Why Venezuela’s World-Beating Oil Reserves Are 'Irrelevant'
Venezuela now boasts the world's largest proven oil reserves but the claim is “irrelevant” because the Latin American producer is struggling to secure enough investment and technical expertise to unlock the resource, Ed Morse, Managing Director and Global Head of Commodities Research for Citigroup Global Markets told CNBC.
A founding member of the Organization of Petroleum Exporting Countries, Venezuela's total deposits stood at an estimated 296.5 billion barrels at the end of last year, according to the annual Statistical Review of World Energy published Wednesday. That compared to Saudi Arabia's 265.4 billion barrels.
“It has no bearing whatsoever,” Morse, a former adviser to the U.S. Departments of State, Energy and Defense and to the International Energy Agency, told CNBC Asia’s “Squawk Box” on Thursday.
“The issue is not what's in the ground and commerciable, rather how quickly it can be put into production and so long as there's no capital flowing into the upstream in Venezuela, especially capital by the companies that have the technology to develop the heavy oil reserve base, the resource levels are going to remain kind of irrelevant,” he added.
Venezuelan President Hugo Chavez, seeking re-election in Presidential polls scheduled for October 7, said he will more than double the country’s oil-production capacity to 6 million barrels a day by 2019 mainly from the resources-rich Orinoco oil belt if he wins a popular mandate.
Following his re-election in 2006, Chavez nationalized oil, steel, cement and banking assets, hurting foreign investor sentiment. Production and investment in the country's oil sector has also stagnated under the Chavez administration. The country’s state-owned oil company, PDVSA invested $11 billion, or just 9 percent of its income in the oil sector last year.
That’s much less than Mexico’s state oil company Pemex, which invested more than $19 billion or about 17 percent of its income in 2011, while Brazil's Petrobras spent $42 billion, or 29 percent during the same period.
By CNBC's Sri Jegarajah