Venezuela Has to Pay Debt and Protection Money and Has Declining Oil

Venezuela will struggle to produce 1 million barrels per day through 2019. The IMF and most other analysts expect the reported November production of 1.137 million barrels per day to drop by 18% or more. Oil production is currently falling at 50,000 to 100,000 barrels per day each month.

Venezuela Has $600 Million to $1 Billion Each Month to Manage Problems

Every 100,000 barrels of oil per day is about $1.4 billion per year or $120 million per month. Oil is at $50 per barrel but Venezuela cannot get market prices. They have costs to refine their heavy oil to more valuable lighter oil.

Venezuela had domestic oil consumption of 450,000 barrels per day and they have to make oil shipments to Russia, China and Cuba for debt repayment and security services. This is basically protection money.

Venezuela needs at least 200,000 barrels per day internally. They have to run the military and police. Russia, China and Cuba have to be paid or Venezuela’s security (aka prevention of a coup) will be crippled.

Venezuela has made several settlements to pay several debt holders to prevent the seizure of its US oil refinery assets and other foreign assets.

PDVSA paid $500 million in the fourth quarter of 2018 and will pay off the remaining $1.5 billion plus interest quarterly over 4.5 years.

In November, Venezuela paid an initial $425 million to Crystallex, which will suspend all enforcement efforts until at least Jan. 10. Venezuela will have to post collateral to secure the balance, which will be paid in installment by early 2021. Crystallex will still get another billion plus interest.

If Venezuela misses any one of the $500-700 million per year in settlement payments they will lose $8 billion in Citgo refinery assets. Losing Citgo would cripple Venezuela’s ability to convert oil into cash.

It seems there are at least 400,000 barrels per day of must pay internal or external obligations for Venezuela. Venezuela is already past the point of a long-term sustainable situation.

Rebuilding their oil production capacity will take years and require tens of billions in investment and competent foreign workers and companies.

US Sanctions prevent any more debt issuance and being in default means only countries with means of enforcement will deal with Venezuela.

Venezuela is borrowing another $5 billion from Russia in exchange for future oil. Venezuela owes over $150 billion to China, Russia, and others.

Venezuelan President Maduro will be inaugurated for a new six-year term on January 10, 2019.

How Much Would Russia and China Be Willing to Pay to Prop This Up?

Below 400,000 barrels per day then Venezuela would miss payments and lose control of Citgo.

53 thoughts on “Venezuela Has to Pay Debt and Protection Money and Has Declining Oil”

  1. I also believe that economy, fashioned after the failed Castro-communist model, cannot support itself even by its own weight, so to speak.

  2. There is more to Syria and Russia: Syria traditionally after Egypt, was the largest Soviet/Russian client for weapons, Putin would not like to give that up. Furthermore, if Assad prevails, Russia has access to the Mediterranean Sea, well worth supporting Assad for.

  3. Venezuela is Castro-communist and a Cuban satellite. Furthermore, it is a place from which hizballah and Iran can launch spies into the western hemisphere (a few Middle Eastern men, who speak neither English or Spanish have been stopped carrying Venezuelan passports). It is trully a lost country.

  4. Yawn. Screwing China out of CITGO assets is not ‘tearing up corporate (I don’t know where banks have to do with this law’, as it is but one case being effected. This happens all the time, even to US companies and creditors. Remember how Obama illegally screwed out GM bond holders in its bankruptcy to protect UAW employees and their pensions?

  5. So much for ignoring me.

    And you didn’t counter with how US wars are illegal in anyway. You couldn’t.

  6. That’s what you call a red herring JohnOlmes, it is a logical fallacy used when one wishes to distract attention away from a valid point.

  7. Yes it was “so bad”. That’s why they are still finding the mass graves Saddam planted.

    The US stopped that, almost exclusively by killing bad guys, and unlike all but anyone else likely to topple Saddam with intention of only killing bad guys.

  8. But Venezuela does have the world largest deposit of heavy oil. Might be worth propping up a puppet government just to get access to it.

  9. There will never be an easy way out. But digging the hole deeper won’t make the problem easier to deal with.

    The problem with making yourself responsible for everyone’s well being is that when things go south you are screwed.

    So the way out is to tell the people that you can’t afford it any longer and you are going to cut them loose.

  10. You can try and collect compensation. Maybe internationally since Venezuela does have assets outside the country.

  11. There is always a buyer if the price is low enough.

    BTW, What civil war? There isn’t a religious or ethnic division to cause it.

  12. Venezuelan oil sent to China, Russia or Cuba is not “sold” …
    If you lean and think a little bit you will avoid falling into that simplistic and tendentious kind of presumption…

  13. CITGO has its refineries OUTSIDE of Venezuela. In a country called the USA actually.
    A country where debts can be called and forfeit assets seized.
    Unless the USA decides that maintaining standard commercial law is less of a priority than annoying the Chinese. Which is a possibility, but that isn’t going to happen until the relations are much, much worse than currently.

    Right now, if the US government has a choice between maintaining current legal procedures, and helping China a bit while bringing down Venezuela, OR
    tearing up current corporate and banking law, which causes a Global Financial Crisis 2: This time it’s definitely the USA’s fault, while pissing off China and helping out Venezuala,

    well, why would they go for option 2?

  14. Mark Twain usually said: Never argue with an idiot. They will only bring you down to their level and beat you with experience.
    I will ignore you from now on

  15. Countries do rebel against dictators. Ceaucescu anyone?
    But there should be a good alternative
    If the alternative is Iraq or Afghanistan, it is better to stick with Maduro
    Venezuela in 2018 is still much better than Iraq in 2003 .

  16. Hover over your comment, see the arrow pointing downward in the upper left hand corner of your comment, click it, click edit.

    Comment system is actually pretty good.

  17. The Russians and Chinese are throwing good money after bad. Venezuela WILL default on everything. Eventually it will crash and there is no way either the Russians or Chinese can deal with a wholesale guerilla war a la the Contras. The best thing the South American countries can do is default on Chinese debt. CITGO is going down no matter what and no one from Russia is going to control it. If the idiot bondholders could get their act together they could bring Maduro down in a year.

  18. How did the US ‘illegally’ invade Iraq?

    The US can invade whatever country it wants to and it is all legal when it does. “Other people/nations disagreeing” does not equate to ‘illegal’.

  19. Is it true things are bad in Venezuela? Why don’t you go there and check it out ?

    I have family there. It’s worse than the news reports.

  20. It is hard to collect physical assets in a foreign country that is in the throes of collapse unless you are going to send in the troops. Sending in the troops is more expensive than writing off the physical assets.

    In other words Russia and China are throwing good money after bad money. There is no return on investment for them because Venezuela is collapsing.

  21. That life was good before Chavez and Socialism and that people who had relatively peaceful lives have been reduced to starvation and selling their bodies.

  22. Chavez and his policies were incredibly popular, even among the currently exiled. No wonder given he wasted huge amounts of money from the huge oil bonanza in demagogic gifts to his political clientele.

    Opposition was never big there, until the money started running out and they found out that the democratic institutions were just a hollow husk, barely enough for keeping the appearance of democratic rule.

  23. Yep. I love my country as much as anyone but the US needs to stay out of this. Let the Russians prop up Saddam 2.0. He might brutal, but he is a stabilizing force and that’s what they need.

  24. No, there isn’t any easy way out. The system as it is isn’t propped up only by price fixing and bureaucratic salaries alone. They are far past that.

    Now there is a whole lot of people receiving kickbacks and privileges from the government to remain loyal. Mostly those with the guns and those who spy and murder dissidents.

    It’s only when these people start feeling the hunger and become endangered by the shrinking heap of other people’s money, that the system will fall.

  25. More likely, most of the people that would rebel have either been killed, have fled the country, or are too weak from starvation to do anything about it.
    In short, the Venezuelans waited too long. They had faith in their democratic institutions, and by the time Maduro rewrote the constitution, it was just too late.

  26. One of the many problems with governments, is that when they declare bankruptcy(default on bonds), they don’t liquidate.

  27. You mean when Russia came to the aid of it’s ally, when it was attacked by US backed proxies? I think it’s pretty clear Syria’s problem with ISIS began before Russia became involved.
    I doubt Trump will intervene. It’s much better to let the South Americans handle the problem, besides, it illustrates better than anything else could the folly of socialism. It’s a shame there needs to be an example, considering there are plenty of historical ones.

  28. Canada, and California produce heavy crude. I’m sure the cracking units are being kept busy.
    Is the fact the three places that produce lots of heavy oil, Venezuela, California, and Canada are all bastions of socialism a coincidence, or does heavy oil attract people who endeavor to live at the expense of others?

  29. Generally, oil from the Orinoco belt has high sulfur, and relatively long hydrocarbons, meaning it is “heavy”. US refineries adapted to processing it, mostly through the development of “catalytic cracking units” that broke the long hydrocarbons allowing the manufacture of more gasoline, kerosene, and #2 fuel oil from it. When Venezuelan oil importation stopped, it caused real problems for the refineries designed to process heavy oil. I seem to recall that for a period, heavy oil sold for more in the gulf coast market than light crude, the opposite of the usual state of affairs.

  30. I had a close friend from Carabobo, Venezuela in college. We were students in the early 1980’s, salad days for oil producers in general, and Venezuela in particular. Irma had enrolled in school here, to learn English, and was majoring in business administration.
    She was a warm kind woman, and fit the Venezuelan stereotype of the gorgeous might as well be a Spaniard middle class woman. I was amazed to learn that she was the ugly, well, less pretty sister, when I saw a photo of her sister.
    I’ll never forget the day she came to me with tears in her eyes, because her checkbook had been stolen, and she had no idea what to do. I asked her if she had her passport with her, and since she did, we left for the branch of her bank she usually used immediately, over her protestations.
    On the way, I explained that if we got to the bank, and changed her account number before the bank got any forged checks, things would be much easier for her. We found a bank manager, I explained the situation as I knew it, and then retired to the lobby.
    Her dad was a dentist, and her family had it very good. I shudder to think what they are going through. I imagine her dad’s practice has been decimated by fixed prices that do not cover the cost of providing the service. I’m thankful she is still in the US, and can send them help. This is a case where I’d support chain immigration.

  31. If Venezuelan oil sold to China, and Russia qualifies as protection money, then oil sold by Saudi Arabia to the US(corporations) is protection money too! What’s sauce for the goose, is sauce for the gander.

  32. If Venezuela had not become a socialist basket case, the shale oil people would really be in trouble! Imagine what the price would be with 2 million barrels more per day being produced.

  33. Who, exactly, would buy state buildings in a state that is running out of money and political stability?
    At best you’d get a tenant that would stop paying rent in a couple of months, because what are you going to do about it? They are the government, you can’t physically kick them out.
    At worst the building you just bought gets burned and looted in some civil war.

  34. And would a Venezuelan sour heavy oil refinery be able to compete on price with the existing US refineries, which have the advantage of lots of light sweet oil to blend the heavy sour stuff with.
    Even if someone could build another refinery, if they can’t compete on price with (existing, probably amortised) US refineries then they would be better off selling the oil to the USA, even at the lower price.

  35. Actually, propping up Assad in Syria was in order to get rid of ISIS which has been there since a country (which one?) illegally invaded Iraq in 2003 . There was no or much smaller problem with Assad and war in Syria until that country messed things up . Children with the big guns

  36. Everybody speaking bad things about Venezuela, still Venezuela does not collapse and there is no revolution.
    Which makes me think.. Is it true that Venezuela is doing so bad?
    Probably Venezuelans have been seeing what happens when the US “helps” other countries like Iraq, Afghanistan and Haiti and Panama, they all end up badly.
    So better stay with Maduro. I would say this makes sense
    Better to have pain in the buttocks Maduro than cancer US

  37. Uggg… hate this new system for posting. Where is the edit!? My last sentence should have read: “No sympathy for coveting mobs who are stealing while pretending it is in the name of fairness.”

  38. Yep. I have a Venezuelan coworker that cannot stand the system that was voted into power.
    A bundle of lies sold at the expense of handing over more power.

  39. Probably not? The critical issues here would be where are those Citgo refinery assets (within Venezuela?), and whether china or russia have the ability to share and support sour oil processing technology. Though, if either china or russia already had such technology, what are the reasons behind why they haven’t already shared it? Is it to keep Venezuela as a client state, forcing refining abroad and keeping the tech out of the hands of Venezuela? Is the cost/time to setup a russian or chinese sour oil tech based refinery too large to start now? Are those technologies compatible with the current Venezuela refineries that already process sour oil (in the sense of retrofit)?

  40. I feel bad for the Venezuelans who tried in the beginning to stop Chavez, but hold zero sympathy for all the others that bought into the lie of Socialism. Socialism’s “promise” is that you can have an easy life by allowing the government to steal the wealth of others. No sympathy for coveting mobs who pretend to be stealing in the name of fairness.

  41. Reduce spending by doing the following: Reduce payroll by having people only work a few days a week. Reduce the social net payments.

    Increase revenues: Auction oil reserves. Auction state buildings. Auction state industries and then tax them.

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