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The situation in the global oil market could not be worse, with oil prices below USD 35. According to the International Energy Agency, global oil supply stands at 96.6 million barrels per day, that is: 1.8 million above the already bulky supply exactly one year ago. Such overproduction has led oil inventories in the United States to more than 490 million barrels, the largest since 1930, whereas global inventories stand at 1.8 million, the largest since the economic crisis of 2008.

Now, therefore, even if the situation looks hopeless for oil producers, it is just a cycle. At the end of the day, oil depending countries are used to such ups and downs. A matter of mounting concern is that the 188 States of the international community have agreed on the end of the fossil energy, at the Climate Change Summit recently held in Paris.

The beginning of the end

In order to restrict growing temperature by no more than 1.5 degrees Celsius, global emissions of carbon dioxide should peak before 2030 and be removed after 2050. Such decision has a tremendous impact insofar as the nations of the world have sent an unequivocal message to investors as to the priority: clean energy. Furthermore, developed nations undertook to transfer USD 100 billion annually to developing countries from 2020 to fund their transition towards clean energy.

This happens at a time when renewable energy shows a sizeable technology leap. The cost of solar energy has plunged 85% since 2000, whereas the cost of wind energy has slipped 85% since the end of the 1990's. In both cases, the Moore's law, identified with information technology, has been replicated. The capacity of solar energy has doubled every two years and the capacity of wind energy has doubled every two and a half years. Next come biomass (entering a second generation), geothermal energy and tidal energy. Moreover, the price of lithium batteries has dropped 40% since 2009, whereas the storage capacity has radically heightened. This affords electric vehicles competitiveness versus piston vehicles. And so on.

Venezuela is badly prepared to face the upcoming era. Its dependence on oil is almost total; it reposes hope in oil reserves that, under the agreement reached in Paris, should mostly remain underground. Additionally, most of these reserves are composed of heavy or extra-heavy oil. That is, the most polluting oil in terms of emissions of carbon dioxide. What can we do? Some basic considerations look obvious.

What can we do?

First action points to gas revalorization. Despite being also a fossil fuel, it is regarded, for being cleaner than oil, as the natural bridge towards the era of renewable energy. As such, its trade longevity is ensured. Ranking eighth in the list of the countries with the largest gas reserves in the world, Venezuela is instrumental in transition. This implies not only an emphasis on gas production, but also reorientation to export instead of the planned domestic consumption.

Secondly, and inversely, oil should be increasingly used for petrochemical processing in Venezuela. Since oil will be more and more subject to taxes and consumption disincentives in world markets, it should be marketed as final product in more protected areas, such as plastics or fertilizers. This will imply significant investments in technology on carbon capture and storage, both in extraction and processing. With regard to the latter, note the case of Singapore, where, despite having some of the biggest petrochemical and oil refining centers in the world, it has low environmental contamination levels due to the capture and storage of the generated carbon.

Thirdly, economic diversification is a must. Following suit with Mexico, in the case of oil, or Chile, with copper, productive options must be found. The only advantage of doing it later would be the possibility of identifying productive niches protected against the technology leap also coming up.

The era of easy profiteering is over. If we, Venezuelans, do not learn to be creative and productive, there will be no possible salvation.

Tag(s) : #Latin America

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