venezuela’s rapidly depleting finances – most of which go towards bond payments – do not leave an adequate amount for tapping the state’s vast crude oil reserves.
This is presented by the R/P ratio provided in the BP Statistical Review of World Energy report. The Reserves-to-Production ratio is calculated by the reserves at the end of a year divided by the amount of production in that year. The ratio is the duration for which those reserves would last if production were to continue at that same pace.
For Venezuela, this ratio is 313.9 years. Compare this to 60.8 years for Saudi Arabia, which has the second highest proven crude oil reserves behind Venezuela. Libya – which has the highest crude oil reserves in Africa – and had witnessed a decline in production mostly because of armed conflict following the 2011 Arab Spring, has an R/P ratio of 306.8 years – less than Venezuela.
The BP report also showed that though the country had 17.7% of the global proven crude oil reserves at the end of 2015, it accounted for only 3.1% of global oil production in 2015.
Given the appalling state of government finances, which has pummeled the economy and left inflation to soar, people are struggling to feed themselves, much less drive a car. Thus, the general population has little to no use for the vast resources of black gold that the country owns.
The Wall Street Journal observed that fuel is extremely inexpensive in the country, as “One buck converted on the street fetches more than 100 gallons of fuel.” But the resource is completely idle, not being of use for either domestic consumption or exports.
General business in Venezuela is reeling as well, and apart from crude extraction, the country’s auto industry is in trouble too. According to local car makers’ association Cavenez, the country once used to assemble close to 20,000 vehicles a month, which has nearly ground now. We’ll look at this more closely in the next article.