3 Million Barrels Per Day Could Go Offline In 2018
Compounding that problem is labor unrest on the ground. S&P Global Platts says that protests and resignations of refinery personnel are mushrooming because the poor state of PDVSA’s assets are leading staff to worry about safety.
"The Venezuelan economy could collapse at any moment," said Torbjorn Kjus, oil market analyst with Norway's DNB Bank, according to S&P Global Platts. "We could envisage scenarios spanning from outright civil war to a state coup, to a general strike or even just one more year of strangulating slow death for the economy. Neither of these outcomes bodes well for Venezuelan oil production."
Just about every oil analyst agrees that production will continue to fall at a significant rate, but there is disagreement over the magnitude of decline. The Rapidan Group puts losses at 300,000 to 400,000 bpd in 2018. That’s plausible, but to the extent that projections like these are off, they could vastly understate the declines underway.
Ed Morse of Citi says that Venezuela’s production could fall below 1 mb/d, which would essentially be a loss of 700,000 bpd by the end of the year.
There are plenty of reasons why these more dire scenarios could play out. More credit defaults are likely. Venezuela is locked out of the bond markets, which means it will have trouble finding cash. PDVSA’s oil and refining assets are in a decrepit state and are only deteriorating. The quality of Venezuela’s oil exports are also worsening, and some refiners around the world are rejecting shipments. The lack of cash means that PDVSA will struggle to import the diluent needed to mix with its heavy oil. And rock bottom morale and increasing worker unrest could cripple operations.
The losses from Venezuela, combined with potential outages in Iraq, Libya and Nigeria, could reach 3 mb/d in 2018, Citi said.