In the third part of our blog series ‘oil and gas nations’, we explore the history and position of Venezuela in the wider Oil & Gas Industry.
In 2011, Venezuela surpassed the Kingdom of Saudi Arabia as the world’s leader in oil reserves. Today it is the ninth largest exporter of oil and a founding member of the Organisation of the Petroleum Exporting Countries (OPEC).
Venezuela’s industry history can be divided into four periods: the discovery and initial production of oil (1908-1943), Venezuela’s control over the oil industry (1943-1974), the nationalisation of the oil industry (1976-1998) and the country’s over-dependence on oil (1999-present).
Despite the knowledge of Venezuela’s valuable oil reserves dating back to pre-Colombian times, the first wells of significance were not drilled until the early 1900s. Former president Juan Vicente Gómez approved the exploration, production and refinement of the country’s oil reserves, making deals with foreign companies that ensured part of the profits from foreign operations went back to Venezuela.
The industry was booming, with 1914-1917 seeing the discovery of important oilfields such as Mene Grande and an influx of foreign oil companies beginning their own drilling projects in the region. The country became the world’s leading oil exporter, making Venezuela part of an ever-expanding international oil industry.
In 1943, president Isaías Medina Angarita enacted the Hydrocarbons Act – enabling the government to take 50 per cent of all profits from its Oil & Gas Industry. Export figures remained strong, with demand nearly doubling, but production slowed during the mid-1950s when an influx of Middle Eastern oil caused demand for Venezuelan oil to wane.
In response to low oil prices, Venezuela joined four other nations in 1960 to form OPEC, allowing the countries to work together and manage supply on an international scale.
Venezuela officially nationalised its oil industry in 1976. The state introduced its own petroleum company, Petróleos de Venezuela S.A. (PDVSA), which steadily replaced all foreign oil companies operating in the country. Production rose for two decades, but the efficiency of the PDVSA was called into question. Where before 71 per cent of the company’s profits went to the government, by 1993 that number had dwindled to 36 per cent. Despite falling profits, Venezuela doubled down on the resource at the expense of other sources of income.
Over time Venezuela became entirely dependent on oil. In 2008, exports of everything but oil collapsed, meaning the country was entirely reliant on one source of income. The World Bank found 96 per cent of the country’s exports came from oil in 2014, and Venezuela had become vulnerable to fluctuations in oil prices.
While Venezuela still exports large quantities of oil – 291 million barrels were shipped to the United States in 2016 – its price has declined, negatively affecting the country’s GDP. Without an alternate source of income or a revitalisation of the oil industry, Venezuela’s economy could see further losses.
Click here for the first part of our ‘oil and gas nations’ series.