Statistical battle II: Venezuela oil output

After a half-year of hemming and hawing, here at last is statistical battle II. A refresher: Venezuela is a land where there often appears to be no objective truth. There are often two ways of seeing a situation, both of them defensible with evidence, and both backing people’s self-interest. Venezuela’s oil output is like that. There have been innumberable attempts to estimate the real number, or prove that the government is telling the truth, or prove that the government is lying. Here are a couple examples from the last few days. On the one hand, Barclays Capital says (PDF) the government number is pretty close to the truth:

Another method is to compare what Venezuela reports about its level of exports and what the rest of the world reports that it is importing from it. We did this exercise with data for 43 countries from the United Nations commodity trade statistics database for 2005-09…we do not find a major deviation from the official export data published by Venezuelan institutions.

The problems are, first, the ad hominem: they are Venezuela perma-bulls. This is at least the second time they have released essentially the same report. While I didn’t see any problem with the first one, they don’t recognize the changes we saw in 2010. Which is related to my second critique, that they routinely interpret data in ways that give Venezuela the most possible exports. For example, they assume that all the oil going to the Hovensa refinery in the U.S. Virgin Islands is from Venezuela. U.S. Energy Department data show that in Jan-Nov 2010 (December data not released yet), Venezuela provided only 56 percent of the oil there, or 228,000 barrels a day, down from 271,000 barrels a day in 2008. Similarly, Barclays uses 2008-09 numbers for Curacao, even though the PDVSA refinery there was shut down for almost all of 2010. (Oh and Barclays — if you need some help identifying the other countries that provided oil to Hovensa, let me know. My rate is cheap and I have the spreadsheet up on my screen now.)

And then there’s Merrill Lynch, cited here in El Nacional (my translation), saying that the country is only selling a million barrels a day at full price and its total exports are in collapse:

The official oil export goal for 2011 is 2.6 million barrels a day, but Bank of America-Merrill Lynch warns that in a best-case scenario, external sales will reach 1.8 million barrels a day.

All of which is compromised by the fact that people have been talking about Venezuela’s impending economic collapse for so long that it’s simply boring.

The last time I asked readers for thoughts on this I got the usual mix of well informed oil professionals who doubt the Venezuela numbers but have little basis for estimating their own figure, pro-government foreigners who say there’s nothing wrong with the official numbers, and a few people asking “who cares?” There are a few really top analysts out there who have studied the matter impartially and tend to always say the same thing: “not as much output as the government says, but not as bad as OPEC and the secondary sources say.”

One of the big problems is that there is so much room for fudging in oil numbers. Oil “from Venezuela” can mean many things to many people. It may have come from any number of places to Venezuela. Venezuela is careful to report all its exports, but may not be so diligent about imports. There was the intriguing note in the Wikileaks cables saying that Venezuela re-imports oil without reporting it, though I find the sourcing on that cable to be suspect at best. There’s also this issue that PDVSA oil doesn’t necessarily come from Venezuela — the company has an agreement with Ecuador, for example, to swap crude for diesel; obviously it’s easier to take the crude and sell it in the higher-price Pacific basin than ship it to Venezuela, process it and physically send back the same carbon atoms as oil products.

And finally, I don’t know if any of the oil reported as coming from Venezuela is diluted with oil from elsewhere at some point in the supply chain, and I don’t know how good customs agencies are at disentangling mixed loads. So there may be ways for PDVSA to look more productive than it is — even with the monthly audits it is providing.

My inclination is to say, screw it. I don’t care about the absolute number. What matters to me is the trend. Is Venezuela oil output growing, shrinking or staying the same?

Sadly, even on this, the different sources disagree — and not in the way you would expect. A lot of people use the OPEC estimates of oil output as a starting point. Here’s what they see in the last couple years in Venezuela:

OPEC monthly estimates and trend

whaaaaa?

The regression line on their numbers shows an average increase in oil output in Venezuela over the last couple of years. Their estimators claimed that Venezuela originally complied with OPEC cuts and then went out of compliance, and output ended up rising, before falling slightly in recent months. Suddenly OPEC is the only organization in the world that says Venezuela’s output has been rising.

Meanwhile, Venezuela provides a monthly report of its audited oil exports and imports. This audit is rather superficial, but it’s better than nothing — a reputable company, Inspectorate, reads over the bills of lading for oil tankers at Venezuelan ports, tallies up how many barrels came and went, and provides a report. They warn that they can’t vouch for the accuracy or completeness of the bills of lading, but they say (in as many words) that they don’t see anything obviously suspicious.

So what do their tallies show?

OPEC monthly estimates and trend

hmmm

A pretty steep decline. Now, these are just exports. If domestic sales are increasing — perhaps to sell fuel oil and diesel to power plants — that will accelerate the decline in exports. Except, not all that much. Venezuela is now also providing domestic sales figures.

Venezuela output from all sources

Ok then

The lines in the upper right corner show Venezuela’s total sales: Exports plus domestic sales. The first conclusion here is that OPEC still looks like a low number. Venezuelan officials would have to find a way to boost their output figures (or hide import figures) equal to about a quarter of the country’s claimed output in order for OPEC to be right.

The second conclusion is that total sales are falling. The regression line shows sales declining every month by an average of about 10,000 barrels a day. I see no immediate reason this trend will change. The next big output-boosting projects to come on line will be early production in the new Carabobo and Junin projects, which will each pump 50,000 or so barrels a day. Here’s Eni saying they expect to start early production in 2013. Petrovietnam and Chevron are also supposedly racing to get production underway. But none will be producing this year, and it will take a very coordinated effort to pump new oil next year. But a year from now, if this trend keeps up, the early production will only bring Venezuela back to the level it’s at now.

So that’s my take. I don’t know the exact number, but I think that Venezuela’s self-declared decline of 10,000 barrels a month is probably a good starting point for analysts to work from. As far as the real number, I like the idea that the two figures — the outside and Venezuelan figures — are somehow “converging asymptotically on the truth,” as one outside oil estimator put it to me a few months ago when I interviewed him about the trends.

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17 thoughts on “Statistical battle II: Venezuela oil output

  1. Kepler

    Hi, Setty. That’s a neat attempt at trying to find Da Truth.
    Still, I think you need to take into account all this:

    1- oil production and prices (prices which have been going up since 1999 as no one, not IEA, not Mandrake and no one else expected)
    2- our very Venezuelan “sensasión de bienestar económico” or “it’s not that bad”
    3- Venezuela’s economic sustainability (as in “not having to pawn grandmom’s golden teeth or Venezuelan girls to the Chinese”)

    Many people thought the economy would implode soon because they – very stupidly – did not count on 1) oil prices going up (26%> last year alone, at least for OPEC basket) and 2) Chávez
    making deals no matter what just to secure cash for the hic et nunc, like the ones he did with the Chinese last year.
    This will hunt us big time.
    My question: is a country’s economy fine if the country has cash, even if it one chicken of the golden eggs is dead and the eggs of the other chicken are to be sold at half the price for 20 years?

    I don’t believe in an absolute economic collapse for at least 5 years, unless the almost impossible happens and prices go to the cellar (<$50) for two to three years in a row.
    All things being equal and prices going up only 10% per year, I believe Venezuela will just keep deteriorating very slowly on the surface…but very dramatically inside.
    The country is collapsing, but little by little.

  2. westslope

    There was a news story a couple years back talking about Venezuela double-counting re-exports. Whether the story was accurate or the purported fraud was intentional or simply an innocent accounting mistake — I have no idea.

    OK, setti, you have managed to unsettle me here. This is the very first time, I have read something by a journalist who concludes a blog post by referring to the concept of assymptotic convergence. You must entertain a large number of engineers and financial officers as readers and perhaps clients.

  3. sapitosetty Post author

    Yeah I have always been a fan of the re-exports theory — that oil goes to, say, Bonaire and then isn’t counted again when it’s repatriated. But there are two problems with this theory:
    -The gap is 20-25% of monthly production, hundreds of thousands of barrels a day. It would require a lot of expensive, easily detected tanker movements, for what gain? To convince me and three or four other people, none of whom buy or rate bonds?
    -Venezuela is now giving data that shows imports, including those from Bonaire, so they’d have to be re-importing even more above what they report.

    So while this may account for some of the gap, I don’t see how it can cover very much of it.

  4. Francisco Toro

    Though as I think about it – y estoy tirando flechazos aquí so who knows – you could argue, as people like Asdrubal Oliveros does, that the key metric here isn’t volume but – at least from a Venezuelan fiscal standpoints – barrels actually paid for at market rates in the sense that so many of the petro-diplomacy agreements, long-term supply deals and non-standard financing vehicles mean that barrels shipped today may not actually mean extra dollars coming into the treasury in the near future.

    It’s this decoupling of oil sales from account receivables that really should give bond-buyers the hibbie-jibbies, no?

  5. Math nerd

    “The regression line on their numbers shows an average increase in oil output in Venezuela over the last couple of years.”

    Er…. Did you fail to notice that the only reason the trend appears (mathematically) to be going up was the gigantic dip at the start of the graph? Do the numbers starting after that dip and you’ll see that the trend goes downwards.

      1. An Interested Observer

        What month is that, and you do have any idea of the reason? It does seem like a tremendous outlier, although it does appear that the surrounding months are also lower than average. Or is that just the two months that follow, as production recovered? If you start just after that recovery, I’ll bet the trendline is pretty steady.

        I concur on the kudos for “asymptotic convergence,” though looking at graph 2, asymptotic doesn’t seem accurate.

        Re: Quico’s point on accounts receivable, yes, that is definitely the bottom line. But providing oil at discount rates may mean in many cases receiving 90% of the value (perhaps in NPV terms, rather than cash up front), which is too substantial to just ignore. So it’s barrels at market rate PLUS barrels at discount times some factor <1. If Venezuela is producing 2.25 mbpd, it's actually worth less than that.

  6. Roy

    Setty,

    I am no expert and this may be a vast over simplification, however…

    Since I think we can assume that all of the oil exported by Venezuela leaves by ship (I am discounting gasoline sold in Colombia and Brazil accross the borders), shouldn´t we be able to use international shipping records to figure out how much oil is being exported?

    Ships as big as oil tankers don´t move without leaving a paper trail a mile wide. It would be quite an exercise to identify all the tankers arriving and leaving Venezuela for a month or so, but it seems quite doable. What am I missing?

  7. Alek Boyd

    If, and this is a big one, Venezuela received exactly the same amount per barrel sold, regardless of end customer, we could, as Mr Oliveros argues, calculate total amount of exports. Problem is, Venezuela does not get the same amount for every barrel. I have been hearing since 2005 from traders in London that variable quantities of Venezuelan oil are regularly sold on the spot market. That is, of course, apart from the political deals whereby Venezuelan oil gets sent places and we get Cuban nurses, caraotas, or Nicaraguan votes in the OAS in return.

    All things being equal, another big if, we could calculate production from oil export as percentage of GDP, though this method is equally fallible. Then we have “production numbers” from JVs, and who can say those numbers are real, who audits? In my opinion, I reckon you, Inspectorate, Barclays, Merryl Lynch, Oliveiros, me, and everyone else having an opinion is merely speculating here. Everything is based on who said what when, someone told me, bla, bla…

    The numbers closest to the truth Ramirez has, and whatever these are he won’t tell for political reasons.

  8. dcisfun

    wasn’t there a big scandal in the press about Maracaibo’s refinery where oil amounts being pumped into tankers not being at all accurate? or something like that

    1. sapitosetty Post author

      Both seller and customer have inspectors on site checking tanker loads before departure. I think it would be hard to get customers to go along with that.

  9. Marcus Anonymous

    Setty,

    You still haven’t explained why both the EIA and IEA have underestimated Venezuelan exports. You’ve ignored them in this piece. Both organizations work hard to make sure that there numbers are consistent.

    But when you write:

    “Meanwhile, Venezuela provides a monthly report of its audited oil exports and imports. This audit is rather superficial, but it’s better than nothing .. They warn that they can’t vouch for the accuracy or completeness of the bills of lading, but they say (in as many words) that they don’t see anything obviously suspicious.”

    That’s not an audit, that’s a compilation. Any idiot with an adding machine can do that. If PDVSA wanted a real audit, there is nothing to prevent them from doing that: Let the auditor confirm that the bills of lading are authentic and accurate at the loading dock.

    Why even bother to mention the current charade? Trust everyone, but cut the cards!

    “Why, sometimes I’ve believed as many as six impossible things before breakfast.”——The White Queen, from Through the Looking Glass by Lewis Carroll.

    And finally, I know that a lot of deep conversion capacity has been built in recent years, but most refineries outside the U.S. can’t process heavy Venezuelan crudes profitably. So if you want to avoid selling to the U.S. you don’t have many choices. In fact, the latest IEA Monthly Oil Market Report shows the U.S. taking more of Venezuela’s heavy crude. Has Venezuela been lightening its barrel recently? To believe that Venezuela has found all these refineries that can take its oil requires me to believe lots of implausible, if not impossible things.

  10. sapitosetty Post author

    I’m not ignoring them, I am including them under “OPEC,” which is an average of several outside estimates including EIA and IEA.

    I “bother to mention the current charade” because it shows a monthly drop of 10,000 barrels a day. This is interesting.

    I’m not sure about the API of the Venezuelan exports, but it’s possible that it’s lightening. More and more of the oil is coming from the east side of the country, from the Orinoco upgraders and the Puerto La Cruz port, indicating that Furrial and other eastern reservoirs are being tapped full-tilt.

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