Venezuela to Propose Reduced Oil Production at OPEC Meeting

October 24, 2008 12:00 am Published by Leave your thoughts

Venezuelan President Hugo Chávez announced Sunday that Venezuela will propose that the Organization of Petroleum Exporting Countries (OPEC) reduce oil production to maintain oil prices amidst a drop in demand caused by the world financial crisis. Chávez also announced that Venezuela is expanding its natural gas production, and is on course to having the world’s fourth largest proven natural gas reserves.

“Our [government’s] position for more than ten years has been that we must maintain control over the price of oil. Now that the prices are falling, we come with the proposal to reduce production,” said Chávez.

Venezuelan Finance Minister Alí Rodríguez Araque reiterated Chávez’s announcement. “Production is what will determine the price of oil’ it is probable that because of the drop in demand, OPEC will take some action, possibly reducing production,” said the minister.

Rodríguez attributed falling oil prices to lack of confidence in world markets and a drop in demand from the United States amidst the world financial crisis.

At an extraordinary OPEC meeting this Friday aimed at dealing with the world financial crisis, Chávez will also propose that the price of a barrel of oil be stabilized between $80 and $100.

Nonetheless, Chávez reiterated that the “Bolivarian Revolution” he leads will not be pulled down by sinking oil prices, because his administration has taken measures to promote sovereign state control over the oil sector.

“Fortunately, we have developed our own system of production, distribution, and financing. You put the price of oil at $60, and I’ll tell you Venezuela won’t be affected,” said Chávez.

Last year, the state oil company PDVSA purchased a 60% controlling share in all Orinoco Oil Belt exploitation projects, in accordance with the national development plan that Chávez presented after being re-elected in December 2006.

Also, last April, the Venezuelan National Assembly enacted a 50% tax on every barrel of Venezuelan oil sold for more than $70, and a 60% tax on every barrel sold for more than $100, to boost national reserves and provide funds for social programs.

When Venezuela hosted an OPEC summit eight years ago, Chávez proposed that the price of a barrel of oil be stabilized between $22 and $28. Earlier this year, prices soared to more than $140, and have since fallen to less than $70 amidst the world financial crisis. Venezuelan officials attribute the sharp price increase to growing demand from India and China, the United States’s invasion of Iraq, and threats against Iran and Venezuela, investor speculation, and lack of investments in the oil sector.

Gas Reserves

Meanwhile, Chávez announced plans to expand Venezuela’s natural gas production.

“We are on course to 200 trillion cubic feet of gas [reserves] nation-wide, with which Venezuela is on course to be fourth place worldwide in proven gas reserves,” the president declared during a visit to the construction site of the Northwestern Gas System (SINORGAS) that PDVSA is building in the state of Sucre.

SINORGAS includes a new 472 kilometer pipeline that is 25% finished and is projected to pump 950 million cubic feet of gas per day for both domestic and industrial use.

Currently, private companies that produce small gas tanks meant for individual homes have a virtual monopoly on gas for domestic use. The government plans to pipe gas directly to homes, avoiding gas tanks altogether, Chávez announced.

SINORGAS will also supply gas to power at least one of the 21 local electricity plants the government plans to construct next year to help Venezuela become less dependent on hydroelectricity.

More than 70% of Venezuela’s hydroelectricity is produced by the Guri dam in southeastern Venezuela, which has suffered generator failures that caused two massive power outages so far this year.

During a visit to Russia last month, Chávez and Russian President Vladimir Medvedev announced that PDVSA and Russia’s Gazprom will jointly exploit Venezuela’s natural gas reserves.

According to Chávez, natural gas production is part of the “gas revolution, which at the same time is part of the energy revolution and the economic revolution and, finally, the Bolivarian Revolution.”

Moreover, the government is expanding national production of petroleum-based chemicals to manufacture industrial fertilizers, plastics, polyester clothing, PVC pipe for housing construction, cosmetics, detergents, car tires, furniture, cars, airplanes, and more, “because petro-chemicals have a thousand uses,” said Chávez.

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This post was written by James Suggett

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