Advertisement
Advertisement
The United States and Venezuela are nearing an agreement that could give American companies long-term access to Venezuelan oilfields for development, with crude produced from the fields expected to be supplied to the US, according to sources familiar with the negotiations.
The proposed deal could mark a major shift in relations between Washington and Caracas after years of political tension and US sanctions against Venezuela, which holds the world’s largest proven crude oil reserves.
Reuters reported that the agreement could be announced soon, although details of the arrangement, including the legal structure, participating companies and duration, were still being negotiated.
Under the proposed framework, a number of Venezuelan oilfields could be made available for development by US energy companies, with some of the fields potentially being leased and subsequently allocated to American producers through auctions or tenders.
Sources familiar with the discussions said the arrangement would also guarantee that oil produced from the fields would be supplied to the United States.
The development could provide American energy companies with access to one of the world’s largest petroleum reserves while giving Venezuela much-needed foreign investment to revive an oil industry that has suffered from years of underinvestment, deteriorating infrastructure and declining production.
Venezuela has proven oil reserves estimated at about 300 billion barrels, the largest in the world. However, its production capacity has fallen substantially from historical levels as the country’s oil industry has struggled with economic crisis, sanctions and inadequate investment.
Reports indicate that about 17 oilfields are being considered under the proposed arrangement, including fields in Venezuela’s Orinoco Belt and the Lake Maracaibo region.
The Orinoco Belt contains some of Venezuela’s largest petroleum resources, although much of the crude is heavy and requires specialised technology and significant investment to produce and process efficiently.
The involvement of American companies could therefore provide Venezuela with access to capital, technology and technical expertise required to increase production.
US seeks secure crude supply
For Washington, the proposed arrangement could provide American refiners with a long-term and geographically close source of crude.
The US has been seeking to strengthen energy security and secure reliable supplies of oil while encouraging American companies to participate in the redevelopment of Venezuela’s petroleum sector.
The US Department of Energy said earlier this year that the Trump administration was working with Venezuelan authorities and private industry to modernise and expand the country’s oil sector.
According to the department, US policy includes facilitating access to oilfield equipment, parts and services required to address Venezuela’s production decline and increase output.
The department said American and other international energy companies could provide the technology, expertise and investment required to restore Venezuela’s oil production.
The proposed deal could significantly deepen that involvement by giving American companies longer-term interests in specific Venezuelan fields.
Legal hurdles
Despite progress in the negotiations, the proposed arrangement could face legal and constitutional questions in Venezuela.
The country’s laws have historically reserved significant aspects of the petroleum industry for the state, although joint ventures and other arrangements involving private and foreign companies have been permitted.
Any leasing or tendering of oilfields would therefore have to be structured in accordance with Venezuelan law.
The final terms of the proposed agreement were not immediately clear.
The White House reportedly referred questions about the negotiations to the US Department of Energy.
Venezuela’s oil ministry and state-owned oil company, PDVSA, had not publicly provided detailed comments on the reported agreement.
Sanctions restrictions eased
The negotiations come amid a gradual adjustment of Washington’s restrictions on Venezuela’s oil industry.
The US Treasury Department has issued licences permitting certain American companies to engage in transactions involving Venezuelan-origin crude, including lifting, exporting, purchasing, selling and transporting the oil.
Other authorisations permit certain US companies to provide goods, technology and services for oil and gas exploration, development and production activities in Venezuela.
The measures have created a pathway for greater American participation in Venezuela’s petroleum sector, although transactions remain subject to US laws and applicable sanctions regulations.
What Venezuela stands to gain
For Caracas, greater participation by American energy companies could provide a major source of investment for an oil industry that remains central to the country’s economy.
Increased production could generate additional government revenue, create jobs and improve Venezuela’s export capacity.
The agreement could also facilitate the rehabilitation of oil infrastructure and increase the country’s ability to exploit its enormous reserves.
However, the scale of any economic benefit would depend on the number of fields ultimately awarded, the level of investment committed by American companies, production targets and the terms under which revenues are shared.
Implications for global oil market
A substantial increase in Venezuelan crude production could also affect the international oil market.
Venezuela’s return to higher production levels would add more crude to global supply and could put downward pressure on prices if output increases significantly.
The development is therefore being closely watched by oil producers, traders and refiners, particularly because Venezuelan crude is predominantly heavy oil that is suitable for certain specialised refineries.
The proposed agreement could also alter Venezuela’s relationship with the Organisation of the Petroleum Exporting Countries, OPEC, particularly if Caracas significantly increases production.
For the United States, meanwhile, securing long-term access to Venezuelan crude could strengthen its energy security and provide American refiners with a reliable source of heavy crude located relatively close to the US market.
For Venezuela, the deal could represent an opportunity to attract the foreign capital and technical expertise needed to rebuild its oil industry.
However, no final agreement has yet been publicly announced, and the reported deal remains subject to further negotiations over its legal, commercial and operational terms.
