Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

Summary

In a move without precedent in the post-colonial landscape, the U.S. government took a minority stake in Venezuelan crude oil. U.S. President Donald Trump said it’s about lowering prices at the pump and restocking strategic reserves.

A 100-Year Commitment

Federal U.S. entities have minority claims to oilfield development and offtake agreements for Venezuelan crude oil for the next 100 years, the White House announced.

U.S. President Donald Trump during the weekend touted what he said was the largest oil deal in history, staking claims to 17 Venezuelan oilfields that the White House said combined for 65 billion barrels in proven reserves.

“President Trump has re-established the Monroe Doctrine, purging foreign malign influence from our backyard and ensuring American dominance in our hemisphere is never again questioned,” the White House said in a statement.

In January, U.S. forces captured former Venezuela President Nicolas Maduro, who was charged with drug trafficking.

Trump in a National Security Strategy published last year stressed the importance of the Monroe Doctrine, put forth by President James Monroe in 1823. It holds that the U.S. should pursue a steadfast sphere of influence across all of the Americas.

To that end, the federal government and the interim government of Venezuela tapped North American Blue Energy Partners (NABEP) to lead developments. NABEP in turn handed the U.S. Department of Defense Department a 35% stake in the company, while the State Department secured the rights to 20% of production “from all current and future fields NABEP will operate.”

NABEP is led by Venezuelan businessman Alejandro Betancourt, and the company is believed to be one of the largest operators in the nation’s oilfields, alongside U.S. supermajor Chevron. A profile in the Miami Herald on Monday reported that Betancourt was once the target of a federal investigation alleging theft of more than $1 billion from state-run Petroleos de Venezuela (PDVSA). He remains under investigation in Europe for money laundering.

Potential Meets Reality

Venezuela, a founding member of the Organization of the Petroleum Exporting Countries (OPEC), holds the largest deposits of oil in the world, but it is only able to produce a fraction of that given the diluting agents necessary to move its thick crude oil through pipelines. The nation’s energy infrastructure is plagued by years of mismanagement and underinvestment.

Questions arose almost immediately after details of the deal emerged. Gregory Brew, a senior energy analyst with the Eurasia Group, was quoted in Fortune magazine as saying the terms are unheard of in modern times.

“If the U.S. scheme in Venezuela sounds colonial, that’s because it is,” he said. “It’s extremely unusual. It’s probably unprecedented in the history of the international oil industry.”

The terms of the 100-year concession obviously extend beyond the political terms for both Trump and interim Venezuelan President Delcy Rodriquez. Both remain deeply unpopular, and the terms are a stark reversal from the Venezuelan precedent of keeping a tight grip on its reserves.

For the United States, the Trump administration said Venezuelan barrels will go to U.S. refiners, many of which are tailored to process heavier crude oil slates from American producers such as Canada, Mexico and Venezuela.

The administration added that it would help lower retail gasoline prices, though it would take perhaps decades for any meaningful uptick in Venezuelan production to hit the U.S. market. U.S. imports of Venezuelan crude oil are up some 700% compared to year-ago levels, but at around 660,000 barrels per day (bpd), are nowhere near the estimated 3.5 million bpd coming in from Canada, federal data for the week ending August 21 show.

Retail gasoline prices are largely beholden to the global economy by way of crude oil prices. AAA said prices in August held above $4 per gallon each day nationally, poising the month to be the most expensive August at the pump. The price of crude oil is one of the the largest determining factors for what consumers see at the pump.

Meanwhile, the nation’s strategic reserves have been substantially lowered because of international calls to offset the supply disruptions stemming from ongoing Middle East tensions, but the Trump administration said Venezuelan crude would restock those reserves.

For the week ending August 21, U.S. federal data show the Strategic Petroleum Reserve holds 289,7000 barrels of oil. It has a peak capacity of 711,000 barrels.

The SPR, meanwhile, is not designed for heavy crude oil slates, but sweet, low-sulfur assays, federal data show.

Talk of new Venezuelan barrels has done nothing to dampen crude oil prices. With tensions flaring again in the Middle East, U.S. crude oil prices were up about 2% in early Tuesday trading.

By the Numbers

35% Department of Defense stake in Venezuelan oil2% jump in crude oil prices on escalating Middle East tensions

Key Takeaways

Trump touts U.S. supremacy in highlighting the Venezuelan oil deal.The Strategic Petroleum Reserve isn’t designed for the type of crude oil found in Venezuela.

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