The recent events surrounding the United States’ bid to control Venezuela’s oil sector, especially following the abduction of Venezuelan President Nicolas Maduro, have brought significant attention to the type of crude oil produced in this Latin American nation. Crude oil, produced by around 100 countries worldwide, varies widely in type, with hundreds of varieties differing in viscosity and sulfur content.
While all grades of crude oil hold value, their varying properties make certain grades more desirable in specific markets. Crude oils are categorized as either “heavy” or “light,” depending on their viscosities, also known as “gravities.” Additionally, crude oil is classified based on sulfur content, with high-sulfur grades termed “sour” and lower-sulfur varieties referred to as “sweet.” Generally, light and sweet crude commands higher prices in global markets.
Specific countries and regions primarily produce distinct grades of oil. For instance, Canada is known for producing heavy, sour crude, while many African nations tend to produce lighter and sweeter varieties. Some popular light, sweet crude oil examples include Saudi Arabia’s Arabian Super Light, Iran’s South Pars Condensate, Malaysia’s Tapis Blend, and Australia’s Cossack. In contrast, heavily traded heavy, sour varieties include China’s Shengli, the United Kingdom’s Kraken, Iraq’s Basra Heavy, and Iran’s Soroosh.
Venezuela is home to the world’s largest proven oil reserves, estimated at approximately 303 billion barrels. Most of these reserves consist of heavy, sour crude located in the Orinoco Oil Belt in the country’s center. The oil from this basin is particularly dense and viscous, resembling a tar-like consistency, which requires specialized extraction methods such as steam injection and the use of diluents.
Industry analysts indicate that realizing the full potential of this oil basin will necessitate substantial investment, primarily due to the deteriorated state of the oil sector’s infrastructure and expertise. This decline stems from the nationalization efforts initiated by the late leader Hugo Chavez and the ongoing impact of U.S. sanctions that have hindered Venezuela's access to foreign capital and modern technological advancements. As of November, Venezuela's oil output was estimated at about 860,000 barrels per day (bpd), which accounts for less than 1 percent of the global total and marks a significant drop from its peak of approximately 3.5 million bpd in the 1970s.
Consultancy firm Rystad Energy has projected that around $110 billion in capital investment is necessary for Venezuela to regain its late 2000s output of roughly 2 million bpd. Amidst these developments, former U.S. President Donald Trump has stated that U.S. oil companies are ready to invest billions of dollars to revive production in the country.
Despite the potential for investment, some industry analysts remain skeptical about whether U.S. oil companies will be enticed by Venezuela’s heavy crude without significant incentives and guarantees. Factors such as the uncertainty surrounding post-Maduro leadership, Chavez’s history of expropriation, and the current excess supply of oil in the global market could deter firms from investing.
Major U.S. oil firms like ExxonMobil and ConocoPhillips exited the Venezuelan market in 2007 after Chavez seized their facilities, later receiving substantial compensation through international arbitration. At a recent meeting with Trump, ExxonMobil CEO Darren Woods expressed that Venezuela is currently “uninvestable” and emphasized that “significant changes” are required to make a return feasible.
Currently, Chemical is the only major U.S. oil producer in Venezuela, operating under special exemptions from Washington’s sanctions. This positions Chevron as a potential beneficiary of Trump’s plans. While opinions diverge on the viability of major oil companies investing in Venezuela, analysts agree that one segment stands to gain significantly: U.S. refineries.
The United States leads the world in crude production, primarily due to an increase in drilling for lighter shale oil. However, the majority of U.S. refineries were originally constructed to process heavier grades of crude. According to the American Fuel and Petrochemical Manufacturers, nearly 70 percent of U.S. refining capacity is designed for heavier crude, reflecting the heavy investments made prior to the shale boom.
“You need what is referred to as a ‘complex’ refinery with deep conversion capacities, and the Gulf Coast hosts multiple refineries that fit this description,” noted Denton Cinquegrana, chief oil analyst at Oil Price Information Service. “The coker units essential for processing were built to accommodate heavy crude, not just from Venezuela but also from Mexico and other South American producers.”
Shon Hiatt, director of the Zage Business of Energy Initiative at the University of Southern California, highlighted that U.S. refineries along the Texas and Louisiana coasts would immensely benefit from increased exports of Venezuelan crude. “Venezuela has a history of exporting its oil to the U.S. due to its early involvement with U.S. oil companies, which were the first to explore, extract, process, and export Venezuelan petroleum,” Hiatt explained.
While heavy Canadian crude has largely replaced Venezuelan imports over the years due to sanctions, a shift could occur if Trump’s plans materialize. “If Venezuelan heavy crude exports rise, they may displace Canadian heavy crude, as Venezuelan crude is often sold at a lower price to refineries,” Hiatt concluded.