Venezuela oil output to hit 3.5m bpd by 2012

Venezuela’s oil production will reach 3.5 million barrels per day by the end of 2012, President Hugo Chavez said on Friday, up from current output of around 3 million barrels per day.

"We’re going full steam ahead with this and the plan is ready … by the end of 2012 we’re going to reach three and a half million barrels of crude per day," Chavez said during a televised broadcast.

Since 2009, the South American OPEC member has struggled to boost oil production — which is crucial to the country’s economy — despite steadily rising crude prices and some of the world’s largest reserves.

Chavez said most new production would come from the vast Orinoco heavy crude belt, where state oil company PDVSA is working on new ventures with foreign partners including Italy’s Eni and Spain’s Repsol.

PDVSA hopes to begin the first oil production from the new ventures in 2012, helping bolster government revenue as Chavez heads into an October reelection bid that is expected to be one of the tightest elections of his 13 years in office.

The new projects in the vast Orinoco Belt that are slated eventually to add 2.1 million barrels per day of new production and bring some $80 billion in investment.

The tar-like Orinoco oil fields are mostly located in isolated rural areas of Venezuela that lack adequate power generation, water supplies, and in some cases don’t have roads.

Critics say the Chavez government has not invested enough in increasing output. The socialist leader has built up popular support by spending oil revenues on social programs.

Meanwhile, Venezuela’s economy grew by an estimated 4 percent in 2011 and will maintain strong growth in 2012, the central bank said Friday, expansion that may help Chavez’s bid for reelection next year.

But the country’s inflation rate remained stubbornly high at 27.6 percent, based on preliminary statistics, the bank said, signaling rising prices will remain a key concern in the OPEC member nation as government spending shows no signs of abating in the run-up to the October vote.

"The recent performance of the economy demonstrates the reactivation of productive sectors, which affirms the expectation that the rhythm of growth will be maintained next year," the bank said in a statement.

Growth was driven by an 11.2 percent expansion in the financial sector, 6.6 percent growth in commerce, and 5.5 percent growth in utilities such as electricity and water.

Government outlays in areas including education and health rose 5.3 percent, the bank said.

The 4 percent growth – double the original estimate of 2 percent – contrasts with a 1.5 percent contraction in 2010 for Venezuela, which was one of only a few countries in the region whose economies shrank that year.

Increased investment in the electricity sector, which suffered rationing in 2010, as well as greater spending on home construction following floods that destroyed houses around the country, also helped spur expansion.

The country this year benefited from higher crude prices that helped its vital oil industry, with the average price of Venezuelan oil reaching a record $101 per barrel in 2011.

That helped the country post a current account surplus of $31.5 billion, but it also reported a capital account deficit of $32.6 billion linked to increased government deposits abroad.

The government’s budget estimates 2012 growth at 5 percent with inflation between 22 and 23 percent.

Chavez’s high-profile announcements of new housing projects and social spending programs signal the government plans to ramp up outlays in the coming months to shore up complaints among supporters about unemployment and the lack of affordable housing.

Critics say Chavez’s campaign of nationalizations and frequent confrontation with businesses, hallmark traits of his "21st century socialism," have scared off private investment and left the country dependent on state spending.

His supporters point to rising standards of living and increased investment in basic services including health and education, which have helped the former soldier win repeated elections over the last 13 years.