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President Joe Biden’s decision to authorize U.S. supermajor Chevron to recommence lifting crude oil in Venezuela breathed hope into President Nicolas Maduro’s plans to rebuild the country’s shattered oil industry. The harsh January 2019 sanctions imposed by Biden’s predecessor Donald Trump cut Caracas off from global energy and financial markets, nearly bankrupting Venezuela. That caused petroleum production to spiral lower and Venezuela’s economic as well as humanitarian crisis to accelerate, further impacting Caracas’ finances. For these reasons, the national oil company PDVSA is incapable of mustering the immense amounts of capital required to rebuild Venezuela’s heavily corroded energy infrastructure. This will impede efforts to tap into the substantial wealth held by Venezuela’s vast petroleum reserves, which at 303.5 billion barrels are the world's largest, and rebuild a shattered economy. There are fears, as the devastating environmental catastrophe unfolds in Venezuela, those immense hydrocarbon reserves will become a costly stranded asset.

In as little as two decades, Venezuela’s petroleum output has collapsed. Political purges, an exodus of skilled labor, chronic malfeasance and corruption, harsh U.S. sanctions and a dire lack of capital are all responsible for Venezuela’s oil industry falling into wreck and ruin. After peaking at an annual record of 3.1 million barrels of oil per day for 1998, prior to Hugo Chavez’s presidency, the OPEC member’s petroleum output has plunged to levels not seen since before World War Two.

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As a result, Venezuela’s oil exports, which are one of Caracas’ few sources of hard income, have foundered. This is because Trump’s 2019 sanctions prevent Venezuela from shipping petroleum to the U.S., a key market that was receiving over 40% of the OPEC member’s oil exports. By 2021, Venezuela’s oil exports had plummeted to a multi-decade low of 448,000 barrels per day, most of which, according to OPEC data, were shipped to Asia, where China is a key buyer regardless of U.S. sanctions. This brutally impacted Caracas’ fiscal income and further exacerbated Venezuela’s economic collapse because petroleum is responsible for 99% of export income and a quarter of gross domestic product.

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This triggered a severe financial crisis for Caracas, causing any available capital for repairs to Venezuela’s heavily corroded infrastructure to all but dry up, further weighing on plans to expand oil production. That is not only responsible for weak production volumes but also PDVSA’s inability to hit the targets set by Maduro, thereby preventing Caracas from exploiting Venezuela’s tremendous oil reserves to generate the tremendous funds required to rebuild a shattered economy. Indeed, the condition of Venezuela’s petroleum infrastructure is so dire that pipelines, storage facilities and intermittently running refineries regularly spew oil and noxious fumes into the environment.

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These events are adding to the tremendous burden associated with rebuilding Venezuela’s energy infrastructure so that production can be restored, and the country can benefit from its vast petroleum reserves.

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Even Washington’s decision authorizing Chevron to restart lifting oil at its joint ventures with PDVSA will fail to lift production and generate the tremendous investment required. You see, there are strict conditions imposed on Chevron including banning payments to Caracas and expanding operations beyond those that existed in January 2019.

Plans to exploit Venezuela’s considerable oil wealth are further complicated by around three-quarters of the country’s reserves being predominantly comprised of very sour extra-heavy petroleum, which with an API gravity of 8.5 degrees, does not flow when extracted. This type of oil must be upgraded, where it is mixed with diluent, a form of ultra-light petroleum so that it can flow to be transported and processed. For these reasons, lifting extra-heavy oil consumes copious amounts of energy, making it highly carbon-intensive to extract.

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While there are signs that the Biden White House intends to take a more nuanced approach to a Maduro-led Venezuela, existing tough U.S. sanctions remain the key deterrent to foreign energy investment. No western petroleum company will risk the severe penalties which accompany those sanctions. That, along with existing geopolitical hazards, notably a corrupt autocratic regime with a history of nationalizing oil assets, essentially makes Venezuela uninvestable for foreign oil companies. This means the pariah state will not receive the hundreds of billions of dollars and technical expertise crucial to rebuilding a shattered hydrocarbon sector.

Any efforts to rebuild Venezuela’s petroleum operations are complicated by the immense environmental crisis unfolding in Venezuela and threatening an ecologically sensitive region. For these reasons, Venezuela’s substantial oil reserves could very well transition from a source of considerable wealth to become a costly stranded asset that will leave a legacy of environmental destruction for decades to come.

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One of my personal big takeaways from this is the continued discussion of the environmental disasters in Venezuela from operations by its government-owned oil company.

While the U.S. Oil & Gas Industry does have some screwups and accidents, our domestic energy sectors produces some of the cleanest, more environmental-friendly fossil fuels in the entire globe, and our industry at home continues to strive to make its processes even cleaner.

There is a legit “green” argument to be made that producing oil & gas here at home IS the most friendly option for a cleaner planet, rather than those counties who need such energy sources to be dependent on operations in other countries where almost no care or thought is given to the environment.