A history of the Venezuelan oil industry

The evolution of the industry and the PDVSA

Oil exploration first started from 1910 onwards, and the first big oil field discovery was in 1914. This triggered a surge in the arrival of oil explorers to the country, and subsequently the discovery of several more oil fields by 1917. In 1929 Venezuela became the world's principal oil exporter and the second producer after the United States. By 1945 Venezuela was producing around 1 million barrels a day.

This mass exportation coincided with the initiation of the Hydrocarbures Act of 1943, which shared oil profits 50/50 between he company and the government. This law was the first significant step towards greater government control over the oil industry .

In September 1960, Venezuela joined OPEC (Organisation of Petrol Exporting Countries), as the only founding member outside of the middle east. In 1973, the OPEC members of the Persian Gulf decided to increase their export prices by 70% and initiate an embargo on the countries supporting Israel, most notably the United States. This new market, and the rapid increase of oil prices resulted in a significant increase in oil profits for Venezuela. Between 1972 and 1974, the Venezuelan government's income quadrupled.

After the oil crisis, Venezuela's period of prosperity would be relatively short, mostly due to the massive consuming of petrol during the 1980s. The OPEC countries were not respecting their assigned output quotas and so the prices plummeted. Between 1990 and 1999, the industrial part of Venezuela's GDP fell from 50% to 24%, while in the rest of Latin America it fell from 36% to 29%.

The long held idea that Venezuela's resources are being exploited by foreigners ultimately led to the decision by the government to take more control over the oil industry. It's during the Carlos Andres Perez presidency and it's economic plan "Grand Venezuela" that the oil sector was nationalised. This became official on the 1st January 1976, along with the founding of Petroleos de Venezuela (PDVSA), a state posessed oil company.

From 1976 to 1992, 71% of the company's income went to the government, leaving only 29% to the company. However, from 1993 to 2000 this distribution was completely reversed with 64% of the PDVSA's income being kept by the company, leaving only 36% to the government.

By the time Hugo Chavez was elected, OPEC had lost much of it's influence since it was formed. As the members, including Venezuela, were not respecting their agreed ouputs, and countries outside of the organisation such as Mexico and Russia were developing their oil industries, the price of oil falls and the heavily dependent Venezuelan economy is badly affected.

One of Chavez's goals was to reverse this trend by strengthening OPEC by asking member countries to repect their quotas. He personally visited the leaders of several member countries, and in 2000 organised the first OPEC summit for heads of state in 25 years, and the second since it's formation. The aims of this meeting were to improve the country's position in the organisation, as well as the organisation itself, and to solidify the price of oil.

The meeting could be considered a success after the long term increase in the price of oil which would follow, but this change was equally influenced by the September 11th attacks, the invasion and occupation of Iraq. These events alone resulted in a price increase unprecedented by OPEC. Furthermore, the December 2002 PDVSA strike would again rapidly increase world oil prices.

After the 2002-2003 strikes, Chavez spoke of re-nationalising the industry and taking control. He aimed to optimise the PDVSA's efficiency by distributing a larger share to the government and modifying export taxes.

In 2005, the PDVSA opened it's first Chinese branch, and announced it would almost triple their fleet of oil tankers in the region. Chavez had long wanted to sell more oil to China in order to become more independent of the United States, which now consumes 65% of Venezuelan oil exports. In November 2005, the PDVSA and it's American subsidiary, Citgo, announced an arrangement with several states in the north-eastern U.S. to provide low income families with heating oil at well below market prices.

Today the PDVSA is one of the largest companies in Latin America, with a production capacity of 4 million barrels a day. Venezuela is the world's fifth exporter of oil with the most crude oil reserves. The country's oil industry has the greatest capacity for expansion in the western hemisphere and could more than double it's production capacity before 2025.

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