Venezuela: Hooking Up With Brazil, Ditching the U.S.
Summary
stratfor.com
Petroleo Brasileiro SA and Petroleos de Venezuela reached a deal Sept. 20 to merge Brazilian markets and money with Venezuelan crude and technology. It is a deal that most certainly will prove a vision of progress for everyone -- who is not American.
Analysis
Brazilian oil company Petroleo Brasileiro SA (Petrobras) and Venezuelan oil company Petroleos de Venezuela (PDVSA), both of which are state-owned, were cited in Energy Intelligence Group on Sept. 20 as planning to launch a $2.5 billion project in January 2006 that would see a refinery built in the northeastern Brazilian state of Pernambuco. The refinery would be capable of processing 250,000 barrels per day of Brazilian and Venezuelan heavy crude oil -- specifically, the ultra heavy crude oil of Venezuela's Orinoco Belt.
It is a match made in heaven for investment-starved Venezuela and oil-hungry Brazil. In fact, the only loser will be the market that until now has had a de facto monopoly on consuming the Orinoco's output: the United States.
Orinoco crude is not really oil at all, but a high viscosity sludge that does not even really pool at room temperature. Demand for the crude is very low, and at present, few refineries outside the United States handle much of it on a regular basis. U.S. refineries that do work with the stuff are mostly owned by Citgo Petroleum Corp., a PDVSA subsidiary. The problem for the "Bolivarian Revolution" of Venezuelan President Hugo Chavez, of course, is that he wants no ties whatsoever with the United States, yet some of his biggest producing assets are inexorably tied to the colossus to the north. Chavez has worked steadily to find other buyers for his crude, particularly in Asia. But few there are interested in footing the trans-Pacific transport bill, few have the capacity to refine Venezuelan crude and even fewer are willing to pay top dollar for some of the world's lowest-quality oil.
Meanwhile, Brazil is well on its path to not just energy independence -- Petrobras is far and away the best-managed and technologically adept oil firm of the developing world. Unlike most state firms, which derive their business plan from politicians, Brasilia has had enough foresight to leave the businessmen in charge of the firm, and so Petrobras has been wildly successful at gathering technology and assets to meet the goal of making the country largely energy independent. The one problem Petrobras does have is supply. Pretty much every major domestic field already is being developed, forcing the firm to look beyond Brazil's borders in its effort to keep the lights on back home.
Which makes a marriage between the two Latin American countries far more than one of mere convenience. Though the terms of the agreement are still sketchy, Petrobras will provide most of the money -- by necessity, since Chavez has gutted PDVSA to pay for his revolution and to neutralize the firm as a political actor -- while PDVSA will impart its expertise from its involvement in the Orinoco Belt.
The only loser will be the United States, which stands to be denied access to a quarter-million barrels of supply. Although American refiners can clearly process heavy crude from elsewhere, the Citgo refineries have been explicitly modified to run Orinoco sludge, and there are no realistic crude suppliers within as easy a reach as Venezuela. It will be up to U.S. refiners to pick up the extra transport tab themselves.
But would this not hurt Venezuela, too? After all, Venezuela owns Citgo, right?
Yes it does. But part of Chavez's plan is to sever all ties between the United States and Venezuela. This not only means refusing to sell crude oil to America, but ultimately disposing of Citgo, too. This deal between PDVSA and Petrobras represents the first concrete step toward achieving this broader strategic objective.
Send questions or comments on this article to analysis@stratfor.com. |
