Venezuela – part one

Published March 7th, 2001 - 02:00 GMT

Venezuela is important to world energy markets because it holds proven oil reserves of 77 billion barrels, plus billion of barrels of extra-heavy oil and bitumen.  

Venezuela consistently ranks as one the top suppliers of U.S. oil imports and is among the top ten crude oil producers in the world. Note: information contained in this report is the best available as of March 2001 and can change.  

 

General Background: 

In December 1998, Hugo Chávez won Venezuela's presidential election with 56 percent of the vote, running on a populist agenda against the established political order. He was re-elected in May 2000.  

 

Chávez has won overwhelming support from Venezuela's poor, who constitute one-half of the population and hope to benefit from Chávez's promises to raise living standards and end corruption.  

 

Venezuela has endured difficult economic conditions in recent years, but strong world oil prices beginning in 1999 helped the country to achieve positive gross domestic product (GDP) growth, forecast to reach 4.5 percent in 2001.  

 

President Chávez has introduced significant political changes in Venezuela.  

 

In December 1999, a 131-member Constituent Assembly rewrote the 1961 constitution, increasing the presidential term from five years to six, allowing the president to run for re-election, and replacing the bicameral Congress of the Republic with a unicameral National Assembly.  

 

The military's political influence has increased, and civilian control over the military has decreased. Chávez has fostered stronger ties with Cuba and Iraq and has been more vocally critical of the United States than his predecessors.  

 

Chávez has stated intentions to make his country more attractive to foreign investors.  

 

Toward that end, he passed a Law for Promotion and Protection of Investment in October 1999. The law guarantees stability in taxation and investment incentives for up to ten years after a contract is signed.  

 

However, investment activity has decreased since Chávez's election, suggesting that Chávez's increased concentration of power in the executive has worked against promoting investor confidence.  

 

The Venezuelan economy is extremely oil-dependent, despite efforts at diversification. Oil accounts for roughly three-quarters of total Venezuelan exports, about half of government revenues, and about one-third of GDP.  

 

The country's positive economic outlook for 2001-2002 is widely considered to be reliant on world oil markets supporting strong prices for Venezuelan crude oil.  

 

A founding member of the Organization of Petroleum Exporting Countries (OPEC), Venezuela is one of the world's largest oil exporters.  

 

Not historically known for its adherence to OPEC production quotas, Venezuela under Chávez produces amounts very near to its quota levels. 

 

Venezuela's stronger position in OPEC helped the oil producing pact to cut back production and engineer the oil price recovery of 1999.  

 

Oil: 

Venezuela is home to the western hemisphere's largest oil reserves at 77 billion barrels. In 2000, Venezuela produced an estimated 3.1 million barrels per day (bbl/d).  

 

Venezuela exported about 2.6 million bbl/d, of which about 1.5 million bbl/d went to the United States, about 58 percent of net Venezuelan exports. The United States has become increasingly reliant on oil imports from Venezuela in recent years.  

 

EIA estimates that Venezuelan oil consumption in 2000 amounted to 476,000 bbl/d, up 14,000 bbl/d from 1999. Consumption is subsidized by the Venezuelan government.  

 

Sector Organization and Foreign Investment: 

Venezuela nationalized its oil industry in 1975-76. PdVSA, one of the world's largest oil companies, is by far the largest business and employer in the nation.  

 

In an unexpected response to a labor dispute in October 2000, Chavez replaced Hector Ciavaldini, PdVSA president since August 1999, with Guaicaipuro Lameda Montero.  

 

Lameda is a military general and engineer who had headed the government budget office. The company experiences periodic labor disputes and strikes.  

 

Talks between Lameda and the oil workers' union in order to avoid a strike were scheduled for the end of February/beginning of March 2001.  

 

Privatization of the company is banned by the 1999 constitution.  

 

Since 1996, auctions and investments in oil and gas rights have earned PdVSA billions of dollars in joint venture agreements with major international oil companies.  

 

PdVSA has established "strategic alliances" and "production sharing agreements" (PSAs) with foreign oil companies.  

 

However, political uncertainty and disappointing returns on investments have worked against increased private involvement in the sector.  

 

Since 1996, private oil companies from around the world have participated in rounds of bidding for "operating services agreements."  

 

The deals, part of Venezuela's reopening to foreign companies under former PdVSA head Luis Giusti, were designed to help PdVSA attain its goal of increasing production capacity.  

 

In the third round of bidding in 1997, over 100 foreign companies pre-qualified for bidding on 20 blocks.  

 

The 16 eventual foreign winners included U.S. Chevron, Phillips, Arco, Union Texas, and Pennzoil; Argentina's Perez Companc; Canada's Pancanadian; China's CNPC; Spain's Repsol; and UK Lasmo.  

 

Reserves and production capacity at these fields proved to be lower than the companies had hoped, and the 1998 oil price collapse further cut investment at the fields. Analysts believe that only 3 of the 18 marginal fields awarded in 1997 have proven valuable.  

 

Some foreign companies remain committed to Venezuela's marginal fields.  

 

In October 2000, Chevron pledged to invest $4 billion in the Lake Maracaíbo region over the next 20 years. Brazil's Petrobras is considering involvement in new marginal fields, as part of a larger energy cooperation plan being pursued by Brazil and Venezuela.  

 

In the past, PdVSA has adjusted its own production to ensure that Venezuela as a whole meets its OPEC production targets.  

 

Thus, during periods of OPEC production cuts, private companies operating in joint ventures with PdVSA could maintain steady output.  

 

Energy and Mines Minister Alvaro Silva now plans to include in the cuts some joint venture projects in the Orinoco extra-heavy crude belt that were previously exempt.  

 

While most joint venture contracts prohibit cuts, the government believes that some are unprotected.  

 

Exploration and Production: 

Venezuela's oil production capacity dropped significantly as a result of 1998-1999 OPEC production cuts. Wells were abandoned and spending on exploration decreased.  

 

Silva has stated that PdVSA will continue upstream investments, even as it cuts back production in line with OPEC agreements. 

 

According to a five-year plan released in late February 2001, PdVSA plans to spend $45.3 billion on its oil and gas sector between 2001 and 2006, and aims to raise crude oil production capacity to 5.5 million bbl/d by 2006.  

 

EIA estimates current capacity at just over 3.0 million bbl/d. Chávez had previously planned to reach capacity of 5.5 million bbl/d by 2008.  

 

The plan calls for PdVSA to contribute 47 percent of the $45.3 billion total budget, or $21.2 billion, while private investors are expected to contribute $24 billion.  

 

Of its share, PdVSA plans to spend roughly 60 percent on oil exploration and production, 20 percent on natural gas development, and less than 10 percent on refinery upgrades.  

 

Venezuela has four major sedimentary basins: Eastern, Western, Barinas-Apure (where most oil production occurs), and the largely unexplored Northern basin.  

 

Due to the maturity of many of these basins, PdVSA spends a good deal of its budget on the application of secondary and enhanced oil recovery techniques to maintain output levels.  

 

Proven reserves in these fields are estimated at close to 2 billion barrels of light and medium crude oil.  

 

Heavy crude oil with gravities of less than 20° API accounts for about three-quarters of Venezuelan oil production. The largest heavy oil reserves are in the 270-mile long by 40-mile wide Orinoco Heavy Oil Belt in eastern Venezuela.  

 

Heavy Crude: 

There are four congressionally approved joint ventures in extra-heavy crudes in the Orinoco Belt in which PdVSA is a minority owner. They are now in different stages of development.  

 

The projects could add 600,000 bbl/d of syncrude to international markets by 2006, much of which will be destined for the U.S. Gulf Coast.  

 

The Orinoco Belt has recoverable reserves estimated at 100 billion barrels, although the quality of the tar-like oil is poor.  

 

All four projects aim to convert the extra heavy crude from approximately 9° API crude to about 20-23° API, and even as high as 32° API of synthetic crude.  

 

These projects now represent some of the most successful investments in the Venezuelan upstream, but future projects could encounter difficulties in becoming economically viable, as preferential financial terms negotiated under the previous Venezuelan administration are unlikely to be repeated by Chávez.  

 

The first project, Conoco's Petrozuata, is prepared to begin commercial production as of late February 2001.  

 

Petrozuata will produce an estimated 120,000 bbl/d of heavy oil, for upgrading into 103,000 bbl/d of 22° API gravity syncrude. Conoco hopes to get permission from PdVSA to increase capacity to 150,000 bbl/d by 2003.  

 

Conoco is contemplating an expansion of Petrozuata to produce a further 120,000 bbl/d of heavy crude by 2006, which would be converted into refined products.  

 

Petrozuata's initial production of syncrude will be processed at PdVSA refineries and a Conoco plant at Lake Charles, Louisiana. 

 

The other three projects include: ExxonMobil and Veba's (Germany) Cerro Negro; TotalFinaElf (France) and Statoil's (Norway) Sincor; and Phillips and Texaco's Ameriven. Cerro Negro is due to start producing 105,000 bbl/d of syncrude from mid-2001.  

 

Sincor could produce 160,000 bbl/d of syncrude beginning in 2002, later rising to 180,000 bbl/d. Of the four projects, Sincor will produce the highest quality grade, of 32° API, for sale on the open market. Limited production of 40,000 bbl/d has already begun.  

 

Ameriven has experienced the most delays and is not expected to begin production for about three years.  

Source:United States Energy Information Administration  

© 2001 Mena Report (www.menareport.com)

You may also like