Peaks....
In the post war 1948-1970 period, Venezuela's economy was driven forward by increasing imports, and the importance, of capital goods. Over those years, imports of capital goods accounted for 46% of total imports. The import of capital goods coincided with high rates of gross domestic fixed investment. This, in turn, was reflected in the increased contribution of manufacturing to GDP. Between 1948 and 1970, the rate of increase in value-added in manufacturing exceeded the rate of increase in toal GDP.
Demographic changes follow this economic transition and by 1970, 73% of the population lived in urban areas.
But to speak of capital goods imports and manufacturing contributions in general terms, as broad economic categories, is to give more credit than is due, for it is the specificity of oil production that so dominates modern Venezuela. Oil production currently accounts for 33 percent of GDP, and 85 percent of exports. It is the specificity of oil production that determined, and determines, capital equipment imports and manufacturing contribution. And in the specific problems of the petroleum industry the general problems of capitalist reproduction are both compressed and expressed.
In 1928, Venezuela was the world leader in petroleum exports. It remained the world leader until 1970, the year its domestic production peaked. The Venezuelan peak coincides with the 1970 peak in domestic US oil production. In neither country was this production peak determined by scarcity of resources, or depletion of reserves. In both countries, the production peak coincides with a peak in the rate of return on investment.
The determinants of capitalist production are the elements of capitalist reproduction in its totality, and those elements are cost, price, and the mass and rate of profit. The decline in US and Venezuelan production after 1970 coincides with a decline in the rate of return on investment. The declines also coincide with increased production from Saudi Arabia. Between 1970 and 1973, Saudi output doubled to 7.6 million barrels daily.
The shift in production to Saudi Arabia was based on reduced costs of production, costs that are less than half the world average. All of OPEC's increased daily output between 1970 and 2003 is attributable to the net increase in Saudi production as increases in Nigeria, Qatar, Algeria, Indonesia, the United Arab Emirates have been offset by production declines in Iran, Kuwait, Libya, Venezuela, and Iraq.
Behind, or more correctly, preceding the declining rate of return there had been the massive increase in the fixed assets, the technical component for petroleum production. Saudi Arabia, through its lower production costs, and increased output, supported by US petroleum companies, led OPEC into tripling and quadrupling the price for oil, attempting to offset the decline in the return on investment.
The OPEC price increase was preceded and followed by a wave of nationalizations of oil company production facilities and assets, the "concessions ," including nationalization of the assets of the Arabian-American Oil Company (Aramco). In 1975, Venezuela enacted legislation for the compensated nationalization of its oil producers. At the time of nationalization, 1976, three companies, Exxon, Shell, and Gulf Oil accounted for 85 percent of output and 75 percent of manpower at the newly formed Petroleos de Venezuela S.A. (PDVSA).
Exploration and development of new fields, frozen under Betancourt, were made priorities for PDVSA. Extensive, and expensive, E&D programs were approved. Between 1976 and 1982, capital expenditures increased 160 percent. Daily output continued to fall, and by 1982, production was only half the 1970 production peak. Proven, recoverable reserves from conventional sources increased 34 percent. This bears repeating: while daily output continued to fall, proven recoverable reserves increased. Daily production levels were, and remain, independent of proven reserves.
Further exploration and development has continued to yield increased estimates of proven recoverable reserves. 2003 reserves from conventional sources are now twice those estimated in the peak production year of 1970, despite the continued restriction of daily output.
Good-bye Hubbert, and good riddance. Hello Hugo.
More to follow.....
S. Artesian
address all correspondence to: sartesian@earthlink.net
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