Economy
State-run oil company Petróleos de Venezuela (Pdvsa) is trying to ride out the storm of sinking oil prices by reducing costs and looking for new partners to join the projects at the Orinoco Oil Belt; however, for this to happen it will have to loosen its business schedules.

The value of the Venezuelan crude oil, which yields more than 90 percent of the foreign exchange and accounts for 50 percent of the domestic budget, has plummeted almost USD 100 from a peak of USD 130 in July 2008. Now, the Venezuelan oil barrel is around USD 36, far from the amount of USD 60 estimated in the 2009 budget, AFP reported.

Further, the decreasing energy world demand will leave in 2009 near 6.5 million bpd of surplus around the world -an ideal situation for a market where "buyers set the conditions," oil expert Mazhar Al Shereidah told AFP.

"This and falling oil prices impose the need to change the approach" in Pdvsa, the analyst added.

In this regard, Minister of Energy and Petroleum reported this week that Pdvsa will try to cut costs by 40 percent and look for partners to back the investments in the Orinoco Oil Belt.

Officially, Pdvsa will proceed with the program Siembra Petrolera (Oil Sowing), including 88 major projects at the Belt which require an investment of USD 125 billion through 2013.

Pdvsa to revise projects at the Orinoco Oil Belt
But for energy analyst Rafael Quiroz, sagging oil prices will force the state-run oil company to revise these projects and introduce "attractive components" to its foreign partners.

In 2007, Pdvsa took at least 60 percent of the share of any oil project at the Orinoco Oil Belt. Such a condition was accepted by most of the multinationals running operations in the reserve, in times of booming oil prices.

"Pdvsa cannot afford such degree of investments. Undoubtedly, all the medium- and long-term projects should be revised (…) Certainly, the proportion of foreign and domestic funding will be fixed," Quiroz explained.

Diego González, the director of think-tank Prospectiva y Estrategia El Bosque, was a bit more pessimistic. He feels that the global financial crisis is enough to freeze any investment in the Orinoco Oil Belt.

"The bid of the Carabobo fields (at the Orinoco Oil Belt) will probably be postponed for lack of (investment) environment," González told AFP, in reference to a tender scheduled for the next few weeks.

Low production costs of the oil barrel at the Belt make the projects in this area attractive against a background of oil prices below USD 40; however, as taxes and royalties should be added, the projects face some financial troubles.

According to González, Pdvsa, whose total liabilities exceed USD 7.5 billion, will not waive these taxes and "will continue imposing" its view on planning of projects. This could shoo quite a few companies.

For Quiroz, if the cuts were reflected also in a payroll of more than 40,000 employees and in the services rendered by Pdvsa, such as import of food and education programs, the total cost would lower "significantly."

Venezuela to seek another output cut
While the company is being refurbished, Venezuela will seek overseas, during the meeting of the Organization of Petroleum Exporting Countries (OPEC), to be held on March 15th, the approval of a new output cut, expecting to take the price of the oil barrel to USD 70.

In the opinion of Quiroz, who includes himself in "the optimistic stream," oil prices will not go beyond USD 60 "as long as the US economy cannot get out of the recession tunnel."

"Thinking that the OPEC is a cartel is a mistake. It manages less than 40 percent of the world market. How can it influence a slowed-down economy?," González wondered.

"Except for a major geopolitical event in the Middle East, something artificial which has nothing to do with the market fundamentals, the price is not going to rise," said Al Shereidah.

Translated by Conchita Delgado