In the wake of Venezuela President Maduro’s arrest, Senate Democrats passed a useless resolution prohibiting President Trump from using the military to attack Venezuela for a second time. Some Democrats have suggested that Maduro’s arrest was not about stopping drugs; its purpose was to steal Venezuela’s oil. As usual, Alaska Senator Lisa Murkowski showed how clueless she is by voting for it. President Trump will ignore the resolution, but the one thing that this vote illustrates is that Democrats back in Washington, D.C. (and Lisa), are very clueless about what President Trump is trying to do.
Yes, Venezuela does have the largest oil reserves in the world, bigger even than Saudi Arabia’s. However, those reserves are not just sitting there in tanks, ready to pump onto tankers. Two significant problems with Venezuela’s oil industry will prevent any quick “theft” of this resource.
The first problem is that its oil industry has been severely damaged by 26 years of socialist rule.
When socialists took over Venezuela, starting with Hugo Chavez, they nationalized the oil industry, kicking out the international oil companies, including ExxonMobil, ConocoPhillips, and Chevron. When those companies left, they took their technical expertise with them. Venezuela attempted to operate the industry itself, but the dictator Hugo Chávez treated it like a cash cow. Instead of using some of the revenue to reinvest and maintain the infrastructure, the money was used to pay for social programs. This malinvestment accelerated under the administration of dictator Nicolas Maduro.
One tool that analysts use to measure the health of an oil industry is by monitoring the drilling rig count working there. Rigs are required to drill new wells and maintain old ones. That information is published monthly by a company called Baker Hughes, and it is published for all producing oil fields in the world. The information for Venezuela can be seen in Chart 2.
There is a direct correlation between oil production and the number of drilling rigs working. Once numbering in the thousands, today, only two drilling rigs are operating in the entire country. This has resulted in a decline in production from over 3.8 million bbls/day to about 900,000 today. While this is still a significant amount of oil production, it is nowhere near what it should be, and It’s declining. Considering that they have the largest oil reserves in the world below ground, just waiting to be exploited, it should be much higher. By comparison, Saudi Arabia, with slightly less proven oil reserves, produces about 10 million bbls/day.
That brings us to the second challenge Venezuela has. Most of the oil produced in Venezuela is considered heavy oil. This type of oil is difficult to produce. It does not flow to the surface easily, requiring the use of downhole pumps that have a short useful life and require regular replacement. Given the challenges of this type of oil production and 20+ years with little reinvestment, it is no wonder that Venezuela is not producing as much oil as it should be.
When the Democrats suggest that President Trump is going to steal Venezuela’s oil, that just isn’t physically possible. The production of oil in Venezuela is challenging and requires complex technical expertise. It is below ground and under the control of the Venezuelans. Without the willing assistance of the individuals currently working in the petroleum industry, that oil will remain stranded underground and cannot be “stolen.”
If the country’s new leadership were smart, they would recognize the opportunity that President Trump has just presented them with. They would choose to adopt a democratic government, stop sending drugs to the United States, and use the free market to bring additional investment and technical expertise to their country to get the oil fields working again at peak efficiency.
The only thing forcing the Venezuelan government to make these moves is the fear that Donald Trump might send the Delta Force after them in the middle of the night, as he did with the dictator Maduro. When politicians in this country try to tie President Trump’s hands in the negotiation now taking place, it is counterproductive for what is best for Venezuela.
Perhaps if Lisa Murkowski had read President Trump’s book, “The Art of the Deal,” she might understand how negotiations are conducted and wouldn’t have joined with the Democrats in the Senate to try and tie his hands in doing so. Trump doesn’t want to invade Venezuela; he wants to help it produce more oil so we can buy it instead of the Chinese, and that will be a good thing for everybody, both here and in Venezuela.
The views expressed here are those of Greg Sarber. Read more Sarber posts at his Seward’s Folly substack.
