Reuters-By Robert Cyran
An oil tanker is berthing at the Jose oil terminal in Venezuela. Archive photo with no date.
NEW YORK, Nov 28 (Reuters Breakingviews) – U.S. President Joe Biden is open to Venezuelan oil. Over the weekend, the Treasury Department issued $355 billion oil giant Chevron (CVX.N) a license to resume limited production in the country. That helps to spread around extraction of the fossil fuel, and could ease prices on the margin. But between the dirty Venezuelan oil and decrepit fields, the help is limited.
Venezuela sits on the largest oil reserves in the world, and in the late 1990s was producing over 3 million barrels of crude per day and exporting 1.8 million barrels per day to the United States, according to the U.S. Energy Information Administration. Steadily tightening sanctions led to the country’s oil production falling by about three-quarters over the years. Though Chevron, under the license, can’t open new fields, it can start to pump the existing ones.
If the fields return to pre-sanction levels, it’ll produce about 200,000 barrels per day. For Chevron, it’s a drop in the bucket – less than 7% of daily output. Chevron is owed over $4 billion from its projects in Venezuela with Petroleos de Venezuela, which it should recoup. But the license prohibits its Venezuelan partner from profiting, so prospects for higher production appear capped. And this year, the company is expected to have a net income of $38 billion from sources around the world, according to Refinitiv.
The eased restrictions do little for the average American, too. Oil equipment degrades, and highly skilled workers have fled the country. As a result, the fields aren’t as prolific, and the oil could be more costly to extract. This production in Venezuela would amount to about 1% of U.S. demand. Furthermore, Venezuela’s Orinoco is also among the most greenhouse gas intensive fields in the world, with about twice the total emissions per barrel of Saudi Arabia’s Ghawar, according to an index created by OCI+. If countries, including the United States, start to clamp further down on emissions, the costs of cleaning up oil could be passed on.
The urgency for diverse sources of fossil fuels has become more apparent since Russia’s invasion of Ukraine sent prices surging. But the price of a barrel of Brent crude has fallen roughly a third since early March. Biden has made climate a key tenant of his presidency. But climate change is a global issue, and breaking bread with American oil producers in Venezuela means he is also shaking hands with a country that has a less than ideal human rights record.
The United States eased sanctions on Venezuela on Nov. 26 by granting a license to Chevron to resume production and importation of Venezuelan oil. The license lasts for six months and will be automatically renewed after that, but the U.S. government can revoke the license at any point.
The license restricts any cash payments to Venezuela and is designed to prevent Chevron’s partner, Petroleos de Venezuela, from profiting from any sales. Instead, profit from the sale of oil will go toward repaying the more than $4 billion owed to Chevron from joint ventures in Venezuela.
Editing by Lauren Silva Laughlin and Sharon Lam
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