Cuba–Venezuela Petroleum Axis

Hugo Chávez has become the pebble in George W. Bush’s shoe. In just one week, Chavez suspended a military cooperation accord with the USA, attacked the AFTA (Americas Free Trade Accord), while pretending to impose his ALBA (Bolivarian Alternative for the Americas) and he traveled to Cuba to tighten his economic relations with dictator Fidel Castro, via the opening of a Pdvsa commercial office and a Banco Industrial de Venezuela agency in Havana. The USA’s perception of Chavez being a threat to the region’s stability encouraged Condoleezza Rice to travel to several Latin American countries, to establish the USA’s position before the antidemocratic models that appear to be flaring out throughout the region, mostly thanks to Venezuela and Cuba. The relationship between Castro and Chavez continues to strengthen, to the point that Pdvsa has joined forces with Cupet (Cubana de Petroleo), despite it being a lousy business deal for Venezuela. For starters, Cuba lacks its own oil reserves, and therefore must always depend on Venezuela’s; also it has no access to the USA market, which is the largest consumer of oil and its derivates in the world. Financially and politically, this is a very good business deal for Fidel Castro’s dictatorship, while for Venezuela it will not generate any real revenues. But the revolutionary process will benefit, since Cuba will become a safe haven from all the strict supervision Pdvsa is subject to in Venezuela; in other words, they will ignore reporting to the Venezuelan Comptrollers Office or the National Assembly, the results of any petroleum negotiations that take place. Furthermore, the private news media will have no access to the information and thus the Venezuelan people, who are Pdvsa’s mayor stockholders, will be kept in the dark. The Banco Industrial agency will serve as a shield, only to become part of this new secret account that will continue to finance the bolivarian revolution; few will have real access to the information and the operations will lack any kind of transparency. The new Pdvsa-Cuba will be used to store residual fuels in the Matanzas province, which means direct competition with Pdvsa’s installations in Aruba, Bonaire, Bahamas and Curacao; this will in turn affect the return Venezuelan’s ought to receive in benefit of the Cuban regime. One of the most absurd business deals Pdvsa will collaborate with Cupet entails the exploration and exploitation of offshore wells in the Gulf of Mexico, activity in which Pdvsa lacks experience. Each offshore well costs between $50-100 MM, and of course it will be Venezuela footing 100% of the bill, since Cuba does not count with the monetary resources for such venture, once again benefiting Cuba over the interests of the nation. The 44 blocs in the Gulf of Mexico that Cuba has attempted to auction have failed, to the point that even Repsol YPF (Spain) and Petrobras (Brazil) have withdrawn form the project. Chavez constantly attacks and threatens the USA with cutting their supply of oil, but the truth of the matter is that if the USA, which imports 15% of the oil it consumes from Venezuela, decided to stop buying Venezuelan crude, this would be strong blow to the regime’s finances. Pdvsa’s exports to the USA have already fallen 47% during the last 6 years, from 3 MM b/d in 1998 to 1.6 MM in 2005. The fact that Bush decided to ask Congress to authorize the exploration and exploitation of their Alaskan oil reserves, should worry the Government, since Alaska’s oil production capacity is estimated at 1 MM b/d, which would no longer not be bought from Venezuela. If the USA is able to reduce its dependency on imported oil by exploiting their Alaskan reserves, Venezuela would be the oil exporting country that would be most affected; in other words, it would have to eat the 1.6 MM b/d it exports to the USA at international market prices. Although it is true that the Alaskan reserves will not bear fruit immediately, the USA could gradually decrease the amounts it currently buys from Venezuela. Apparently the Venezuelan government fails to understand that it would be very unwise to substitute the USA market, since only a few refineries in the world are capable of processing the heavy crude with high sulphur content that is produced in Venezuela, and thus, it will be very difficult to its crude to other countries. The Bush administration is also attempting to reduce its energy consumption levels, and in order to achieve this they should increase the exploitation of their immense coal reserves as well as explore alternate sources of fuel. The damage coal causes the environment has prevented the exploitation of this mineral, but new technologies have been able to reduce the polluting effect caused by coal. Therefore, these measures will in turn allow the USA to reduce the amount of hydrocarbons they purchase from Venezuela. Chavez claims he will export crude to China to make up for lost markets, but the truth of the matter is that it would take the tankers at least a month to reach their destination, and there is not one catalytic refinery to upgrade the heavy crude in China. The Government may think it can depend on the sales at preferential prices granted via the Caracas Energy Accord and the inexistent revenues generated by the more than 80,000 b/d Venezuela gives away to Cuba, but the truth is that they will fall short of the funds needed to maintain the rhythm of public spending they have become accustomed to, which they will require to continue funding both, the Bolivarian and the Cuban revolutions.

(*): (%=Link(«http://rev.com.ve/default.asp»,»Venezuelan Economic Review,»)%) On Line. May 4, 2005. (%=Link(«http://www.rev.com.ve»,»http://www.rev.com.ve»)%)