Elections, sanctions and the future of oil and gas in Venezuela

José Chalhoub, a political risk and oil and gas consultant for Venergy Global and Orinoco Research, tells BNamericas why he expects a new era of pragmatism in relations between Washington and Caracas and what it will mean for the South American country's long-suffering hydrocarbons sector.

BNamericas: Earlier this month, UK-based subsurface data provider Geoex MCG signed a contract with Venezuela's oil ministry for a multi-client offshore seismic project. What does this mean for Venezuela's oil and gas sector? Could it jumpstart investment?

Chalhoub: I can tell you that it's part of a positive trend in the gas sector. Natural gas production in Venezuela has been tremendously impacted by sanctions and a lack of investment for 10 years or more. The priority has been oil production. 

We've seen in recent weeks that, after years of disputes over maritime borders, [Venezuelan state oil company] PDVSA and Trinidad and Tobago are seeking to cooperate in the natural gas segment. Even BP is attracted to these opportunities, as we've seen with its interest in developing the shared Manakin-Cocuina offshore gas field. The sector is awaiting Washington's decision on whether to continue sanctions, which is expected on April 18. That will be crucial to what follows in Venezuela.

BNamericas: Geoex MCG said the contract would pave the way for a licensing round schedule, without providing details. Do you think Venezuela could hold a licensing round for oil and gas blocks any time soon?

Chalhoub: If you asked me this question two years ago maybe I would have said no. I was tremendously skeptical about the future of Venezuela's oil industry and its production, which collapsed from 3.3 million barrels a day to less than 1 million barrels a day. The fall was acute and the recovery has been slow. There have been no new licensing rounds and new exploration drilling has been limited.

But the signs are now much more positive. It's my personal view that there will be no reimposition of sanctions at least before the US presidential election. The Joe Biden administration won't want any negative shocks to gasoline prices, which could become a political problem. There is also the issue of US companies with interests in Venezuela. Maybe a licensing round won't happen this year but it could occur in 2025. 

BNamericas: Which companies could be interested in participating in an offshore licensing round in Venezuela? Repsol, Eni or even Ecopetrol, perhaps?

Chalhoub: Repsol and Eni are examples of companies that are more familiar with Venezuela because of their existing assets in the country. [Colombia's] Ecopetrol is facing a natural gas deficit and needs to find new sources to guarantee supply so it could be another possible participant. There are also Shell and BP. These companies would also be able to assist in building the necessary infrastructure to bring the gas to market. 

BNamericas: What about beyond the US election in November? Do you think sanctions will be reinstated by Washington?

Chalhoub: There is a group of US investors that are seeking opportunities in Venezuela and lobbying against the reimposition of sanctions. Maybe Washington will go tit for tat with [President Nicolas] Maduro. Perhaps the view will be that if Maduro wins [Venezuela's presidential election in July], it won't matter, as long as he keeps siding with the US. In this way the current sanctions scheme could be maintained but the Venezuelan government would have to soften its alliance with China, Russia and Iran. Maduro has been seeing the economic benefits of increased oil production so if he wins, he could be open to saying, "I'll give you this if you give us that."

BNamericas: So you expect a more pragmatic approach to Washington-Caracas relations going forward, regardless of the countries' respective presidential elections?

Chalhoub: Considering the current global oil market, I think so. We've seen that Venezuela can lift production with the help of Chevron and other private companies. PDVSA is different under Pedro Tellechea [appointed company president in January 2023]. The company looks to be back on track, resuming investments and recovering oil production. 

Everybody knows who will win the Venezuelan election. I don't believe that anyone thinks Maduro won't get another six-year term. If [former US president and current Republican frontrunner] Donald Trump is elected, I don't think he will repeat his previous strategy when he warned of an armed intervention.