Venezuela's oil domestic market accumulates distortions and subsidies

Venezuela, a country very well-known for accumulating the largest oil reserves worldwide, ends 2012 with a hydrocarbon domestic market in expansion and highly characterized by distortions and subsidies that are evident in the domestic high oil demand and fitful supply.

Officially, neither the Ministry of Petroleum and Mining nor state-run oil company Pdvsa have provided an in-depth report on the size of the hydrocarbon domestic market in 2012. Just a few weeks ago, Pdvsa's chairman, Rafael Ramírez, informed that gasoline demand stands at 298,000 barrels per day (bpd) and this year the power sector's demand has been tremendous.

Based on Pdvsa's data, by the end of 2011, domestic market accounted for 646,000 bpd. However, oil markets' estimates and reports produced by the Organization of Petroleum Exporting Countries (OPEC) indicate that Venezuela's oil demand by the end of 2012 is likely to amount to 800,000 bpd, a record figure for the southern country, whose oil output accounts for 2.8 million bpd, according to OPEC. The rise in demand attributed to economic growth, the freeze in the price of gasoline and diesel, and smuggling are accountable for the jump in domestic consumption.

Notwithstanding, Venezuela's oil refining capacity has slowed down progressively. This has been partially attributed to a series of accidents and operative events such as spills, leaks, explosion, and fire events. In August 2012, for instance, the worst accident took place as a deadly explosion was reported in refinery Amuay, northwest Venezuela. As a result, in the next two months, the refinery could only process 300,000 bpd of its full capacity (635,000 bpd).

To date, Amuay is still not operating at its full capacity and the total damages to Pdvsa's facilities or its surroundings have not been appraised.

Translated by Jhean Cabrera