Does Venezuela really have the biggest oil reserves in the world?

Hello and thanks for downloading the More or Less podcast, with a program that looks at the numbers in the news, in life, and in the Orinoco Belt of Venezuela. And I'm Tim Harford. Unless you've been living under some sort of idyllic, sound-proofed rock, you will have heard that on the 3rd of January, US Special Forces stormed the Venezuelan capital Caracas and arrested President Maduro on drugs charges. Popular theory online is that this was all about oil, which is not surprising because people have been saying that American foreign policy is all about oil for longer than I've been alive. So is it? President Trump is here to clarify. The oil companies are going to go in, they're going to spend money, we're going to take back the oil that frankly we should have taken back a long time ago. Now if I asked you to name an oil-rich nation, you might mention Saudi Arabia, Russia and the US itself also spring to mind. But allegedly, the country with the largest oil reserves is Venezuela, with 300 billion barrels worth. So today, we're going to look at oil numbers. Many years ago, no one really remembers it anymore. Venezuela was actually one. Venezuela is actually the largest crude oil exporters in the world. That's Artem Abramov, the lead of oil and gas research at Reistad Energy, an energy research and business intelligence firm based in Oslo, Norway. Venezuela in the 1970s was a country that lived off its oil. And given that Venezuela could simply import everything it wanted using oil money, other industries faltered or never got started. Everyone rose and fell over the years, but about a decade ago, it collapsed. And basically, the country which was one producing 3.5 million barrels a day saw the production declining towards 600,000 in 2020, that was the bottom. It recovered slightly between 2020 and now, but it's still roughly one million barrels a day. But while oil production has collapsed, Venezuela's estimates of its oil reserves have been far more brilliant. In 2007, the Venezuelan government said it had 100 billion barrels. In 2009, the estimate was 200 billion barrels. And just as production was about to fall off a cliff, the estimate was 300 billion barrels. It sounds like an extremely large number. Like we are talking about pretty much centuries of production at the current rate. This is four times the amount the US itself has. However, this number is likely not accurate in the current market. What does it mean anyway? Venezuela has a lot of oil that is not disputed, but not every single bit of oil is counted, because not all of it is usable. The term proven reserves is the estimate of the amount of oil that can be extracted, packaged and sold at an economic gain, which means that as the oil price rises and falls, so do reserves. You try to quantify the amount of oil which can be economically produced with the current technologies and the recent market prices. It should respond ideally to the oil price environment you have seen. Like it's a very different number which can be extracted at $100 per barrel oil price versus $30 or $40 per barrel. The 300 billion figure is reliant on a strong market for it to be economically viable to extract 300 billion barrels of oil. The oil must sell for over $100 a barrel, because the process of extraction is so expensive. This is because not all oil is the same. Hal Hodson, America's editor at The Economist says, Oil is not oil. Oil in Saudi Arabia is completely different than oil in Venezuela. Oil in Venezuela is actually tar. It is under the ground, a long, long way. You can't just suck it up with a straw. You have to send this giant digger down with a huge chamber behind it and you have to tunnel your way through this tar, inject a bunch of chemicals down there to make it liquefy, and then slurp it all back up. It is incredibly expensive, incredibly energy intensive. The 300 billion barrel reserve estimate was based on a high price of oil, over $110 a barrel. If you look at the figure for the US, its proven oil reserves change from year to year as the oil price itself changes. But Venezuela claimed their reserves haven't budged since the mid-2010s. Artem Abramov. And that was the moment when the oil price actually lifted their proven reserves all the way to 300 over a course of four or five years. And they never went back, because oil prices declined. They fell to 50 in 2015-2016, but the proven reserve figure stayed at 300 billion barrels late. Today's oil prices, they're around $60 per barrel. And at $60 per barrel, maybe only half of these reserves, maybe even less, which can actually be extracted economically. So we're looking at less than 150 billion barrels, which is still a big number. It's just half the number Venezuela claims. However, just because there are potentially 150 billion barrels to extract doesn't mean that figure will be easy to achieve. Even without drilling new wells, the existing infrastructure needs a lot of work and investment before it can really be productive. President Trump posted on TruthSocial that he expects everything to be up and running within 18 months. But Artem says that's a steep mountain to climb. All these facilities and pipelines in Museo today, they are still from like 1970, 1980, and they were not properly maintained. Nothing was repaired. I actually estimate that there is no more than 200, maybe 300,000 barrels late of additional oil production, which can be extracted from existing wells, wells which have already been drilled. So these are the volumes which are maybe easily available within 18, maybe 24 months, but that's the maximum. If you wanted to ramp up production to the heights of 3.5 million barrels per day that Venezuela historically produced, well, that will cost time and money. We're talking about 15 year horizon at least. So if you start investing today, then by 2040, I think it is possible theoretically for Venezuela to get back to 3 million barrels late. We actually did this estimate immediately after the events. The exact number stood at 183 billion USD over a 15 year period. So slightly more than 10 billion USD per year. In order to really trigger the start of this recovery, you need at least 30 billion USD of capital from international oil companies. Like in the first two, three years, that's the amount which international oil producers have to commit to the country in order to initiate this growth cycle. There are a couple of problems with this plan for international investors. One is that the US and China are pretty much the only countries who have the type of refineries that can handle this type of heavy oil. So the market isn't huge. US refineries are also working at 94% of their capacity, so their ability to refine higher quantities of oil is limited. But there's also an economic issue. So could the US benefit from Venezuelan oil? Yes. Could they massively ramp up Venezuelan oil production? Also yes, but with an already over supplied market and with a country being in political turmoil, it is not clear that private investors would be tempted. But we may be surprised. If there's one thing we can say about the way the Trump administration operates, it's full of surprises. That's all we have time for this week, thanks to Artem Abramov and Hal Hodson. If you have any questions or comments, do please write in to more or less at bbc.co.uk. We'll be back next week, and until then, goodbye.