We informed you about the state of the oil industry in Venezuela in an earlier article. In addition to older equipment and lack of investment, the entire industry is also severely affected by US sanctions.
While 10 years ago Venezuela was producing 2.9 million barrels of oil per day, this year it is only 679,000 barrels per day.
There is now a slight easing of sanctions, which could benefit both Venezuela and the individual companies operating there. One of them is Chevron, which had to stop its mining activities almost three years ago because of the sanctions.
The sanctions were eased after Venezuelan officials agreed to the resumption of political talks between President Nicolas Maduro and his opposition. Indeed, Venezuela’s return to negotiations was a key condition for easing the restrictions on oil production in that country.
Previous talks between Maduro and the opposition failed and negotiations broke down last October. Now, however, Venezuelan officials also realize that they have to do something about the situation, as they face stiff competition from Russian and Iranian oil in their main export market, Asia.
Chevron Corp. received permission to drill again
The Biden administration has now granted Chevron Corp. permission to resume oil production in Venezuela. This production license is valid for 6 months and although the company is not allowed to drill any new wells, it will be able to perform maintenance and exploit older oil fields.
Chevron can also resume its oil exports at the same time, which will primarily go back to the US.
Will this help to alleviate the current energy crisis?
While this news is positive for the oil and petroleum products market, it is most likely not going to help solve the current energy crisis. After all, Chevron has not historically produced huge volumes of oil in Venezuela.
Moreover, all the maintenance and restoration of the fields take a long time, so the promised six months will not be decisive. But it is a good start to further sanctions relief and bigger talks on the Venezuelan side. So we will see how the situation continues to develop and whether there will then be an extension of the license and an improvement in the whole situation.
It is, of course, good news for Chevron. At the same time, it is also good for shareholders, because it will give the company a little bit more diversification in terms of production again.