New scheme for OPEC would make Venezuela’s oil reserves world’s largest
There’s some big stuff happening in Venezuela these days. In an interview with the BBC, President Hugo Chavez announced a bid that could change the entire world oil situation. He wants OPEC to set its long-term oil target price at $50/barrel. Why? At $50, large portions of Venezuela’s copious heavy crude in the Orinoco Tar Sands become economically viable, and Venezuela’s official oil reserves automatically skyrocket to 312 billion barrels — surpassing Saudi Arabia’s 262 billion, currently the world’s largest.
This would raise OPEC’s production quotas, bring in a bucketload of new revenue to the Venezuelan government (which just renegotiated more favorable terms with several oil companies, and seized oil fields from two companies that refused to cooperate), and dramatically increase the country’s influence and Chavez’s stature.
The best summary I’ve seen is this one from Motley Fool:
Because production quotas are determined by proven oil reserves, and reserves are a function of market price, Venezuela has a lot to gain if OPEC recognizes $50 per barrel as the long-term price of oil. The country’s Orinoco tar sands deposit is an ultra-heavy oil formation, not unlike Canada’s oil sands. Including all of Orinoco, the U.S. Department of Energy estimates Venezuelan reserves at 1.3 trillion barrels — more than all other OPEC nations combined. Venezuela claims that at $50 per barrel, a portion of the Orinoco tar sands becomes commercially viable, enough to bring the country’s proven reserves up to 312 billion barrels.
The other members of OPEC are unlikely to welcome this development, but it will not be easy for them to simply reject the proposal. In 2004, OPEC nations were all essentially pumping at full capacity. Furthermore, OPEC member Indonesia has become a net oil importer and is considering dropping out of the cartel.
Needless to say, these developments are not welcome in Washington, D.C., where the Bush administration has funded Chavez’s opponents and said it would welcome a coup. Chavez warned that if the U.S. tried to invade, it would result in a long, grinding guerilla war and the end of oil production. "U.S. soldiers will bite the dust and so will we, Venezuelans."
We live in interesting times.