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Opinion: Why oil drilling in Ecuador is 'ticking time bomb' for planet – CNN.com

Opinion: Why oil drilling in Ecuador is ‘ticking time bomb’ for planet – CNN.com.

By Antonia Juhasz, oil industry analyst, special to CNN
March 1, 2014 — Updated 1233 GMT (2033 HKT)
Alicia Cahuilla's Waorani tribe has lived on the edge of Ecuador's Yasuni National Park for thousands of years. But they're worried about new oil exploration in the area. Alicia Cahuilla’s Waorani tribe has lived on the edge of Ecuador’s Yasuni National Park for thousands of years. But they’re worried about new oil exploration in the area.
  • Ecuador’s Yasuni National Park is one of world’s most biologically diverse areas
  • Last year the government cleared the way for oil exploration in the park’s most pristine area
  • Villagers say oil exploration in Yasuni will dramatically affect their way of life
  • Oil firms say they are complying with environmental regulations

Editor’s note: Antonia Juhasz, an oil industry analyst, is author of several books, including “Black Tide” and “The Tyranny of Oil.”Juhasz’s investigation is supported by a grant from the Max and Anna Levinson Foundation, which makes grants to nonprofits committed to “developing a more just, caring, ecological and resilient world.” Her work has also appeared in Rolling Stone, Harper’s Magazine, and The Atlantic’s website.The opinions expressed in this article are solely those of the author.

(CNN) — Alicia Cahuilla doesn’t try to hide her anger. The native Waorani tribal leader stands in front of an exposed, thickly black crude oil pit, as two gas flares burn violently overhead, the stinging stench of crude heavy in the air. Until about 50 years ago, this area, like most of the central Ecuadorian Amazon rainforest in which it sits, was Waorani land, a pristine expanse filled with nothing but trees and streams.

Antonia Juhasz

Antonia Juhasz

The Waorani have lived here, on the northwestern edge of one of the most biologically rich places on Earth, for thousands of years. But today their land is also home to hundreds of operations seeking to extract the vast oil reserves buried deep below the forest floor.

Experts believe that in order to avoid the worst of a future climate change catastrophe, most of the planet’s fossil fuels must be left in the ground. Ecuador’s ambitious Yasuni-ITT Initiative, launched in 2007, was hailed as a landmark plan to keep oil exploration out of the country’s most pristine forest and to preserve the homes of indigenous tribes living there. ButEcuador abandoned the plan last year, and drilling could now begin any time.

Leila Salazar of the U.S.-based NGO Amazon Watch equates oil exploration in Ecuador’s rainforests with “ignoring a ticking time bomb for the entire planet.” But the once global struggle to secure the Yasuni-ITT Initiative has now largely fallen on the shoulders of a few indigenous tribal communities who have pledged to fight, some to the death, to keep oil companies out of their communities and their oil in the ground.

Activists Killed in the Amazon

African rainforest fights for survival

Will the world back them up? It is a question with significance far beyond Yasuni National Park. The age of “easy oil,” if it ever existed, is over. What is left is in places like the Yasuni, previously deemed too sensitive, valuable, or risky to drill. The cost to both the planet and local people of pursuing such oil grows in tandem with the difficulty of extracting it. The Yasuni presents a critical opportunity to demonstrate that a different path is possible, though fortunately it is not the only place where the effort to leave our “oil in the soil” has taken root.

Yasuni: Biological and ethnic diversity worth saving

In November I travelled to the Yasuni National Park in northeastern Ecuador and marveled at its beauty, diversity, and bounty. It alone sits at the intersection of the Amazon, the Andes Mountains, and the Equator. It is a biological hot spot for mammals, birds, insects, plants, and more. One hectare of the Yasuni contains not only more tree species than are native to the whole of North America, but also 100,000 insect species, the highest diversity per unit area in the world for any plant or animal group, according to one estimate. The United Nations declared the Yasuni a World Biosphere Reserve in 1989.

READ MORE: Rainforest’s vast treasury of life

Within the park lies the Ishpingo, Tambococha, and Tiputini (ITT) area, home to one of the most intact sections remaining in the Amazon River Basin. Its natural bounty allows the ITT to support the only remaining uncontacted tribes left in Ecuador—two groups of Waorani who have remained in isolation from the outside world for thousands of years — the Taromenane and Tagaeri. It is also perched atop Ecuador’s largest untapped oil reserves.

Ecuador currently gets about half its national revenue from oil. President Rafael Correa hopes to increase this amount — and in so doing reduce rampant poverty — by carving up much of his country’s share of the Amazon into oil blocks.

Yet, in response to the global climate movement’s call for nations to leave their “oil in the soil,” in 2007 Correa made a bold proposal. If the global community agreed to put up $3.6 billion — roughly half the value of the 850 million barrels of crude estimated to be under the ITT area of Yasuni — Ecuador would leave the oil untouched indefinitely. World leaders failed to pay up, however, and Ecuadorpronounced the death of the deal last year.

Drilling in the ITT will come at a steep price, explains Dr. Matt Finer, a research biologist with the Amazon Conservation Association. “You’re basically talking about the only spot on earth where you get this maximum diversity for everything, in addition to being one of the last places on earth where people can still live without any contact with civilization,” he said. “You have a national park created to protect that super mega diversity, and you will now have drilling [there]. It represents a serious incursion into what should be a refuge.”

Lives in the balance?

Cahuilla was born in the Yasuni but today lives in the tiny hamlet of Noneno wedged between two oil fields, the Cononaco and Armadillo, where President Correa is trying to expand oil production.

Her community considers it their responsibility to protect and speak on behalf of the uncontacted Waorani still living in the ITT and Yasuni, but this is not just out of loyalty. Oil operations are already pushing the Taromenani into contacted Waorani land, resulting in escalating violence, including murder, kidnapping, and territorial conflict.

ITT is one of the last places on earth where people can still live without any contact with civilization.
Dr. Matt Finer, research biologist

As we talk, Cahuilla says she wishes she had her spear so she can “kill someone.” Though she is nonviolent, it is not a hollow threat. It is how the male elders of her village have pledged to deal with any oil firm that dares come near their home.

The Waorani leader argues that regardless of how they’re perceived, her people are not poor. “We have the richness of the forest and the river. We need for nothing, except what the oil companies destroy.” As for the rest of Ecuador, she adds, “All the people need clean air to live. Clean water. With this oil development, what kind of life is the government actually hoping to give its people?”

An estimated 1,500 people call the Yasuni and ITT home. In addition to the uncontacted tribes, there are Waorani and Kichwa who, just like Cahuilla’s community, are in contact with the outside world but still primarily lead lifestyles that are not far removed from the traditions followed by their ancestors. Though I saw the odd television and radio on my way through the forest, the majority of the peoples’ needs are still met directly from the land and water.

As I hiked in the ITT, I was shown trees used to build houses, blowguns for hunting, and canoes; plants used to make jewelry and plates, and to cure ailments; and a bounty of seeds, fruits and even a pack of wild boar comprising the majority of the communities’ diet. In return, the tribes treat the forest with deep respect.

“Cutting a tree is like cutting a person,” Kichwa tribal leader Holmer Machoa of the community of Llanchama in the ITT, told me. “If the oil companies come, they will cut and they will kill. They will be the destruction of the forest. They will kill the water and poison the land.”

Environmental concerns

The Napo region, including the Yasuni, is now one of the 14 major deforested areas in the world. Ecuador has the highest deforestation rate of any Latin American country, in part because oil is located so deep within the forest that extensive systems of roads must be built to reach it. The roads also fragment the Yasuni, harming already threatened animal species that require large intact forest areas to survive, and opening the park to new settlers andincreased and illegal hunting.

This threat reaches beyond the Yasuni, as the two principal causes of global warming are the burning of fossil fuels and deforestation.

There are also other concerns. The Ministry of the Environment reported 539 oil spills in Ecuador between 2000 and 2010, a rate of nearly two a month. But INREDH, an Ecuador-based human rights group, says the rate is more than two a week, citing nearly 500 recorded spills from 2003 through 2005 alone.

Last June, Petroecuador’s Trans-Ecuadorian Oil Pipeline burstunder the weight of a landslide caused by heavy rains. Some 420,000 gallons of oil was dumped into the Coca River, which then spread into the larger Napo River. The oil polluted the drinking water of Coca, a city of 80,000 people, and at least thirteen smaller communities.

The waterways of rural Ecuador are filled with people bathing, washing dishes and clothes, playing, and drinking from the water. As oil operations expand, so too do the dangers of this way of life. The Napo River, which marks the entire northern edge of the Yasuni, is now a major industrial highway with a constant flow of giant barges carrying equipment to support oil operations leaving black clouds of pollution in their wake.

We are not aware that any adverse health effects occurred due to our operations [in Ecuador].
Melissa Schoeb, Vice President of Occidental

2002 study in the International Journal of Epidemiologyconcluded that the prevalence of cancer was significantly elevated in those counties in Ecuador where oil firms operated versus non-oil-producing regions. The study found significantly elevated rates for “cancers of the stomach, rectum, skin melanoma, soft tissue and kidney in men and for cancers of the cervix and lymph nodes in women,” and an increase in haematopoietic cancers in children under age 10.

Cahuilla also points to Texaco’s legacy in Ecuador’s Lago Agrio region. In November Ecuador’s highest court ruled that California-based Chevron (which purchased Texaco in 2000) owes locally-impacted communities $9.51 billion for decades of substandard practices that severely polluted land and waterways and which continue to harm human health and the environment today. Chevron has appealed the court judgment, calling it “a manifest denial of justice.”

Others point to California-based Occidental’s (Oxy) operation in Ecuador from 1985 to 2006.Oxy settled a court case filed in 2006 in which Ecuadorian plaintiffs charged it with “unauthorized drilling, expropriation of tribal lands, utilizing child labor, and polluting the local water supply” in Oil Block 15. People protesting against Oxy’s operations there, they argue, were “attacked on or near Block 15, tortured, and illegally detained by the [government] Special Forces” acting for Oxy. Oxy has denied each such allegation in the case, which was settled under a strict gag order.

In response to a request for comment, Melissa Schoeb, Vice President of Occidental, said in a written statement: “We are not aware that any adverse health effects occurred due to our operations. During the company’s tenure [in Ecuador], Occidental had an exemplary record of environmental and safety performance, both in complying with laws and regulations and in pursuing numerous voluntary initiatives.”

The Ecuadorian government did not respond to multiple requests for comments for this story.

On my visit to the Kichwa community of Sani Isla situated on land in the Yasuni and across the Napo River in Oil Block 15, schoolteacher Maximo Grefa told me: “For decades, oil companies have been causing environmental damage to the water and air. I think it is the reason why we have so many kids with special needs, mental and physical disorders. The children drink the water without any treatment. That affects their health.”

Fighting back with ecotourism

Within virtually every community in and near the Yasuni, I am told that tourists, not oil companies, are the preferred outsiders. I am then pointed to Sani Isla, renowned for the Sani Lodge, a highly successful ecotourism venture catering to wealthy Western clientele.

At Sani Isla, Kichwa tribal leader Blanca Lourdes Tapuy Grefa says that oil development is incongruous with a healthy environment, including that desired by tourists, and is in direct conflict with the success of her community. Without Sani Lodge she asks: “What are we going to leave our children?”

With this oil development, what kind of life is the government actually hoping to give its people?
Alicia Cahuilla, Waorani tribal leader

In May, her brother, Leonardo Tapui president of the community, told President Correa that Sani Isla opposed new oil operations and warned that if the army came, they would respond with war. It is a war that Blanca and her fellow Kichwa, just like Alicia Cahuilla and the Waorani, intend to fight with spears, blowguns and machetes.

“It doesn’t matter what the government says,” Blanca told me, “because I have my machete and I have my spear, and I’m going to defend this place. I’m not afraid. No matter what.”

A fight of global significance

Local organizations such as Quito-based Accion Ecologica have gathered more than half of the requisite signatures needed by April to hold a national referendum on halting drilling in the Yasuni. That President Correa still proudly displays the UN Visionary 2012 trophy he received for the Initiative may be evidence that he and his government can yet be convinced to change course, particularly if the global community finally commits to the $3.6 billion.

Moreover, the effort that led Correa to propose the Yasuni-ITT Initiative is not limited to this proposal or to Ecuador. Last month, an international gathering of indigenous groups, NGOs, and others convened in Ecuador under the auspices of the Global Alliance for the Rights of Nature, members of which came up with the original idea for the Initiative in 1997. They declared their commitment to fight not only for the Yasuni, but also for continued success elsewhere.

In April, for example, Mora County, New Mexico became the first U.S. county to permanently ban all oil and natural gas development (Shell Oil company has sued, claiming its rights as a “person” to those minerals), while in November three cities in Colorado joined dozens of others U.S. cities and town in voting to ban hydraulic fracking (a technique used for both oil and natural gas).

These efforts come from a growing realization that with the end of “easy oil” and the intensification of climate change, we are all now ultimately on the front lines of the battle over what is to be done with the world’s remaining fossil fuels.

Guide/Translators: Jose Proano from Land is Life and Yury Guerra from Altruvistas.

Venezuelan activists urge more protests – Americas – Al Jazeera English

Venezuelan activists urge more protests – Americas – Al Jazeera English.

Call for nationwide rallies comes after dozens are arrested in street battles between government forces and protesters.

Last updated: 01 Mar 2014 18:13
Venezuelan activists have called for nationwide protests after 41 people were arrested in street battles between government forces and protesters.Leaders of the activist wing of the opposition, legislator Maria Corina Machado and members of the Popular Will party, led by jailed ex-mayor Leopoldo Lopez, called on people to rally on Saturday against what they called “repression, torture and persecution.”

This comes as eight foreigners were arrested during a rally in Caracas on charges of “international terrorism,” state VTV television said.

Venezuela’s barricades are symbol of protest

Popular Will said that an arrest warrant was issued for Carlos Vecchio, the party’s national political coordinator, accused of crimes linked to the protests that include arson and criminal damage.

On Friday, hooded protesters set up barricades and responded with a steady barrage of Molotov cocktails against the National Guard, as they were fired on with water and tear gas canisters in an attempt to break up the crowd in Caracas’ wealthy district of Chacao.

Journalists under fire

Venezuela’s journalist association SNTP has said that one of the foreigners arrested was US freelance reporter Andrew Rosati, from the Miami Herald.

Rosati was detained for half an hour and released after being “struck in the face and his abdomen” by security forces, the SNTP, said on Twitter.

Also detained and released was a team of journalists from the Associated Press, the SNTP said.

The SNTP also said that Italian photographer Francesca Commissari, who works for the local daily El Nacional, was being held.

In the past week, the Venezuelan government threatened to expel CNN if it did not “rectify” its coverage of the unrest.

Government officials released no details on the arrest of foreigners.

Escalating violence

Angry at the policies of the country’s leftist government, three weeks of violent protests against President Nicolas Maduro’s socialist government have left 18 dead, with the crisis showing little sign of abating.

Protest organiser Alfredo Romero, president of the Venezuelan Penal Forum, said 33 cases of “cruel and inhuman treatment or torture” have been reported to the public ombudsman.

The Venezuelan government said it was investigating 27 cases of human rights abuses, though it provided no details of possible wrongdoing.

Attorney General Luisa Ortega Diaz said that the death toll linked to the protests stood at 18, while of the 1,044 that had been detained, 72 remain behind bars.

Some of the deaths have been attributed to violent clashes with police, but other victims have been shot by unidentified gunmen.

The government has denied all links to such killings.

US urges dialogue

With no sign of a breakthrough, Washington urged Maduro to talk to the protesters.

“They need to reach out and have a dialogue, and bring people together and resolve their problems,” Secretary of State John Kerry said in Washington Friday, urging against “arrests and violence in the streets.”

Kerry said the United States was working with Colombia and other countries to bolster mediation efforts.

Maduro has labelled the protests that began on February 4 a Washington-backed attempted “coup.”

He claims that radical opposition leaders have joined students angered by high inflation and goods shortage in plotting to topple his nearly year-old government.

A cascade of woes hitting Venezuela’s oil industry « The Barrel Blog

A cascade of woes hitting Venezuela’s oil industry « The Barrel Blog.

By John Kingston | February 28, 2014 10:11 PM 

At a conference that annually celebrates–for the most part–the explosion of North American supply, a panel that featured two PDVSA alumni turned into a bleak review of an almost unfathomable crisis gripping the Venezuelan oil industry.

The strife in the streets of Caracas, and the lines of people waiting to buy the basic stuff of life, are almost secondary to the fact that, as the panelists noted, the Venezuelan government has mortgaged the future of its oil industry. Waiting for the country’s rapidly sinking ship of state to be righted by an increase in production, and maybe a boost in prices too, increasingly appears to be a pipe dream.

The two panelists discussing this on day two of the Platts Crude Oil Market-Americas conference in Houston were Alberto Cisnernos Lavalier, CEO and president of Caracas-based Global Business Consultants, and Ramon Espinasa, the lead oil and gas specialist in the Infrastructure and Environment Department at the Interamerican Development Bank.

One of the topics to be discussed at the panel was whether Venezuela was ripe for a “mini-apertura,” an opening into new investment in the country’s oil sector. The initial apertura of the 90′s was squashed by the election of Hugo Chavez as Venezuelan president, and it started the downward spiral of Venezuelan production that sent output down to 2.1 million b/d from 3.6 million b/d at its peak.

After listening to the panelists, one could only conclude that the industry is ripe for total collapse, not a surge in foreign investment.

Cisnernos noted Venezuela’s series of financial deals with China, in which loans from the Asian country are sent to Caracas in exchange for oil. The oil is sold at fixed-price numbers, which don’t look all that bad at first glance, up in the $90-$100 level, but in which the prices are CIF China and Venezuela absorbs the shipping cost. He reviewed the complicated structures of the various deals, ultimately describing them as “mortgaging the future.”

The Venezuela-China deals also violate the market’s “iron law” that usually sees oil marketed regionally, Cisnernos said. Instead, shipments taking 35-45 days to China are replacing one-week voyages into the US, Cisnernos said. And since most of the shipments are of lesser-value heavy oil or fuel oil, the shipping costs are deducting a higher percentage from the final netback than if a higher-value crude was being moved.

Venezuelan shipments to China stood at 66,000 b/d in 2008, Cisnernos said, but had averaged 326,000 b/d through the first eight months of 2013; he said he drew those figures from unofficial–and undisclosed–sources. But they’ve been as high as 488,000 b/d, he added, and “it’s roller-coaster behavior. There is no relation to production.” By contrast, the decline in exports to the US very much tracks Venezuela’s sliding output.

And the debts to China are just one of the obligations facing Venezuela. The joint ventures in the Orinoco belt each need upgraders that cost anywhere from $8 billion to $10 billion each. PDVSA must put up about 60% of the costs. “How in the world are they going to be able to pay for this?” Cisnernos said.

And Espinasa echoed what Platts Oilgram News reported a few weeks ago (and which The Barrel published in this post): financing the required PDVSA contributions to the Orinoco projects have been paid for to some degree by promising future oil shipments that would otherwise have gone to the Venezuelan coffers. “For a number of PDVSA deals they have paid for them with future supply,” he said.

The list of lamentations went on, few of them particularly shocking: the enormous brain drain from PDVSA “which will take a long time to recover,” as Espinasa said; a safety record at PDVSA refineries that could charitably be described as appalling; and a refinery operating rate that may at best top out at 60%, requiring the country to import lots of things it previously had exported, like gasoline blending components.

And with the growing street unrest in the country, forget any chance of ending the subsidy of gasoline prices that keeps retail numbers at less than 10 US cents per gallon, and leads to smuggling of what Espinasa said was about 100,000 b/d of product through Colombia and other parts of the Caribbean. The government had considered it, but given street protests, that move would be—pun clearly intended–like “throwing gasoline on the fire.”

Yet Cisnernos actually showed some optimism. He said that if there was “light at the end of the tunnel”—though why there would be was not clear—then production could be like a “hammock,” continuing to slide now but rebounding by 2020.

Espinasa offered sobering numbers on the task ahead. Twice in its history as an oil producer, Venezuela produced annual average growth rates of 110,000 b/d. The first was in the post World War II period, ending in about 1958; the second was during the Luis Guisti-led apertura of the 90’s. For Venezuela to get back to its peak output of 3.6 million b/d, reached around 1997, it would need to hit that average growth rate and sustain it for at least ten years, maybe more depending on the rates of decline in existing fields.

And he didn’t say this, but that would have to be done while some of the output that would otherwise finance that growth has already been put up as a sort of petroleum dowry to China and the Orinoco partners.

Grim, indeed.

Death toll rises in Venezuela amid roadblocks – Americas – Al Jazeera English

Death toll rises in Venezuela amid roadblocks – Americas – Al Jazeera English.

Consensus and dialogue rare in divided nation as barricades are enforced and fires smoulder around Caracas.

 Last updated: 25 Feb 2014 05:27

Demonstrators say they will not remove roadblocks until public safety improves [Chris Arsenault/Al Jazeera]
Caracas, Venezuela – Opposition activists have erected roadblocks across parts of the capital Caracas, halting transportation in an attempt to escalate the ongoing political standoff.

Demonstrators manning barricades in a suburb in eastern Caracas said on Monday they would not end the blockade until safety improved in one of the most violent countries in Latin America.

“We are protecting ourselves from the military and [armed pro-government] collectives who might try and come here,” said a student covering his face beside piles of rubbish and logs at a blocked intersection.

“I have been robbed many times.”

He spoke to Al Jazeera requesting anonymity.

The death toll from the unrest beginning in early February rose to 13, the government announced on Monday.

In Caracas’s business district, more than 1,000 pro-government motorcycle drivers massed outside the presidential palace, criticising what they consider an opposition plot to destabilise the country and topple the elected government of President Nicolas Maduro.

“The opposition are the ones who are causing problems, not us,” Gusmarly Morillo, the wife of a motorcycle taxi driver, told Al Jazeera as she waited to enter the grounds of Miraflores Palace.

“They [opposition partisans] think we are criminals just because we are poor and live in a slum.”

Lighting rod for anger

Motorcycles are the vehicle of choice for members of pro-government collectives – groups which sometimes use force in what they consider defence of the socialist revolution.

The collectives have become a lightening rod for opposition anger recently.

They are dubbed “shock troops” or “paramilitaries” by government critics who accuse them of attacking student protesters and terrorising middle class areas at the government’s behest.

But Katiuska Aponte, vice president of the Bolivarian Motorcycle Association, said those accusations are unfounded.

“The motorcyclists aren’t all collective members; they’re just workers trying to make a living to feed their families,” she told Al Jazeera.

For members of pro-government collectives, motorcycles are the vehicle of choice [Chris Arsenault/Al Jazeera]

“Part of the question of insecurity is coming from groups bent on destabilising the country. They are trying to delegitimise our government. We are here protesting on two wheels in favour of our elected president and in favour of peace.”

Poor communities on the hills around Caracas form the backbone of government support in the capital.

Opposition politicians, including defeated presidential contender Henrique Capriles, have pledged to do more to appeal to lower-class voters.

They want to shake the opposition’s image as representatives of a privileged elites.

But supermarket staff in upscale eastern Caracas did not seem impressed by the roadblocks.

“For us, people who work here but don’t live here, the blockades are a big problem because we can’t get to work easily,” Franklin Moran told Al Jazeera as he and a group of supermarket employees in uniforms watched students guard a barricade.

“If the protests were more symbolic and less disruptive, we would be more likely to support them.”

Students at another blockade nearby claimed they understood the concerns of Caracas’ poor.

“The opposition doesn’t want to take away the missions [centres providing social services] from the poor,” Brian Rubeiro, an opposition protester manning a barricade, told Al Jazeera.

“We want the social programmes, but there needs to be accountability and less corruption.”

Question of collectives

Oil prices rose ten-fold during the socialist period, and the opposition believes much of the massive cash infusion into South America’s largest oil exporter has been squandered.

“In the end, we are all Venezuelans and we want a prosperous future and peace,” Rubeiro said.

Maduro called for a peace dialogue to take place on Wednesday, but students said that could not solve the crisis unless the government starts disarming collectives as a show of good faith.

Capriles refuses to attend talks until Leopoldo Lopez, another opposition politician, is released from jail and the “repression” ends.

There was at least one rare moment of consensus in the deeply divided country on Monday.

Protesters blocking the road near Altamira Square in Caracas let through a group of motorcycle drivers heading to a pro-government rally after the two sides had a discussion.

“Forty Chavistas on motorbikes came through on the way to the demonstration,” Gustavo Ortega, a marketing student and demonstrator, told Al Jazeera.

“We negotiated and let them pass through; it’s the first time I have seen something like this.”

Moments of consensus and dialogue are rare, however, as barricades are enforced and fires smoulder around the city.

Cheap Gasoline: Why Venezuela Is Doomed To Collapse – Forbes

Cheap Gasoline: Why Venezuela Is Doomed To Collapse – Forbes.

Christopher HelmanChristopher HelmanForbes Staff

Riots in the streets. Killings of protesters. Shortages of consumer staples liketoilet paper and flour. Power outages. Confiscations of private property. Capital flight. Inflation running at more than 50%. The highest murder rate in the world.

The situation in Venezuela has grown so terrible that we could very well be witnessing the waning days of the Chavez-Maduro regime.

But don’t hold your breath. Despots propped up by revenues from natural resources have had a surprisingly robust track record over the past 100 years. Saddam Hussein survived through ruthlessness and handouts to Baath party loyalists. Khadafi perfected the same model in Libya. The Saudis and other Gulf sultanates and emirates have survived by paying off tribe members. Zimbabwe’s Robert Mugabe is still around thanks to his trade in blood diamonds.

In each case, the big boss keeps his head by paying off everyone who matters.

Hugo Chavez appeared to have the same kind of staying power. But with a difference. Rather than just focusing on lining the nests his generals and ministers and doers, Chavez, and Nicolas Maduro after him, found a different way to squander Venezuela’s great oil wealth. They could have created a mechanism by which the people of Venezuela could leverage oil wealth to finance investment and capital formation (like, say, Norway). Instead they’ve simply given it all away.

Indeed, it might not happen this month or this year, but Venezuela is ultimately doomed to collapse because of cheap gasoline.

Befitting Venezuela’s position as holder of the world’s biggest oil reserves, Chavez set the price of gasoline at the official equivalent of 5 U.S. cents per gallon. Using the more realistic black market exchange rate, a gallon of gas in Venezuela costs less than one penny. You can fill up an SUV for less than the price of a candy bar.

It’s one thing for a dictator to curry favor among his subjects by handing out cash. You can trade cash for goods today. You can save it up and buy something bigger tomorrow. And vitally, you can invest cash and create capital. Cash has unsurpassed option value.

But in Venezuela, cheap gasoline doesn’t. Sure, some enterprising Venezuelans would fill up their tanks, drive to Colombia, siphon it out and sell it for a profit. But most just take it for granted, like breathable air. You can’t trade it, can’t sell it, can’t store it up.

Over time, when a government continually gives its people a non-tradable subsidy, they will come to consider it a right, not a privilege. When that happens it will no longer occur to them to be thankful toward their generous president for the handout. When that take-it-for-granted moment occurs, the handout no longer retains any political capital for the ruler who presides over it. On the contrary, once the populous sees the subsidy as a right, it necessarily become a political liability for the leader — tying his hands and preventing the implementation of a more reasonable policy.

Grant people a right and they will thank you, for a little while. Try to take away that right and they will revolt. The last time Venezuela tried to hike gas prices, in 1989, there were riots in the streets.

Cheap gasoline is why the government of President Nicolas Maduro is doomed to collapse. He can’t raise gas prices meaningfully without setting off an even greater populist uprising than the one already wracking the capital. But without change, the Venezuelan economy and its state-run oil company Petroleos Venezuela (PDVSA) cannot last long.

Let’s work through the numbers to see how bad it is:


Pres. Maduro with PDVSA workers. (Credit: AP)

Venezuela produces about 2.5 million barrels of oil per day, about the same as Iraq.

About 800,000 barrels per day of gasoline and diesel is consumed domestically for which PDVSA doesn’t make a dime. That’s about 290 million barrels per year in subsidy oil.

What’s that cost PDVSA? Oil minister Rafael Ramirez has said that the breakeven cost to supply refined gasoline to the masses is $1.62 per gallon, or about $70 per barrel. But because Venezuela’s refineries can’t even make enough fuel to meet demand, PDVSA also has to import about 80,000 bpd of refined products (for which they must pay the far higher market price in excess of $2.50 per gallon). All told, the subsidized fuel costs PDVSA about $50 billion a year — that’s at least $25 billion a year in fuel subsidies plus another $20 billion or so in foregone revenue that PDVSA desperately needs to reinvest into its oil fields. Even a well managed company would have trouble climbing out of such a big hole.

Deducting that 800,000 bpd of domestic consumption from the 2.5 million bpd total leaves a subtotal of 1.7 million bpd that Venezuela can sell into the world market.

But we have more deductions. In order to finance fuel subsidies and other social spending, PDVSA has borrowed massively. According to PDVSA’s statements, its debt has increased from $15.5 billion in 2008 to $43 billion now. Venezuela’s biggest creditor is China, which has reportedly loaned the country $50 billion since 2007. China is not interested in getting Venezuelan bolivars; it insists on being paid back in oil — about 300,000 bpd worth of oil.

Paying China its oil knocks PDVSA’s saleable supply down to 1.4 million bpd.

We’re not done yet. Chavez was not just generous to his own people. In an effort to make friends with his neighbors, he forged a pact called Petrocaribe, through which PDVSA delivers deeply subsidized oil to the likes of Cuba, Jamaica, Haiti and Nicaragua. Though shipments at peak were more than 200,000 bpd, including 100,000 bpd to Cuba, there’sevidence that PDVSA has cut the volumes. No wonder, when the Dominican Republic has reportedly been paying back PDVSA in black beans. Cuba sends doctors and athletic trainers. (Jamaicaputs its PetroCaribe debt to Venezuela at $2.5 billion.)

As if that weren’t enough, PDVSA, through its U.S. refining arm Citgo has even donated more than $400 million worth of heating oil to poor people in the United States. That’s about 4 million barrels over nine years.

So all that largesse knocks off another 200,000 bpd or so, bringing PDVSA’s marketable supply down to 1.3 million bpd.

Over the course of a year, selling that 1.3 million bpd of oil brings in about $50 billion in hard currency (assuming about $100 per barrel). This contrasts with PDVSA’s reported revenues of $125 billion, most of which is not in dollars, but bolivars, of uncertain worth.

That $50 billion might seem like a tidy sum, but keep in mind that this represents more than 95% of Venezuela’s foreign earnings. And that’s not enough for a country of 40 million to live on.

Because no one in their right mind would want to exchange goods for bolivars, it’s out of this pile of greenbacks that Venezuela has to pay for all its imports as well as about $5 billion a year in dollar-denominated interest payments. Venezuela’s foreign currency reserves have plunged from $30 billion at the end of 2012 to about $20 billion today.

Newspapers have closed because they can’t import paper. Toyota has stoppedmaking cars because it can’t get dollars to import parts. Shortages of sugar, milk and butter are common. The CEO of Empresas Polar, a big food manufacturer, has rejected Maduro’s criticisms that his company is to blame for shortages, insisting that because the government holds all the country’s dollars he can’t get the hard currency he needs to import raw materials.

Venezuela’s official exchange rate stands at about 6 bolivar to the dollar. But on the black market one greenback will fetch 87 bolivars or more.

If you’re an entrepreneur or a business owner in Venezuela, you’re not likely to keep throwing good money after bad there, especially if you’re a retailer like Daka. Last November Maduro ordered soldiers to occupy Daka’s five stores and forced managers to sell electronics at lower prices. In some cases looters just helped themselves.

Reuters reported that Maduro was outraged at a store selling a washing machine for 54,000 bolivars — $8,600 at the official rate. That might seem high until you hear from a business owner: “Because they don’t allow me to buy dollars at the official rate of 6.3, I have to buy goods with black market dollars at about 60 bolivars, so how can I be expected to sell things at a loss? Can my children eat with that?” said the businessman, who asked Reuters not to identify him.

When the president of the country speaks to the merchant class saying, “The ones who have looted Venezuela are you, bourgeois parasites,” that’s a sign to any entrepreneur that it’s time to round up whatever dollars you can and get out.

Venezuela is more likely past the point where it can grow out of its problems. Oil production is believed to have fallen as much as 400,000 bpd in the past year due to natural decline rates from mature fields. PDVSA says it is on track to invest more than $20 billion in its operations this year — but are those official dollars or black market dollars? Western oil companies are wary about putting their capital into the fields, considering that Chavez has famously nationalized assets of ExxonMobil, ConocoPhillips , Harvest National Resources, Exterran and others. PDVSA says it owes oil company partners and contractors $15 billion.

Some partners, like Chevron CVX -1.68%, Repsol, Eni, Rosneft and Total, have pledged to invest in increasing production and even to extend more loans to PDVSA. But like China they want to get paid back in oil. Not much is likely to come of these ventures: 10,000 barrels here and 10,000 barrels there is not going solve the problem. What’s needed is a real plan. The analysts at oil consultancy WoodMackenzie tell me that Venezuela’s best bets for growing production lie in the ultra heavy oil deposits of the Orinoco Basin. There, to increase output by 1.5 million bpd will require investment of $100 billion to drill enough wells and build enough “upgraders” to take the heavy oil and transform it into something readily exportable. So far PDVSA hasn’t gotten any interest in this plan.

The oil is there, but the oil companies are in no hurry to get at it. They have plenty of opportunities to drill in the United States, and are looking forward to the first exploration contracts to be awarded in Mexico. They know someday Venezuela will again become a safe place to invest.

That day may be approaching. Venezuela’s credit default swaps are at five-year highs. According to Reuters, prices for some of its debt issues have fallen to 63 cents on the dollar. Some short term issues are yielding 20%. These are the kind of sovereign yields that presage defaults.

The sad thing for Venezuela is that (barring an explosive rise in oil prices) it’s hard to imagine the situation not getting worse before it gets better. In time the government will simply run out of the dollar reserves it needs to pay its debts and import goods. Trading partners will refuse to ship. Oil companies will refuse to invest. Those tankers of cheap PetroCaribe oil will stop arriving in Havana. Chavez’s daughters will be kicked out of their presidential party palace. And the people of Venezuela will some day be forced to pay more than a dollar to fill up their SUVs.

Caracas Is Burning As Maduro Warned May Face Military Coup | Zero Hedge

Caracas Is Burning As Maduro Warned May Face Military Coup | Zero Hedge.

With all eyes focused on Ukraine, the situation in Venezuela has once again escalated as protest leader Leopoldo Lopez’ arrest (and possible 10 year jail sentence) prompted more violence overnight. However, as we warned, the government crackdown is starting to raise concerns about the stability of the government.


As opposition leader Capriles asks Venezuela’s military to uphold the constitution, he exclaims that “the poor’ must participate for government to change.


The opposition leader speaks:


And IHS warns:


Images from last night suggest this is getting considerably worse…despite Maduro’s claims of “absolute calm”

and of course the terrible death of a former Miss Venezuela…

A Vital Message from Venezuela – “They Talk Like Marx, Rule Like Stalin…” | A Lightning War for Liberty

A Vital Message from Venezuela – “They Talk Like Marx, Rule Like Stalin…” | A Lightning War for Liberty.

The following quote written on a piece of cardboard from the ongoing protests in Venezuela basically summarizes how the oligarchs, or the 0.01%, and their political henchmen rule in all countries around the world at the moment. Then theycry like little welfare babies when people criticize their behavior.

Powerful stuff:

They speak like Marx
Rule like Stalin 
And live like Rockefellers 
While the people suffer


Warren Buffet is the absolute master of the above tactic, which is why I once wrote about him being: A Wolf in Sheep’s Clothing.

In Liberty,
Michael Kriegr

The Drought In Brazil Has Gotten So Bad That 142 Cities Are Now Rationing Water

The Drought In Brazil Has Gotten So Bad That 142 Cities Are Now Rationing Water.

 By Michael Snyder, on February 18th, 2014 

Drought - Photo by Bert KaufmannDid you know that the drought in Brazil is so bad that some neighborhoods are only being allowed to get water once every three days?  At this point, 142 Brazilian cities are rationing water and there does not appear to be much hope that this crippling drought is going to end any time soon.  Unfortunately, most Americans seem to be absolutely clueless about all of this.  In response to my recent article about how the unprecedented drought that is plaguing California right now could affect our food supply, one individual left a comment stating “if Califirnia can’t supply South America will. We got NAFTA.”  Apart from the fact that this person could not even spell “California” correctly, we also see a complete ignorance of what is going on in the rest of the planet.  The truth is that the largest country in South America (Brazil) is also experiencing an absolutely devastating drought at the moment.  They are going to have a very hard time just taking care of their own people for the foreseeable future.

And this horrendous drought in Brazil could potentially have a huge impact on the total global food supply.  As a recent RT article detailed, Brazil is the leading exporter in the world in a number of very important food categories…

Over 140 Brazilian cities have been pushed to ration water during the worst drought on record, according to a survey conducted by the country’s leading newspaper. Some neighborhoods only receive water once every three days.

Water is being rationed to nearly 6 million people living in a total of 142 cities across 11 states in Brazil, the world’s leading exporter of soybeans, coffee, orange juice, sugar and beef. Water supply companies told the Folha de S. Paulo newspaper that the country’s reservoirs, rivers and streams are the driest they have been in 20 years. A record heat wave could raise energy prices and damage crops.

Some neighborhoods in the city of Itu in Sao Paulo state (which accounts for one-quarter of Brazil’s population and one-third of its GDP), only receive water once every three days, for a total of 13 hours.

Are you starting to see what I mean?

This is serious.

The drought in North America also continues to get even worse.  According to an expert interviewed by National Geographic, this drought in the state of California “could last for 200 years or more”…

B. Lynn Ingram, a paleoclimatologist at the University of California at Berkeley, thinks that California needs to brace itself for a megadrought—one that could last for 200 years or more.

As a paleoclimatologist, Ingram takes the long view, examining tree rings and microorganisms in ocean sediment to identify temperatures and dry periods of the past millennium. Her work suggests that droughts are nothing new to California.

A drought of even 10 years would absolutely cripple this nation.  Already, the size of the total U.S. cattle herd is the smallest that it has been in 63 years and California farmers are going to let half a million acres sit idle this year because of the extremely dry conditions.  If this drought persists for several more years we will have an unprecedented crisis on our hands.

Unfortunately, there are signs that this current drought in California may be part of a larger trend.  I had never heard of “the Pacific Decadal Oscillation” before this week, but apparently it is a phenomenon that can cause droughts that last “for decades“…

Ingram and other paleoclimatologists have correlated several historic megadroughts with a shift in the surface temperature of the Pacific Ocean that occurs every 20 to 30 years—something called the Pacific Decadal Oscillation (PDO). The PDO is similar to an El Nino event except it lasts for decades—as its name implies—whereas an El Nino event lasts 6 to 18 months. Cool phases of the PDO result in less precipitation because cooler sea temperatures bump the jet stream north, which in turn pushes off storms that would otherwise provide rain and snow to California. Ingram says entire lakes dried up in California following a cool phase of the PDO several thousand years ago.

And of course it isn’t just the western half of the country that is struggling with water supply problems.  In the Southeast, water has been a major political issue for quite some time

The drought-parched states of Georgia, Alabama and Florida are back at it — fighting for a slice of water rights in a decades-long water war that’s left all three thirsty for more.

The 24-year dispute is emblematic of an increasingly common economic problem facing cities and states across the country – the demand for water quickly outpacing the supply as spikes in population soak up resources.

Most of us that live in the United States are accustomed to having seemingly inexhaustible supplies of fresh water.  We use more fresh water per capita than anyone else on the planet, and most of us never even think twice about it.

Unfortunately, things are changing.  We are on the precipice of a great water crisis, and many Americans are going to be in for a very rude awakening.

And the frightening thing is that the U.S. is actually in much better shape than most of the rest of the world is when it comes to supplies of fresh water.  In some areas of the globe, a “water crisis” is already a daily reality.

We have heard that someday water is going to become the “new oil”, and we are starting to get to that point.  Life is simply not possible without water, and as global supplies of clean, fresh water dwindle it is inevitable that it is going to cause global tensions to rise.

So what do you think the solutions to these problems are?

Venezuelan Authorities Detain Anti-Government Protest Leader – Live Feed | Zero Hedge

Venezuelan Authorities Detain Anti-Government Protest Leader – Live Feed | Zero Hedge.

As was expected, President Maduro’s forces have detained Leopoldo Lopez – the leader of the anti-government protesters. Having earlier stated, “I present myself here, willing for my arrest to wake up Venezuelans,” it appears Venezuelan authorities have stepped in…


Despite the ongoing proclamations of “absolute calm” the streets (below) appear anything but with hundreds of thousands on the streets… and protesters are blocking the National Guard van that holds Lopez.





Lopez added…

“In Venezuela, there is no justice. This fight is for the students, for those jailed, for the people suffering scarcity, for those without a job, for the youth without a future.”


Live Feed


The van holding Lopez is being held back by protesters…

Venezuela Expels 3 US Diplomats For “Promoting Instability” | Zero Hedge

Venezuela Expels 3 US Diplomats For “Promoting Instability” | Zero Hedge.

Having been ‘busted’ for their manipulation of events in Ukraine (and exposing their views of the European Union), it seems US diplomats have been up to their old tricks once again… this time in Venezuela. “Go Conspire In Washington,” was the clear message sent to the US as President Maduro expelled three US diplomats from his country, accusing them of plotting with anti-government protesters in an attempt to topple his socialist government. This is the second time Maduro has kicked out US diplomats (3 more were expelled in September for ‘conspiring with government opponents’) as he blasted comments by John Kerry as “yet another maneuver” by Washington to “legitimize attempts to destabilize the Venezuelan democracy unleashed by violent groups in recent days.”

An anti-government student holds a sign reading “There is no way to peace. Peace is the way. Venezuela wake up!” during a protest in Caracas.


Via Yahoo

Venezuelan President Nicolas Maduro accused Washington of plotting with anti-government protesters and expelled three US diplomats in retaliation.

The oil-rich country is mired in a deep economic crisis that critics blame on policies that Maduro largely inherited from Chavez.

Strict controls on currency and prices have created huge bottlenecks that have fueled inflation and emptied store shelves.

“I have ordered the foreign ministry to proceed with declaring those three consular officials persona non grata and expelling them from the country. Let them go conspire in Washington!” Maduro said in a nationally broadcast address

Maduro said the US diplomats, who have not been named, had met with students involved in anti-government protests under the pretense of offering them “visas to the United States.”

In late September Maduro kicked out three other US diplomats, including the charge d’affairs Kelly Keiderling, on accusations of conspiring with government opponents. The two countries have had no ambassadors since 2010.

A foreign ministry statement also said that Maduro’s government “flatly rejects” remarks by US Secretary of State John Kerry on Saturday voicing alarm at the violence during the marches and criticizing the arrest of protesters.

Kerry’s statement is “yet another maneuver” by Washington to “legitimize attempts to destabilize the Venezuelan democracy unleashed by violent groups in recent days,” the ministry said.

Of course, it makes sense for Maduro to pitch blame on to the Americans (whether they are to blame or not) as he faces a growing tension among the working Venezuelans that the status quo is not working and a common enemy is required…

As we noted previously (via Stratfor):

The challenge that the student movement will face is in finding a way to include Venezuela’s laboring class, which for the most part still supports the government, and relies on its redistributive policies. Their inability to rouse broad support across Venezuela’s social and economic classes was in part why previous student uprisings, including significant protests in 2007, failed to generate enough momentum to trigger a significant political shift.

But the situation has changed in Venezuela, and as the economic situation deteriorates there is a chance that protests like this could begin to generate additional social momentum in rejection of the status quo. President Nicolas Maduro has been in office for less than a year, and in that time the inflation rate has surged to over 50 percent and food shortages are a daily problem. Though firmly in power, the Chavista government is still struggling to address massive social and economic challenges. Massive government spending, years of nationalization and an overreliance on imports for basic consumer goods have radically deteriorated inflation levels, and undermined industrial production.

How the government responds will play a key role in the development of these protests going forward. The government cannot afford to crack down too hard without risking even worse unrest in the future. For its part, the mainstream opposition must walk a careful line between supporting the sentiment behind open unrest and being seen as destabilizing the country. Maduro retains the power to punish opposition politicians, and reaffirmed that Feb. 11 when he stated on national television that he intends to renew the law allowing him to outlaw political candidates who threaten the peace of the country. The statement was a clear shot over the bow of opposition leaders, and may foreshadow a more aggressive government policy designed to limit political opposition.

In the meantime, protest leader Leopoldo Lopez said he’ll surrender on Feb 18th –

“If anyone has decided to illegally arrest and jail me, you know I will be there,” he said. “I have nothing to fear; I have not done anything illegal.”

as plain clothes policeman were in the back of a pick-up outside the home of the father of Venezuelan opposition leader Leopoldo Lopez. Reports said the government wants to arrest him in connection with deadly street protests in recent days. “I have committed no crime,” said Lopez. “I have been a Venezuelan committed to our country, our people, and our future.” Earlier, Lopez called Maduro a coward on Twitter. “You won’t make either me or my family bow to you,” he added.

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