INSIGHT: Venezuela’s petchems may finally get a chance – but unlikely to be under Maduro

LONDON (ICIS)–Venezuelans go to the polls on Sunday with the hope of a free and fair election, in which case President Nicolas Maduro is widely expected to lose office in a country where the economy has been battered by years of mismanagement, corruption, and US sanctions.

In the crude oil-rich country – Venezuela holds the world’s largest reserves – petrochemicals could naturally develop given the raw materials advantage. Back in the 1990s, with crude oil output at highs, petrochemicals were tilted as a growing sector in the country.

The industry never took off.

Since 2001, Venezuela has been run by the socialist PSUV party, first under the late President Hugo Chavez, who died in 2013, and later under his appointee successor, Nicolas Maduro, who won an election in 2018 widely seen as not free: the PSUV-led coalition won 256 out of 277 seats in the National Assembly.

Venezuela’s demise has been rapid and deep: practically no institution in the country has been spared from the PSUV taking over it, and the election on Sunday has several times been postponed as Maduro tries to cling onto power for as long as he can.

The powerful military are still for the most part rallying behind him. A state of terror has been the norm in the past few years, and the economy took a turn for the worse in the late 2010s and pushed around 7.5 million Venezuelans to flee, mostly to neighboring countries or, those with the means, to countries such as the US or Spain.

Sunday’s election is momentous because it has been tilted as one in which Maduro could allow a free vote – but many still fear that is not his nature.

But independent opinion polls have consistently showed him trailing behind the unity opposition candidate, Edmundo Gonzalez, a 74-year-old diplomat who managed to avoid, like other opposition candidates before him, being banned from running.

PETROCHEMICALS
Before North America renewed its status as a global energy power with the advent of the shale gas boom, crude oil derivatives were – and continue to be in most Latin American countries – the only game in town when it comes to petrochemicals raw materials.

In the past 30 years, crude oil output peaked in 2000 at slightly more than 3 million barrels/day, stayed mostly stable under Chavez’s rule at around 2.5 million barrels/day, but has been on a downward trend since, according to data from the US Energy Information Administration (EIA).

VENEZUELA CRUDE OIL PRODUCTION
January 2000-July 2023
Million barrels/day
Source: US’ Energy Information Administration

Currently, Venezuela produces around 700,000 barrels/day. The reserves continue to be there, underground, but the facilities to extract that wealth have also been victims mismanagement and have had little maintenance.

In 2023, as the world’s energy sector reeled from Russia’s attack against Ukraine, the US softened some of its sanctions on Venezuela – its crude oil was now more needed than ever – and signed the Barbados Accords, which would imply lifting sanctions in exchange for a free and fair electoral process.

Maduro backtracked from his word earlier in 2024 – as he kept banning candidates from the opposition to run in the process – and the US reimposed the sanctions which, in the abyss the country is in, are used by the government as the excuse for Venezuela’s malaise.

Amid this backdrop over the past decades, the 1990s talk about petrochemicals being a sector which could potentially be a powerful exporter of downstream materials to the rest of the world has all but died.

In June, the Venezuelan government said it was mulling building production facilities for petrochemicals and fertilizers together with Turkey’s industrial conglomerate Yildirim, but without giving much detail about timelines or budgets.

However, such deals have been signed before and nothing came to fruition out of them.

Yildrim had not responded to a request for comment at the time of writing.

Meanwhile, in an interview with ICIS in May, an executive at chemicals distributor Manuchar – Belgium-headquartered but focused on emerging markets, with strong presence in Latin America – told the sad fate the company was victim of in the late 2010s.

By then, the economy worsened sharply and, with it, insecurity created a dangerous country to live in, from Caracas to the provinces. The government’s terror state has included paramilitary groups which have had little regard for their own people.

Most of Manuchar’s employees fled the country while they still had the means, and the human resources problem forced the company to basically idle all its facilities there, which remain dormant to this day, said Manuchar’s head for South America, Stefan Van Loock.

“We still have a legal entity in Venezuela, although it is dormant, and we do not have any sales there since the end of the 2010s. During our last months there, the situation had become untenable: we could not import materials, there were hardly any dollars available, so even if you got the imports, you could not pay for them most times…,” he said.

“It was also becoming a human resources problem. I saw many Manuchar colleagues resign: ‘I cannot stay in Venezuela any longer, it has become too dangerous, and I am leaving’. It was a combination of all those factors that made us decide to wind down our operations there. We can only hope things improve.”

It is interesting to read this piece published on ICIS in 2013 when Chavez died. At the time, there were still hopes petrochemicals could be developed as the country’s crude oil sector was still worth the name.

Little we knew how much the country would quickly deteriorate in the next five years, although the article already hinted at constrains which would only become much bigger later.

“Venezuela potentially could attract significant petrochemical industry investment although major industry players have tried and failed in the past to establish footholds in the country,” the article’s author, ICIS expert Nigel Davis, wrote at the time.

“State-controlled producer Pequiven has plans to nearly triple its plastics production capacity to 1.86 million tonnes/year in 2016 from 694,000 tonnes/year, although its ability to do so is questioned against the backdrop of feedstock, power, and financing constraints.”

And looking further back into the archives, even with Chavez in power, companies across the world such as major ExxonMobil wanted to tap into Venezuela’s petrochemicals.

In this agreement from 2004, the US energy major and Pequiven were mulling a 50:50 joint venture to build a $2.5-3 billion petrochemicals complex.

Once again, the project never broke ground.

HOPE LAST THING TO LOSE
Millions of Venezuelans abroad are following the electoral campaign and, for the most part, are hoping their compatriots at home go and vote em masse on Sunday.

The polls have consistently and overwhelmingly showed Maduro behind, so if a free election is held, the Chavismo may be coming to and in a few months.

The structures it leaves behind will take years to dismantle, anyway, and success in building a fairer and freer Venezuela is not guaranteed if the opposition wins on Sunday.

Even this week, as he sees his position threatened, Maduro rallied supporters with a violent rhetoric which raised alarms across Latin America: he said that if his party does not win the election, there could be a bloodbath.

Even Brazil’s President Luiz Inacio Lula da Silva, normally shy in openly criticizing Maduro as he has a worrying tendency to flirt with far left and authoritarian leaders in the region, was blunt about his feelings.

“I was shocked by Maduro’s statement that if he loses the election, there will be a bloodbath … Maduro has to learn that when you win, you stay; when you lose, you leave and prepare to run again in the next election,” said Lula, quoted by Brazil’s public news agency Agencia Brasil.

Lula has sent to Venezuela his personal adviser on foreign policy, Celso Amorim, as part of international delegations who are to be observers in the election.

Jose Marquez, a Venezuelan journalist exiled in Buenos Aires, said Sunday’s election could be the last chance to put Maduro out of office, calling on his compatriots to vote em masse against him.

“There are people who emigrated who are right now traveling to Venezuela just to vote on Sunday. The fact that there are people in the country who decide not to vote, perhaps in the last opportunity to remove Maduro from power, is disappointing but, above all, very sad,” said Marquez.

Front page picture: Facilities operated by PDVSA
Source: PDVSA

Insight by Jonathan Lopez