Monday, April 03, 2006

Venezuela: World Oil Baron

These days, a $50 barrel of oil sounds like a pretty good bargain. And that's just what Hugo Chavez is arguing now that he is looking to lock in that price for oil consumers world wide. What Chavez is able to do with such a price freeze is to claim Venezuela's heavy crude reserves, the largest in the world, as part of the official reserves estimate, which would suddenly make Venezuala the world's largest source of oil. Guy Caruso, Administrator of US Energy Information, says that these reserves could top out at 1 trillion barrels. This seems a bit pie-in-the-sky to me considering that Saudi Arabia is currently sitting atop 250 billion barrels but, of course, the much larger issue is whether we will need all that oil once the damned ice caps are gone. However, I'm certain that the prospect of a trillion barrels of oil has everyone, especially Chavez, all atwitter and it won't matter how hot things get. Damn the torpedoes, as they say.

The vissitudes of the world oil market make it difficult to plan long term development of such oil deposits and the fixed price makes development an economic certainty. This is something that the Alberta Oil Sands projects, which also are quite expensive to exploit, would benefit from as well. But Chavez has a more self-serving motive here as well: with the largest oil reserves, Venezuela's influence in OPEC would become far more significant and the Chavez government could demand higher production rates for that country, increasing revenues significantly and making Venezuela flush with new oil wealth.

Don't look for the Sauds or the White House to embrace this idea. At all. Of course, oil companies won't like this either because they profit hugely when the price of oil is much higher, like it is right now. Fixed, long-term moderately priced oil does not a happy oil executive make.

It never fails to amuse when unnamed "critics" of Chavez, most likely those same oil companies and the White House (though the two are difficult to distinguish these days), complain that Chavez uses his country's resource wealth to benefit its citizens. To them, such a brazen waste of what should rightly be claimed as profit, is simply "squandering" money on "social programs." And we know how much those dicks hate that idea.


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