VENEZUELA - Part 5 - The Decision Makers.

Decision making for the petroleum sector in Venezuela has become far more simple than in the previous decades, but with complicated implications. It involves a military man turned civilian at the top, populist President Hugo Chavez who now rules by decree and controls this sector as well as all other matters of importance.

With Venezuela under Chavez lurching from one crisis to another, the decision making system has been changing frequently since February 1999, when he came to power and has brought strange allies to the top at the state's Petroleos de Venezuela (PDVSA).

Hugo Chavez Frias: Aged 50, Chavez has direct control over decision making in the petroleum sector and PDVSA. He appoints those who execute his decisions at the Ministry of Energy and Petroleum and in PDVSA. He claims to have engineered a worldwide rise in oil prices through OPEC's production cuts since late March 1999. One of the most frequently travelling rulers across the globe, he often makes expensive tours to sell OPEC's price defence strategy and urge rulers of non-OPEC oil exporters to cut supply. The most powerful decision makers for the petroleum sector now are in the following order of importance to all concerned:

Chavez, who makes the key decisions on Venezuela's position in OPEC, management of the country's petroleum resources and other matters. The powers of the other decision makers depend on his discretion.

Energy & Petroleum Minister Rafael Ramirez Carreno, who is also President and CEO of PDVSA, a Chavez appointee who practically is less powerful than he seems to be. But Chavez does not like to see any national or foreign executive bypass Ramirez in working with Barnard Mommer, the vice-minister for petroleum.

Ali Rodriguez Araque, the minister of foreign affairs, who has served as minister of energy and mines and OPEC secretary-general as well as PDVSA president. He continues to have a say in petroleum decision making.

Bernard Mommer, the petroleum vice-minister since early 2005.

Asdrubal Chavez, PDVSA vice-president, heading PDVSA sales, trade and shipping. He is the president's brother.

Luis Vierma, PDVSA vice-president, heading PDVSA E&P.

Eulogio Del Pino, president of Corporacion Venezolana de Petroleo (CVP), the PDVSA unit is charge of foreign operations and the partner in E&P joint ventures (JVs). CVP will become more prominent from early 2006 as all the operating service agreements (OSAs) will have been converted into JVs or taken over by the state.

President Chavez and Iran's new President Mahmoud Ahmadi-Najad are the main price hawks in OPEC and wand want the organisation's ministerial conference in Kuwait on Dec. 12 to cut output in early 2006 to prevent a drop in oil prices in the second quarter of the coming year. In its recent monthly report, the London-based Centre for Global Energy Studies (CGES) said: "Unless oil-demand growth rebounds strongly in 2006, OPEC will face the need to make output cuts to defend prices. The size and timing of the output cut will depend on the strength of underlying demand growth and the severity of the Northern Hemisphere winter, as well as the price level that the organization chooses to defend".

The CGES added: "Even if OPEC avoids having to cut its...output, Saudi Arabia will come under pressure to reduce its own production as other member-countries bring new capacity...next year". At its last ministerial meeting in September, OPEC maintained its production ceiling at 28m b/d but said it will provide markets with an extra 2m b/d if there was sufficient demand. OPEC supplies roughly one-third of total world crude oil production. But a part of the extra supply has not been taken up because it involved sour crude oils which are not wanted by Western refiners.

The CGES forecast a modest growth in world oil demand next year, increasing by about 1.4% in 2005 and by a similar amount in 2006. The research group also predicted a rise in non-OPEC output from countries such as Russia and the US. Some OPEC ministers have warned of an oil glut building up in the second quarter of 2006. But while price hawks want OPEC to reduce production from the beginning of 2006, with a decision on this proposed to be taken on Dec. 12, Saudi Arabia and its moderate allies want to wait an see how the market will move before a March meeting can decide on output for the second quarter (see APS Diplomat's news22cOilShockFundNov28-05).

The CGES said: "Internal OPEC politics, which have lain dormant as long as most members have been able to produce as much as they can, will start to become an issue again in 2006... The price hawks...will probably seek to press members to defend a price level of $50 per barrel, but Saudi Arabia regards this level as being too high, preferring...$45 per barrel".

Chavez's intention to divert Venezuelan oil exports away from the US market was underscored on Feb. 2, 2005, after President Hugo Chavez said he planned to sell Citgo, the PDVSA-owned refining and distribution network in the US (see Part 4). Chavez said in Argentina on Feb. 1 his government wanted to sell eight refining assets owned by Citgo. But on Feb. 2 Felix Rodriguez, who by then had been designated as president of Citgo, said PDVSA had not made a firm decision on a sale, contradicting Chavez as saying: "There is no decision taken in this respect. There has been no announcement of a sale of Citgo". Citgo accounts for 15% of US oil refining capacity, and its eventual sale could complicate the supply of some products in the US because most of Citgo's refineries are configured to process Venezuela's heavy crudes. Together with a partly owned plant in the US Virgin Islands giving PDVSA a refining capacity of 800,000 b/d in the US, the company also licences about 14,000 Citgo-branded petrol stations.

Chavez said Citgo should be sold because it was denying PDVSA adequate revenue and because it was, in effect, contributing tax to the government of US President George W. Bush, rather than to Venezuela. Chavez said: "We are subsidising Mr Bush".

The decision to sell Citgo coincided with Chavez's strategy to diversify the markets for Venezuela's crude oil and petroleum products away from the US and towards countries such as China. While government officials complain that PDVSA supplies crude oil to Citgo at a discount of as much as $4/barrel, other industry sources in Venezuela have insisted the discount was no more than 40 cents/barrel.

There would be no shortage of potential buyers of Citgo because of the current capacity squeeze in the US refining industry. But the configuration of Citgo's refineries would require the business to be broken up to prevent acquirers becoming over-exposed to heavy crude capacity. Yet a new owner could turn to plentiful alternative supplies of the heavy crude, notably from Saudi Arabia, the North Sea and the Gulf of Mexico. There is also the question of what PDVSA will do with the crude oil if it sells Citgo and decides to ship the crudes elsewhere.