Before we head Down The Rabbit Hole a couple of items from the news feed… Natural Gas Intelligence asks the question, “Could Venezuela Help Ease The Global Natural Gas Shortage?” The article suggests the answer could be yes, laying out a scenario whereby the US eases sanctions against Venezuela and international companies participate with Venezuela in joint ventures to develop natural gas fields (Venezuela has the world’s 5th largest natural gas reserves) and export it via pipeline to Trinidad & Tobago where it could be shipped around the world. They say this could be done in as little as three years.

 As you might expect, our response is somewhere between “It’s wishful thinking” and “Are you kidding?” In the past natural gas has pretty much been an afterthought in Venezuela who, besides having the world’s 5th largest natural gas reserves, has the world’s largest proven oil reserves albeit mostly heavy or extra-heavy crude, but recently they’ve been talking to Colombia about restarting a natural gas pipeline (with Colombia’s new President, leftist/Marxist, Gustavo Petro) and have been talking to the Iranians about natural gas development.

 I’ve said (speculated) recently that the interest in natural gas could be because the damage the Chavistas have done to their oil infrastructure, through neglect and mismanagement, is so pervasive it might be quicker and easier to develop natural gas resources. Most reliable oil industry analysts estimate Venezuela would need to spend about $10 billion a year for 10 years to recover the oil production lost under 21st Century Bolivarian Socialism.

 At this point it’s important to note that Venezuela( Chavismo) is essentially broke and has no credit anywhere with anybody. Any rebuilding of their infrastructure would have to be done through joint ventures or outright contracts with international oil majors.

 The problem is that the Chavistas have burned those bridges through expropriations and asset seizures (over 5,000 cases under Chavez and Maduro…50 times that of fellow socialist country, Ecuador). Many of those needed to help are currently lining up to get whatever they can when CITGO, PDVSA’s (Venezuela government-owned oil company) only real asset that worth anything, share are auctioned, which could be some time in 2023 or 2024. The Chavistas owe everybody including other countries, private companies, as well as bond holders (Venezuela had never defaulted on their bonds in history before Chavismo). The Chavistas have no credibility with anyone, nobody trusts them, and nobody wants to do business with them.

 That said, Venezuela and the Maduro regime will have the same problem developing their natural gas industry that they currently face with their oil industry. They are too inept and corrupt to do it themselves and basically nobody, except maybe the Iranians, is willing to partner with them. Oil and gas giant, Exxon Mobil is the perfect example of the reality of the situation.

 Having been burned by the Chavistas, Exxon Mobil is currently investing billions in developing oil and gas projects in…wait for it…Guyana! In a couple of years tiny little Guyana will pass once-mighty Venezuela in oil and gas production. Why would anybody want to do business with Venezuela? It’s rhetorical…nobody does. So… what is it to be in Venezuela? Oil…gas…or neither?

 Then we have Insight Crime telling us that Venezuela government corruption has now hit Venezuela’s legal cigarette industry. The historical % of contraband cigarettes in Venezuela has been about 10% and came primarily from Colombia and Aruba. Now they’re pouring in through all the ports, airports, even courier services and the percentage is up to 40% of the overall market.

 As we’ve told you before, the Maduro regime has to find new ways to pay off government authorities and the military since there is basically no oil revenue. The officials receive between $50,000 – $100,000 per contraband shipment so the government has no interest in stopping these shipments. They do the same thing with gold mining (and pretty much everything else).

 Then we have Argus Media telling us that the consulting firm Gas Energy in Caracas estimates October oil production in Venezuela will be about 675,000 bpd (barrels per day) due to the use of Iranian condensate (needed to mix with Venezuela’s heavy and extra-heavy crude for processing), up from 653,000 bpd. Analysts are concerned about the consistency of shipments of Iranian condensate to bolster future production. Oh, and the Iranians are also shipping crude to Venezuela… Is Venezuela  really even in the oil business?

 Time to head Down The Rabbit Hole….

 Chapter 4/ continued…

…In 2013 and again in 2016 the government was warned about the deficiencies in the power grid and concern over lack of maintenance. Their willingness to address the issue was typified by their response to union leader, Elio Palacios’s warning in 2018 that a crisis-level event was imminent. They threw him in jail.

 Then came March,2019. On March 7th the power went out in Caracas. No major concern,right? As if on cue the power returned after an hour or two. Life in the third world, right? Then the lights went out, and they stayed out. 23 of 25 states were without power. The blackout lasted for 5 days in Caracas, longer in some areas, and in places it was almost indefinite. A week later another less intense but still far-reaching blackout occurred lasting a couple of days. That was followed up by a one day blackout in most of the country.

 In a country already reeling from the most disastrous economy in it’s history and most think in the history of the Western Hemisphere the effects were catastrophic. The current food crisis, unlike the 2014 crisis where there simply wasn’t food on the shelves (although many areas still suffered shortages) was that there was nothing affordable. Hyperinflation and devaluation of the bolivar (local currency) had forced the average Venezuela to survive on 700 calories a day. More on that later. The transportation sector had collapsed along with the oil industry (gasoline shortages), healthcare, education, and others. Now no power. As bad as it was to having to dig through garbage to survive they now had to do it in the dark!

 The first day or two actually unified the population. Food that would spoil was cooked and shared by those with gas or access to wood/charcoal fires. People shared candles, kerosene lanterns, etc. Many neighbors became closer since they had to be outside. It was just too hot in their homes. That positive effect was short-lived and soon desperation set in. After a couple of days it’s human nature to wonder, “How long is this going to last?” With little to no communication via telephone, TV, radio, etc. people didn’t know when or if help was coming.and they responded as people all too often do. Scenes all over the country looked like something out of “Mad Max”. It was truly a post-apocalyptic scenario.

 Widespread looting was reported. Initially it was primarily food items but soon anything and everything were targeted. In Maracaibo alone over 500 stores and businesses were ransacked. The Metro stopped running, the oil wells stopped pumping. Those with generators for their homes or businesses ran out of fuel. Back-up generator systems in hospitals broke down as they were meant to provide power for hours, not days. Surgeries in progress were completed with whatever lighting was available which in some cases meant using lights from smart phones. No dialysis, no chemo, radiation, etc. People trying to escape the heat by sleeping outside were robbed. It was a nightmare.

 Another victim of the blackouts, which contributed to the post-apocalyptic scenario was commerce. Under the crunch of a cash shortage and with hyperinflation requiring large amounts for any purchase most transactions were done with debit cards or bank transfers using smart phones. No power meant no card readers and mostly no cell service so unless you had dollars or Euros it was a blast from the past as people reverted to the barter system.

 More tomorrow….