Studying alternatives for the defense of crude oil and gas

Carlos Mendoza Potellá, former ambassador of Venezuela to Saudi Arabia, ex-member of the Venezuelan state owned oil company, Petróleos de Venezuela; a petroleum economist, a university professor, and current ambassador of Venezuela to Russia, points out that relations between Russia and Venezuela have been close to zero.

“Commercial trade between both countries doesn’t even reach 40 million U$. I think that this year, it will reach more or less 27 million U$, mainly because of the purchases of alumina by Russian companies in our country. For its part, Venezuela purchases nearly 8 million U$ from Russia in chemical products for the drug industry. That is as far as our commercial relations go with the largest country in the world; a country 18 times as big as ours, where there is a great number of possibilities of profitable business for both nations”, he said.
The ambassador said “we have long disregarded Russia for historical reasons, some related with the Cold War; part of a dog-like loyalty towards the U.S. by some economic sectors, especially in the oil business”.

“Today, Russia has a gigantic economy, with the troubles of an incipient, savage capitalism, and with an obsolete technology. But at the same time, we have several points in common that we can take advantage of. Russia’s stock of factories has been negatively affected by the oil boom. It’s going through the same situation Venezuela went through in the seventies".

It’s industrial equipment is undergoing the pressures of enormous oil incomes as today’s first oil supplier in the world.
And this is creating internal competitiveness problems for them, in addition to their already existing problems after the collapse of the Soviet Union.

- Then, what is the benefit of tightening links with that country?

- We are talking about the biggest country in the world, the world’s fourth power itself. There are four world political and economic powers: China, the U.S., the European Union, and Russia. And Venezuela must maintain relations with all of them. We are already in the process of increasing our economic and technological relations with China. And why should we not do the same with the other centers of world power?. There are many positive things Venezuela and Russia can take advantage of. For example, we have very similar oil industries. Russia is one of the oldest oil suppliers and so are we.

Both countries have deposits in state of maturity, that is, nearing depletion; this gradually leaves us with mostly heavy crude oil deposits. And, as the president of Lukoil has said, we have to defend our products in the market from price discounts on this type of oil. A price difference based on quality is reasonable, but today’s price gap between light and heavy oil is too wide.

- Would it be like an association of heavy oil exporting countries?

- You could put it that way. It might not turn out to be an association, but we may sign bilateral agreements to coordinate our defense of the price of heavy oil. We have an almost 6 U$ discount of the average of our products in relation to West Texas, and a 4 U$ discount in relation to Brent. Why? Who determined this? This is a small punctual example of the existence of common interests.

But I can mention another one: in one of the work meetings held by vice-president José Vicente Rangel during his visit to Russia, Igor Ivanov, former foreign affairs minister; and current chief of the Security Council, suggested the possibility of an association of gas exporting countries, a topic that by the way has also been set forth by Bolivian officials. As an initial step, what we have in mind is the creation of a mechanism of coordination.

- Would that be feasible in 2005?

- could be feasible very soon, since we share a gigantic market with Bolivia.

- And what are the risks of approaching such a big market within in a huge economy?

- The Russian economy is not so big, although it is 18 times the size of Venezuela, the size of its Gross Domestic Product is something different. It is a problem for Russia to have a population of only 144 million in such a large territory, as a result of a drop in the life span; with high death and migration rates.

- What can Venezuela offer Russia besides businesses in the oil sector?

- There are some businesses in the aluminum sector. Rusal (Ruski Alumini) is negotiating an association to set up a 1 billion U$ alumina plant with the CVG. And Lukoil wants to invest between one and three billion U$ in the oil sector in joint projects with Pdvsa (Petróleos de Venezuela, the Venezuelan state owned oil company) within a ten year period. We are already signing reliability agreements with this purpose.

- What does Venezuela seek in its association with Russia in the oil business?

- Russia needs to invest abroad; it has the money and the will to do it, since its economy does not have the capacity to absorb its incomes from oil exportation, a situation that is causing negative effects on their economy. And what place is better to invest than an oil producing country, with an oil industry similar to theirs, to which they can provide a different perforation technology?.

This does not mean that we are going to replace the excellent perforation technology that the western companies have provided Pdvsa. What we want is to count on other participants. Capitalism works the same way; capital is the same everywhere. We must not deceive ourselves with the idea that the good Russians are coming against the bad guys, who are the U.S.. They are simply new different business associates and that’s all there is to it. And this is convenient to us.

- And what can Venezuela offer?

- We have really made useless efforts, because it is difficult to get our private businessmen going. The state can not offer anything but opportunities for Russian businesses to invest in the country. I think Venezuelan oil businesses would have opportunities there, because of the similarity between both sectors. But it’s a very long trip to Russia, and the market is very competitive and difficult.

- How would the White House take the closer approach between Russia and Venezuela ?

- “Our goal is to diversify our markets But it’s not a Cold War issue. It’s not the communist Russia, opposed to the United States. It’s the Russia whose president has declared that Bush is his favorite candidate. What’s the matter then?. Besides, transnational oil companies from all over the world are there”

- Is there any goal of trade increase between Venezuela and Russia?
- No, because we are practically starting from zero.

Published in Quantum N.40