Venezuela energy cuts risky for oil prices

CARACAS, Venezuela, Feb. 23 (UPI) -- Venezuela's worsening electricity power supplies pose a risk to crude oil prices amid fears the government of President Hugo Chavez may face difficulty sustaining oil production and exports at current levels.

Fears of an impact of Venezuela's power shortages on global oil prices coincide with suggestions that Chavez, under growing political pressures over the socially disruptive blackouts, may choose to shut down some oil operations to divert electricity to more politically expedient uses.

Public discontent over electricity supply shortages has grown since the power cuts began to hit both urban centers and villages last year. Blackouts lasting several hours have become more frequent in recent months.

Industry analysts said any drop in Venezuelan oil production and exports could push crude oil prices to more than $100 a barrel unless other producers moved in quickly to make up for shortfalls.

Refiners in the United States and elsewhere in the Americas were alerted this week to the risk of Chavez having to cut back on refining at the Paraguana complex that handles more than 900,000 barrels a day.

The government says the power shortages are due entirely to the worst drought that Venezuela has faced in 50 years. Water shortages caused hydroelectric dams to work below capacity. More than 70 percent of power generation in the country is dependent on water levels in the dams staying at sufficient levels for the turbines to work. The drought has caused long-standing problems with the hydroelectric complexes.

Amid continuing shortfalls in electricity production, the government's focus has shifted to clamping down on what it calls wastage in domestic and industrial use of power. A series of power-saving measures targeted factories and their owners.

Although the power shortages began last year, Chavez faces renewed pressure this year because of elections on Sept. 26.

Analysts said revolutionary fervor in Venezuela could be giving way to pragmatism as problems over shortages multiplied. Last week, Venezuela initialed the largest deal of Chavez's 11-year rule for foreign investment, hoping to attract tens of billions of dollars into the Orinoco Belt oil exploration and development. Only three years ago, Chavez nationalized operations in the area but the takeover did not produce the expected regeneration of the region.

The investment by U.S. company Chevron and Spain's Repsol into the Orinoco Belt comes after hard bargaining and despite risks the government may again change its mind about foreign investors.

Venezuela's reserves of more than 100 billion barrels of oil equivalent clinched the deal, analysts said. Chavez said he recognized that Venezuela could not develop the Orinoco Belt reserves on its own and needed both international finance and expertise.