CARACAS, July 6 (Reuters) - Venezuelan President Hugo Chavez’s shock announcement that he was treated for cancer in Cuba has raised doubts about his future leadership role — and about prospects for the South American nation’s oil industry, which is tightly controlled by him. [ID:nCHAVEZ]
Below are some scenarios going forward:
OPEC member Venezuela hopes to revive its stagnating energy sector through a string of ambitious projects to develop its Orinoco extra-heavy crude belt, one of the biggest mostly untapped hydrocarbon reserves left in the world. Factbox on Orinoco belt developments: [ID:nN11230969]
A big concern for investors is that with the government now focused on Chavez’s recuperation from the undisclosed type of cancer — and whether he will run for reelection or name a successor to stand in elections due next year — these multibillion dollar plans could get neglected.
Joint ventures with foreign companies including Chevron (CVX.N), Repsol (REP.MC), Eni (ENI.MI) and Rosneft (ROSN.MM) are slated eventually to add 2.1 million barrels per day (bpd) of new production and bring in some $80 billion in investment.
The Energy Ministry says some new Orinoco production could begin as early as this year, while most of the blocks are expected to begin pumping tar-like oil in 2012 or 2013. Upgraders to turn that into lighter, more-valuable synthetic oil are due to be ready several years later.
But the projects need investment to turn the heavy oil into lighter synthetic crude that can be processed by traditional refineries. Many of the planned projects are in isolated rural areas that will require huge outlays for basic infrastructure.
A Chevron executive said last month that his company was technically ready to move forward, but needed immediate investment in their blocks. Venezuelan state oil company PDVSA has a majority stake in each project. [ID:nN1E75P01W]
Energy Minister Rafael Ramirez, who also heads PDVSA and is a crucial decision-maker for any new energy projects, is one of Chavez’s closest allies who may be given new responsibilities if the leftist leader’s convalescence from cancer limits his capacity to govern.
The saga over Chavez’s health, and preparations for next year’s election, could leave the fledgling Orinoco projects languishing largely idle until after the vote.
If Chavez wins the next election or hands power to an ally, the country’s oil policy will likely continue unchanged and PDVSA will remain the financial engine and political cashbox of his self-styled revolution, funding everything from health and education projects to sports and arts events.
Allies including Vice President Elias Jaua and the president’s older brother, Adan Chavez, are committed leftists who would be very unlikely to change the government’s state-centric oil policies.
These have included the state takeover of multibillion dollar projects run by U.S. majors Exxon Mobil Corp (XOM.N) and ConocoPhillips (COP.N) in 2007, followed by the expropriation of the assets of 76 smaller oil service companies in 2009.
The government has also repeatedly raised taxes and royalties while requiring that PDVSA operate all oil projects and have a majority ownership.
Ramirez is another ally seen as possibly taking over for Chavez. As a principal architect of Venezuela’s oil strategy in recent years, few changes would be expected under his rule.
If Chavez’s cancer problems weaken him politically enough to the extent that he or a successor loses the 2012 elections, the most important implication for the industry would be the ensuing power struggle for control of PDVSA.
The company has purged opposition supporters, hired tens of thousands of party loyalists and taken on a vast array of social programs that are closely linked to Chavez’s leftist revolution and a crucial component of his electoral success.
Efforts to shift PDVSA’s focus from social development to profit would likely spark a pitched battle much like Chavez’s own turbulent crusade nearly a decade ago to take control of the industry. That triggered two PDVSA strikes, civil unrest and the acrimonious dismissals of thousands of employees.
Opposition leaders, recognizing the popularity of those social programs, will be cautious about scaling them back.
But faced with PDVSA’s growing debt burden and flagging oil output, they would need to boost operational efficiency at the company. That would likely put them on a collision course with thousands of employees whose qualifications are more political than technical.
Because the opposition has not yet chosen a candidate for the 2012 election, oil policy in a post-Chavez era is still uncertain.
The opposition bloc has said it would consider privatizing companies that are currently in state hands if it won the vote, but this may focus on less important industries such as cement or certain food businesses that Chavez took over.
Some would likely argue that Venezuela should follow the lead of neighboring Colombia, which has boosted oil production by welcoming foreign funds, loosening regulations, lowering taxes and creating a streamlined hydrocarbons agency.
But Venezuela’s deep-seated resource nationalism strengthened under Chavez would make such efforts to woo private oil companies a political liability for a new government, meaning broad scale changes to the country’s high-tax state-controlled model would not necessarily be immediate. (Editing by Pascal Fletcher and Marguerita Choy)