Who-d a-thunk it? Socialist Venezuela has world’s largest oil reserves and it goes from oil powerhouse to oil importer?

From Mark Perry of "Carpe Diem".

"World oil prices have risen from less than $10 a barrel when Venezuelan president Hugo Chávez took office in 1999, to about $100 a barrel today. And yet despite that ten-fold price increase (“the greatest oil price bonanza in recent history”) and the world’s largest oil reserves, Chávez and his successor Nicolas Maduro have managed to destroy Venezuela’s oil industry, according to Miami Herald syndicated columnist Andres Oppenheimer. For example, oil exports from Venezuela have fallen by more than 44% from a peak of over 3 million barrels per day in 1997 to below 1.75 million barrels per day in each of the last four years (see chart above, EIA data here). And now Venezuela is about to start importing crude oil for the first time ever.

Here’s an excerpt of Oppenheimer op-ed “Venezuela: From Oil Power to Oil Importer“:

As weird as it seems, Venezuelan President Nicolás Maduro’s government plans to start importing crude oil for the first time in order to blend it with Venezuela’s own crude and keep the country’s overall production from falling further. It turns out that Venezuela’s own production of light crude oil has plummeted since the late President Hugo Chávez took office in 1999, and the country desperately needs light crude oil to blend with its Orinoco Basin extra heavy crude oils. Without such a blend, the Orinoco Basin’s extra heavy crude is too dense to be transported through pipelines to Venezuelan ports and exported abroad.

Venezuela’s oil production, which accounts for 95 percent of the country’s export earnings, should be used in world classrooms as a textbook case of what happens when a populist government starts distributing a country’s wealth in cash subsidies, without investing in maintenance and innovation. Much like what happened with Cuba’s once flourishing sugar industry, Venezuela’s Chávez-inspired populism has destroyed the goose that laid the golden eggs.

In 1999, when Chávez took office, Venezuela’s state-owned PDVSA oil company had 51,000 employees and produced 63 barrels of crude a day per employee. Fifteen years later, PDVSA has 140,000 employees, and produces 20 barrels of crude a day per employee. Venezuela’s net oil exports have plummeted from 3.1 million barrels a day in 1997 to 1.7 million barrels a day in 2013 (see chart above).

The Venezuelan government desperately needs to speed up oil exports to get cash, because the government is bankrupt. Inflation has surpassed an annual rate of 60 percent, and Venezuela will be Latin America’s country with the lowest economic growth this year.

But to speed up oil exports, Venezuela needs to blend its heavy crudes with lighter imported crudes, because Venezuela is no longer producing enough light crudes of its own. Production of light crudes has fallen because of lack of investments, abandonment of exploration of light crude areas, and the nationalization of companies that used to help produce light crudes. So, while the government has already been buying refined products to blend with its heavy crudes, it will now be forced to import light crude oil from Algeria.

MP: As I concluded in my 1995 article Why Socialism Fails, “The main difference between capitalism and socialism is this: Capitalism works.”"