Texas is one of the world’s energy hubs, so what’s happening in Venezuela right now could have huge ripple effects closer to home.
For help on understanding what it means for Texans, the Standard was joined by Matt Smith, lead energy analyst at Kpler. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: What do you make of the president’s comments to rebuild the oil industry? Perhaps we should think back a little more about the history of oil in Venezuela, especially U.S. companies.
Matt Smith: In a nutshell, Venezuela’s oil industry has been destroyed over the last few decades by corruption and the lack of investment.
So production peaked at like three and a half million barrels a day last century. At the start of this century, you know, through basically 2000 through 2015, it was around two and a half million a day, but then has dropped significantly in the second half of last decade.
So, what we saw really early in the century was that [former president Hugo] Chavez essentially kicked out a lot of U.S. oil companies there and essentially seized those assets. So, we have seen the production really come off.
Now, it is below about a million barrels per day. So it’s just been this: There’s a gradual deterioration there.
I was reading an article this weekend that pointed out that the world’s largest oil reserves should suggest that Venezuela would be a much wealthier country than it is, but there just hasn’t been an investment in oil.
President Trump is talking about rebuilding the oil infrastructure there. If you’re in the oil biz in Houston or Irving right now, what do you think this means for the Texas oil industry? Are we looking at the possibility that U.S. companies could rush down into Venezuela as a result of what happened this weekend?
Well, no, so it’s a crude quality thing, right? So if we just consider U.S. production and Latin American production in Venezuela specifically, U.S. shale is light sweet crude. It is very high quality. Venezuelan crude is low quality, heavy sour crude. And U.S. gulf coast refineries have been geared towards running this Venezuelan heavy sour crude, Mexican heavy sour crude as well.
And so it’s not going to impact U.S. production per se because it’s not going to be displacing that crude. The way, if you’re cynical, you can look at this is that the U. S. needs this Venezuelan crude and so that’s what’s driving President Trump’s efforts here.
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What are the markets doing? What about a price response to the ousting of Maduro? Isn’t there still a blockade in place that would stop Venezuelan oil from reaching some of its destinations?
So in terms of oil prices, the response has been fairly muted. We saw prices sell off immediately when markets opened last night. Now they’re up about 1%. So fairly limited response there, you know, because there’s a lot of uncertainty.
Yes, that blockade is still in place there, but it’s not likely to last forever. President Trump wants to keep oil prices down, prices at the pump down. And so he’s going to want that crude to move at some point there.
I think the bigger question is, what happens in Venezuela over the medium term here? Because there could be the expectation that production will ramp back up as we get U.S. producers back in there, operating these all facilities again, repairing things, investing.
But what it’s going to take is tens of billions of dollars. It’s going to take many years to do that. So a lot of time and money. So, this isn’t going to be fixed in any material way in the near future.
Let’s talk short term here for a moment. We’ve been enjoying some pretty low prices at the pump in recent months. With what’s happening now in Venezuela, what’s that going to mean for consumers short term?
Well, as long as the oil price remains around this $60 level, which it should likely do so, then it means that prices at the pump are going to remain in check.
The national average is well below $3 a gallon. In Texas, it’s about $2.40. And so we should expect that to continue at least through the first half of this year as the price remains in check.
Ultimately, that’s what President Trump wants as he heads into the midterm elections later this year.
