ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Monday, October 13, 2008

el Atlas encogió

Or, "Atlas Shrugged" (according to AltaVista/Yahoo's babelfish).

This story about Venezuelan oil production
is tragic, humorous, and predictable:

Venezuela's oil output slumps under Hugo Chavez

By Jeremy McDermott in Caracas
Last Updated: 7:26AM BST 13 Oct 2008

To win allies and forge an anti-American front, Mr Chavez sells oil to friendly countries at low prices. Ironically, the only big customer buying Venezuelan oil at the full market price is the United States, which the president routinely denounces as the "Empire".

"As production falls, the sales to the US become more important," said Pietro Donatello, an oil analyst from Latin Petroleum in the capital, Caracas. "Only the US is paying the full amount for Venezuelan oil and in cash, the rest are in some kind of barter agreements."

You know... nothing makes more sense than to trade oil for chickens.... bartering is the new wave of the future!!! Viva la revolucion!
The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels, according to OPEC figures. About half of this oil is now delivered at a discount to Mr Chavez's friends around Latin America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay Venezuela only 30 per cent of the market price within 90 days, with rest in instalments spread over 25 years.

And there's nothing better than selling your buddies black gold at a 70% discount, in exchange for the promise of full payment next Tuesday... but when next Tuesday is actually in 2038? Not so much.
The other half - 1.2 million barrels per day - goes to America, Venezuela's only genuinely paying customer.

Meanwhile, Mr Chavez has given PDVSA countless new tasks. "The new PDVSA is central to the social battle for the advance of our country," said Rafael Ramirez, the company's president and the minister for petroleum. "We have worked to convert PDVSA into a key element for the social battle."

Witness here the true nature of any socialist country... the authoritarian impulse inevitably displays itself. Companies are no longer in business to deliver the goods and services to their customer - no, they become key elements for social[ist] battle.

And what does that mean? Well, it means an oil company being converted to raising chickens:
The company now grows food after Mr Chavez's price controls emptied supermarket shelves of products like milk and eggs. Another branch produces furniture and domestic appliances in an effort to stem the flow of imports. What PDVSA seems unable to do is produce more oil.
[...]
"There is a bottleneck in the Venezuelan production system," said Mazhar al-Sheridah, 68, an oil expert at the Central University of Venezuela. "It will cost at least $32 billion to build another three upgrading units and take some five years, meaning that Venezuelan production is stuck at current levels for a while yet."

All this means that Venezuela has missed much of the benefit from the oil boom and, now that prices are falling, Mr Chavez faces huge financial problems. Nobody is sure at what point his government would be unable to pay its bills, but most sources consulted believe this would probably happen if oil falls to $80 a barrel. Yesterday, oil was trading at $79.80.
FYI - Citgo is wholly owned subsidiary of PDVSA (and by extension, Hugo Chavez) the primary distributor of Venezuelan oil.

Sure would be nice if we had drilled offshore and in ANWR 5-10 years ago so we could replace Hugo's oil with our own. And it's a shame that we're not taking steps to further reduce the price of oil.

I'm sure Hugo & Barry will be best buddies... I just hope that Barry takes up Hugo's fashion sense.

Your Co-Conspirator,
ARC: St Wendeler