By unilaterally re-launching the Organization of
Petroleum Exporting Countries (OPEC) Venezuela has
been one of the main protagonists of booming oil
prices and hawkish in ensuring its former quota
busting reputation becomes a distant memory. Following
the OPEC heads of state summit, held at the end
of September 2000 in Caracas, oil prices shot to
ten-year highs and made OPEC a serious force to
be reckoned with
Ali Rodriguez former minister of Energy and Mines
and now OPEC's president says that while the
nation has been making waves on the world stage,
its own energy industry needs serious investment
to help it meet the challenges of a growing population
and increase revenues. "The nation requires around
$70 billion of investment in the petroleum, petrochemicals,
gas and electricity sectors," Former Minister Rodriguez
says. Amid the high level changes at the State oil
company Petroleos
de Venezuela S.A , PDVSA during 2000, an estimated
500,000 barrels per day (bpd) of production capacity
vanished because of a lack of investment and drilling.
While a crash maintenance program toward the end
of 2000 ensured that Venezuela was barely able to
produce its 3.072 million-bpd quota, more breathing
room is needed. A growing gas deficit in western
Venezuela is beginning to affect oil production
as insufficient volumes are available for secondary
oil recovery projects. At the same time, heavy investments
in its refineries will become necessary, not only
to maintain normal operations, but to improve the
quality of PDVSA's products in order to conform
to tightening U.S. environmental regulations. In
2000, PDVSA's refineries were plagued with unplanned
operational shutdowns owing to a lack of maintenance.
While most of these problems have been corrected,
hundreds of millions of dollars will have to be
spent during the next three years to meet newer,
more stringent product specifications.
To attract investment the current government has
spent the last two years revising the legal framework
in the gas, electricity and hydrocarbons sectors.
"We have been carrying out a reform in the hydrocarbons,
gas, electricity and mining sectors so that these
sectors can create a better balance with the other
economic sectors," Rodriguez explains. "We want
our national productive framework to be very diversified,
in such a way that we get ever closer to a better
balance and overcome the deforming effect of petroleum
on the economy." Venezuela sits atop the sixth
largest oil reserves in the world with an estimated
64 billion barrels in proven crude oil reserves
bubbling beneath the surface. The Orinoco belt,
the giant heavy and extra-heavy crude oil and
natural bitumen field in central Venezuela contains
1.2 trillion barrels of which 270 billion barrels
are economically recoverable. Combined, conventional
reserves and the Orinoco belt total over 334 billion
barrels and the largest hydrocarbon reserves in
the world. Venezuela expects to earn around $26
billion in oil exports in 2000, it's biggest bonanza
since 1984. Oil accounts for a third of GDP and
three quarters of exports. High oil prices gave
Venezuela a $6.65 billion current account surplus
in the first half of 2000.
The opening up of the oil sector to private sector
cash through the three 'oil openings' of the early
90s brought in billions of dollars of investment
and PDVSA
hopes to continue in that tradition. PDVSA will
reap $6 billion in after tax profits from that
total, a hefty leap from the $2.818 billion it
earned in post tax profits in 1999. One of the
key elements of PDVSA's 2001 plan will entail
paying down the company's long-term debt which
stood at $7.6 billion in 1999, in order to prioritize
investments and partnerships with the private
sector. During the 2000-09 period PDVSA plans
to invest a total of around $55 billion and is
also seeking around $30 billion in private capital
to upgrade marginal fields. Venezuela says that
it wants the state to step back and the investor
take over.
PDVSA flexes financial muscles
With the entrance of a new political class and big
changes at the top of PDVSA
, many oil executives had feared that the government
could review or even cancel some contracts. Time
has shown that those fears were unfounded. Many
oil executives now say that PDVSA only wants to
go over previously signed contracts but not imperil
them. In December PDVSA resigned an operating contract
with Canadian firm Enbridge-Williams to manage PDVSA's
massive Jose oil terminal following a decision by
the company to review the contract. Huge heavy oil
projects also continue to attract foreign investment
with billions of dollars expected to pour into the
country over the next five years. "People will continue
to use energy, and people will continue making larger
investments. The companies that can make these kinds
of investments are multinationals, and they are
coming for the long term," says Eugenio
Maslowski , president of ACEM, an oil industry
consulting group. "Americans are investing $2.4
billion in a project that will last thirty-five
years. Phillips, Texaco, and PDVSA would be crazy
to invest in a project that is thirty-five years
long if they do not see a future in it."
PDVSA is also looking to increase its profile overseas by researching potential money-spinners with other nations. In August 2000, the company inked a memorandum of understanding with the Nigerian National Petroleum Corporation that will lead to the two companies cooperating in various aspects of the world oil market, to possibly include market swaps, a crude supply agreement for PDVSA refineries and technical exchanges. Brazil's giant petroleum company Petrobras also inked a deal with PDVSA in 2000 to enter into a joint venture whereby 180 service stations are set to be constructed throughout Brazil with oil being supplied by PDVSA refineries.
The massive Paraguana complex comprised of the Amuay and Cardon refineries produces 1.5% of world production with a capacity of 945,000 barrels per day. With 50 years in operation it represents 75% of Venezuela's home grown refining capacity. The complex is set to receive a large chunk of the $2.7 billion that PDVSA says it wants to invest in upgrading refining facilities. "This will guarantee the future viability of Paraguana, with this kind of installed capacity you have to guarantee it," says Frank Gygax Rois, the general manager. "Its impact could be very big not only at an economic level for PDVSA but also for the world, because it makes up an important percentage of world demand." Future investments between the Paraguana complex and the private sector are likely to be in the petrochemicals sector, according to Gygax Rois. "There are various projects that have come to light, including the idea of creating a new company with PDVSA called Proesca focusing on special products," he says.
Former Oil and Mines Minister Rodriguez says that the government hopes to see petrochemical production increase from the current total of nine million tones annually to 21 million tones over the next 10 years, for this he says gas will be needed to power electricity production.
Gas, the future of energy
"In the new energy reality of today's world, the
tendency and the projections by analysts show that
gas is going to become a bigger player in solving
world energy requirements and Venezuela has huge
gas potential which is as yet unexplored," says
former
Energy and Mines minister Rodriguez . Gas is
Venezuela's money-spinner for the future. Not only
for secondary oil production but also for export
to local markets. The Venezuela's much-vaunted licensing
round to explore and produce non-associated natural
gas in 11 areas will occur before March of 2001,
says PDVSA, which expects $6 billion to $11 billion
in natural gas investment during the next nine years.
Two massive gas pipeline projects are set to get
off the ground in 2001. In September, 2000, Forty-three
companies qualified to bid on a new gas pipeline
project that would link the island of Margarita
to the Venezuelan mainland. Thirty-two of the companies
are Venezuelan engineering and construction firms.
At the same time PDVSA
also announced that 17 companies remain in the running
for the Anaco-Jose pipeline expansion project, which
will link up the east and west of the country. To
reassure prospective investors the current government
has spent the last two years reorganizing the legal
framework which regulates the gas sector.
A new Gas Law is set to be approved in 2001 along with regulations governing pricing and tariffs.
Venezuela has the seventh largest gas reserves in the world with 147 trillion cubic feet of which 91% is associated with crude oil reserves. The government wants to change this by auctioning off exploration and development licenses on 14,000 square hectares. To show that they mean business, PDVSA's board approved the construction of a Liquefied Natural Gas (LNG) plant in eastern Venezuela in early November after concluding a series of feasibility studies. While still awaiting approval from its partners; Exxon Mobil, Mitsubishi and the Royal Dutch/Shell group, PDVSA is confident that the project will go ahead. Once operational in 2005, the single-train plant will liquefy 4 million tones of gas per year for export to the United States, the Caribbean and South America. The plant will be constructed on Venezuela's Paria Peninsula, south of Trinidad, where vast gas deposits have been discovered.
VENEZUELA
Oil
and Gas
