Venezuelan Energy

Because military and political instability in the Persian Gulf makes the United States vulnerable to oil supply disruptions, a 1991 Department of Energy report encourages diversification of U.S. oil sources and greater reliance on imports from countries outside the Gulf, such as Venezuela. GAO's report, also published in Spanish, (1) discusses recent increases in Venezuelan oil production and the main factors affecting continued increases through 1996, (2) assesses recent investment reforms in the Venezuelan petroleum industry and U.S. petroleum companies' response to these reforms, (3) identifies the major impediments and inducements to U.S. investment in Venezuela's petroleum industry, and (5) reviews U.S. government efforts to support Venezuela's energy sector.

GAO found that: (1) Venezuela's oil production peaked in 1970, declined through 1985, and increased by about 21 percent through 1990; (2) the primary factors affecting continued increases in oil production through 1996 include a Venezuelan government-owned oil company's ability to obtain investment capital, the cost of producing and refining heavy and extra-heavy crude oil, and the Organization of Petroleum Exporting Countries' production level quotas; (3) to encourage foreign and private investment in petroleum-related joint ventures, Venezuela created an office to negotiate joint ventures and reduced oil production and refining taxes, but those reforms have not succeeded in attracting U.S investment in oil exploration, production, or refining in Venezuela; (4) U.S petroleum companies cited such reasons for their reluctance to invest in Venezuela as an absence of clear guidance, high tax rates, the requirement for Venezuelan congressional authorization of foreign investments, the lack of a bilateral tax treaty, uncertain security over foreign assets, and the absence of effective judicial protection against Venezuelan government actions; and (5) the United States has taken such actions to support Venezuela's energy sector as granting credit guarantees for U.S.-petroleum related exports, partially funding a feasibility study for refinery construction, promoting petroleum-related trade seminars and shows, signing a bilateral agreement to establish more routine trade and investment consultations, and holding bilateral consultations.