Chevron Granted License in Venezuela
Dec. 2, 2022
The US Treasury Department has taken the first step towards easing some of the sanctions imposed on Venezuela, enabling supermajor Chevron to resume limited natural resource extraction operations and crude oil exports to the US. The Biden Administration’s decision to ease some of the sanctions, implemented by the US in 2019, came after the resumption of talks last weekend between the Maduro government and political opposition groups in hopes this would resolve political turmoil seen in the country.
Chevron is preparing to ship the first crude oil cargo from Venezuela to the US by late December. However, we note that Chevron still needs to collect debt, repair equipment and bolster the workforce there before they can resume an operation of any significant size. Chevron has specified that it could take several months, and potentially years, in order to refurbish fields and equipment in order to drive any meaningful change in operational capability. The initial indication is that the firm may be able to increase output by 20,000-30,000 b/d, too little to make any difference initially from a global market perspective.
The key will be whether this shift leads to a greater relaxation of restrictions in the country and incentivizes other oil companies to resume operations as well. As Venezuela boasts the world’s largest oil reserves, a relaxation of sanctions on a larger scale would be positive for multiple tanker segments as cargoes could be transitioned to conventional tonnage. We note that between 2010 and 2016, Venezuelan crude oil production ranged between 2.0 and 2.5 million b/d, while crude exports averaged approximately 1.5 million b/d, with half of that volume destined for the US Gulf (Figure 1).
In the current sanctions scenario, almost all Venezuelan crude exports are shipped to SE Asia for “blending” purposes, with further distribution to North Asia. In a full sanctions relief environment, the trade flow destinations would likely be restored primarily to the US Gulf, India, and China (Figure 1). We note it will be impossible for Venezuela to reclaim full crude production in the short- to near-term due to past underinvestment in oil infrastructure. However, we view the recent Chevron announcement as the first step towards full sanctions relief, particularly if prevailing geopolitical conditions (Russia, OPEC+) lead to higher crude prices in the short term.
Figure 1 – Venezuela Crude Oil Production and Exports (Left) & Tanker Demand Calculations – Venezuela Crude Exports (Right)
Source: McQuilling Services
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