Venezuela Claims World's Largest Oil Reserves

| Feb. 17, 2011 |

Published by Minyanville

Venezuela claims it now has the world’s largest proven crude oil reserves, after the leftist South American nation added 86.41 billion certified barrels to its stockpile, taking its total to 296.5 billion barrels. Saudi Arabia is estimated to have 267 billion barrels. The petroleum sector makes up roughly a third of Venezuela’s GDP and 80% of total exports, so the news is a boost to the country’s economy.

However, the government is attempting to cut at least 100,000 barrels a day of domestic fuel consumption, because it loses $1.5 billion a year subsidising the cost of fuel, making it the cheapest in the world. Filling up a large car costs about a dollar here, with gas costing around $0.12 per gallon - frozen for the past 12 years.

"Know this: Every time you fill a tank of gas... the government is subsidizing 90% of what that gasoline actually costs," Chavez said on Sunday during his weekly Alo Presidente! TV programme.

The amount of fuel used by Venezuelans in 2010 rocketed as power shortages forced the country to use oil for electricity production.

The state-run oil company Petróleos de Venezuela (PDVSA) saw net profits total just under $3.5 billion, an increase of 35% between January and September 2010, compared with the same period in 2009, as oil prices went up and usage increased. Sales in the country dropped to less than 1.5% of total sales.

PDVSA is also expected to suffer cash flow problems because of political favors from the Venezuelan government to Cuba, various Caribbean countries, and China. Barclays Capital (BCS) expects PDVSA to not receive up to $10.7 billion in 2012 and $9.4 billion in 2011 because of the export conditions imposed by the government, including the offer of a 50% disount to the Caribbean countries.

In 2010, PDVSA spent $13 billion on social programs in Venezuela, according to Rafael Ramirez, Venezuelan oil minister and head of the company.

President Hugo Chávez’s hasty nationalization may cause a further loss for PDVSA’s coffers as John Wood Group (WG) has filed an international arbitration request that seeks about $100 million in compensation for assets seized in 2009. PDVSA took over assets of the company, and others, as Chávez ordered the nationalization of service firms operating on Lake Maracaibo.

Socialist Outreach: Venezuela and Cuba have set up a new undersea fiber optic internet cable across the Caribbean, allowing Cuba to "reinforce its sovereignty", according to Cuban Information and Communications Minister Medardo Diaz, following "the genocidal blockade imposed by successive American governments."

The cable is valued at $70m and runs 1,600 km from Camuri, Venezuela, to Santiago de Cuba, Cuba. It will become operational in July, allowing a connection of 640 gigabyte per second and data transmissions 3,000 times faster than currently in Cuba. Venezuela is financing the cable, laid by French company Alcatel-Lucent SA.

The cable also reached Jamaican shores on Tuesday, with Venezuelan officials hoping to connect the entire region.

Testy Times: However, relations with Colombia are not so strong, despite efforts to bring the two countries closer together. Chávez and his Colombian counterpart, Juan Manuel Santos, signed an agreement in November seeking to boost commerce. However, the head of the Venezuelan-Colombian Economic Integration Chamber, is not impressed.

"Commerce has been falling due to restrictions on free trade," Daniel Montealegre told the LA Times. “In order for commerce to flow freely again, obviously trust regarding debt payments must first be created.”

Trade between the countries totalled $1.68 billion in 2010, down 63% from 2009. Total commerce in 2008 topped $6 billion.

The Gold Inflation Matrix: Inflation is hitting Chávez’s Venezuela hard, up 25.01% in one year. Wages have not followed suit, with the Workers' Center for Documentation and Social Analysis (CENDA) claiming that a household now requires four minimum wages to meet the most basic needs.

The cost of the household basket of food, good and services in January amounted to $1,174.73 (at the official exchange rate of VEB 4.30 per USD). This is up 1.5% compared to December 2010, when it rose 0.9% compared to November 2010. The figure is a 25.01% rise since January 2010.

Venezuela’s central bank gold reserves increased 12% in the second half of 2010, while reserves in foreign banks fell 37% in the same period. Gold reserves in the country were worth $9.86 billion in December 2010.