Tuesday, 15 December 2009

Venezuela's future

The Economist published an interesting article about the new IEA forecasts on oil production. Although we are still making guesses on oil peaking, we know it is coming. The question is when if it is not here already. Some people - economists and politicians firstly - still seem to think oil price can solve everything and there will not be a real peak, as if oil were labor and not a finite commodity. Still, most people - geologists and other scientists first but now even economists - accept there will be oil peaking. There is only so much oil under the soil and you can only prolong oil extraction for so long. In any case, most foresee oil peaking before 2030, definitely before 2050.

Even though Venezuela has a lot, an awful lot of oil, this oil is very heavy and thus more expensive to process than what you find in Saudi Arabia or Iraq. In any case, the chances I see for Venezuela with regards to oil are roughly speaking what you see below:

Things can keep like they are now for a couple of decades and that would mean Venezuelans would get every year less and less petrodollars, but that is all. Then, sometime before the second half of this century, the world will have shifted away from oil and Venezuela will have to find something else to live off from.

If prices keep going up faster, the shift would also arrive much faster. If Venezuela does get a new really big oil boom thanks to its large heavy and sand oil reserves, it could get a lot of money for some years but the energy shift would take place much faster. Most countries won't be interested in depending so heavily on one or two countries. It is enough with the system they see now.

Venezuela is right now risking a lot. It is not Norway. There is no plan for tomorrow. There is no Government Pension Fund of Venezuela as there is in Norway. Venezuela's fund Fonden is a piggy bank for the current president to buy votes. Venezuela's population is also much large than Norway's. The end of the oil era will be more dramatic.

On the graph below you can see Venezuela's population projections until 2050. The ugly pink points are the moments when a presidential election takes place unless the president dies of indigestion.

Some important ideas I keep reminding people of (my mantras):

  • Venezuela's pupils are the worst in Latin America. They were by far the worst in mathematics for 13 Latin American countries that took part in a Unesco test in 1998. See here for more details. They were the worst of 41 countries on a test on reading and comprehension carried out by IEA the same year. The chavista government opted for avoiding any open evaluation tests. That is why chavismo rejects our proposal to bring about transparency and accountability to Venezuela's education
  • 85% of Venezuelans live in the urban conglomerates along the coast and their urbanizations are spreading across the last best agricultural areas for many plants (did you know we used to produce wheat in the XIX century?)

  • Venezuela is chock-a-block with weapons
  • Venezuelans are less productive than their neighbours due to missing skills and decades living mostly of petrodollars
Venezuelans are sitting on a pressure cooker. They know it is getting warm, but they don't really know how bad it will get unless they do something. They could, if they wake up fast, avert the worst. They could, if they planned, transform all those boiling cookers in the world into something good. But a radical shift towards accountability and transparency, lots of sacrifices and hard thinking is what they will need.

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