Global Issues
ENERGY-VENEZUELA: Great Business for Good Friends
While Spanish energy giant Repsol and Italy's Eni reported finding huge deep sea reserves of natural gas in the Gulf of Venezuela, a consortium of Russian companies agreed to pay the Venezuelan government one billion dollars to secure access to the oil-rich Orinoco Belt.
Thirsty for fossil fuels, old and new companies both great and small are turning a blind eye to aspects like Venezuela's low competitiveness rating according to the World Economic Forum, nationalisation of oil firms' assets, and President Hugo Chávez's rants against capitalism.
In turn, the Venezuelan government, 'aware that these projects require large investments of capital that the country does not have, is entering into partnerships with companies that subscribe to the capitalist creed, in spite of its socialist policies,' oil expert Rafael Quiroz told IPS.
Chávez announced Repsol and Eni's find of an estimated 10 trillion cubic feet (TCF) of gas, during his Sept. 11 visit to Madrid, when he met with Spanish Prime Minister José Luis Rodríguez Zapatero.
The field, situated close to shore in waters just 60 metres deep, covers an area of 33 square kilometres and is 240 metres thick, according to Repsol. Some seven TCF of natural gas may be recovered, equivalent to 1.4 billion barrels of oil equivalent (bboe).
Once production begins, the state oil firm Petróleos de Venezuela (PDVSA) will have a 35 percent stake while Repsol and Eni will each hold 32.5 percent.
Energy consultant Nelson Hernández said prospecting has been going on since 1972 in the area where the field was found, which may hold as much as 35 TCF.
'It is rather bold to venture an estimate of 10 TCF of natural gas in situ on the basis of drilling a single well, but it is a good thing that Venezuela's gas reserves are being expanded' from 171 to 181 TCF, putting the country 8th in the world, Hernández told IPS.
But as Quiroz pointed out, more than 90 percent of the country's reserves - the second largest in the Americas, after the United States' - do not contain free gas, but gas associated with oil, which means it cannot be tapped without pumping the oil. Because this is an expensive undertaking that calls for substantial investment, the gas is not actually accessible at present.
That is why PDVSA is encouraging exploration in the Atlantic, off the Orinoco river delta, and in Venezuela's northeastern and northwestern Caribbean waters, in the hope or doubling these reserves and finding free gas this time.
PDVSA divided up the Gulf of Venezuela, close to the border with Colombia in the northwest of the country, into 29 blocks like the one explored by Repsol and Eni, where Chávez said they had hoped to find up to two TCF, and instead made the greatest gas discovery in Venezuelan history.
Hernández cautioned against over-enthusiasm about the latest find, noting that 'it takes five or six years from the moment of discovery until the first cubic foot is produced, and the fate of the enterprise will depend on whether production is channelled to the domestic market, with subsidised prices, or to liquefaction (gas to liquid, or GTL) plants for the international market.'
The coveted Belt
Foreign oil companies are keeping an eye on developments in the gas field while they continue explorations, with a view to gaining access to more fossil fuel reserves and the chance to win an Orinoco Belt concession. The complex tendering process of the past has been replaced by direct adjudication under the president's control.
The Belt, an area of 55,000 square kilometres lying roughly east-west along the lower Orinoco river basin in the centre-east of the country, is estimated to contain 1.2 trillion barrels of mostly heavy and super-heavy crude oil. Venezuela hopes that 236 billion barrels of these reserves will be certified as recoverable.
At present the Orinoco Belt produces some 500,000 barrels per day, extracted by joint ventures (PDVSA is the majority partner with Total of France and Statoil of Norway, in one case, with Britain's BP in another, and with Chevron in a third). A fourth project is in the hands of PDVSA alone after ExxonMobil declined the contract terms imposed by Caracas.
Because of the very dense, viscous nature of the Orinoco Belt deposits and their high sulphur concentration, they must first be refined to remove sulphur and other metals, and then upgraded in a treatment plant which converts them to light or medium synthetic crude, acceptable to the country's Atlantic basin refineries.
Companies from Argentina, Belarus, Brazil, Chile, China, Cuba, Ecuador, India, Iran, Italy, Malaysia, Portugal, Russia, Spain, Uruguay and Vietnam are busy exploring and certifying the Orinoco Belt reserves, the first step toward landing a production partnership.
Some of these countries are regarded by Chávez as 'strategic allies.' Colombia is notable for its absence: its state oil company, Ecopetrol, was also recently invited to take part in oil operations, but the present climate of tension between Caracas and Bogotá over the leasing of Colombian military bases to the U.S. armed forces precludes that possibility.
Some companies have paid large sums of money to make sure they secure a place among the most promising of the 29 blocks in the 12,000 square-kilometre area of the Belt currently authorised for prospecting.
Unconfirmed press reports say that PetroVietnam will pay out 500 million dollars in instalments for a share of the choice Junín II block, and a Russian consortium including Rosneft, Lukoil, Gazprom, TNK-BP and Surgutneftegaz will pay one billion dollars for the Junín VI block concession.
The PDVSA partnership with the Russian consortium is expected to start production in 2012, reaching an output of 450,000 barrels a day to feed into a joint refinery in the area, the feasibility study for which will begin soon. The other partnerships would produce between 100,000 and 400,000 barrels a day.
Critics of the Chávez administration on both the left and the right highlight the risks involved in oil prospecting by companies with no experience in heavy crudes, or in exploration at all, as in the cases of Argentina's state energy firm ENARSA and Uruguay's ANCAP.
Quiroz warned that 'there could be a conflict between the increase in production brought by the heavy investment in the Belt and our commitment to keep the supply of Venezuelan oil within the quotas agreed in the Organisation of Petroleum Exporting Countries (OPEC).'
Others observe that the shift from the previous operating agreements, under which drilling contracts were awarded to transnational corporations, to the joint ventures between PDVSA and transnational corporations, which grant foreign firms secure access to a portion of Venezuelan oil and gas reserves, run counter to the government's decreed nationalisation of the industry.
Víctor Poleo, a professor of petroleum economy at the Central University, told IPS that through the current government policies and the halt to orimulsion manufacturing - a fuel for power stations based on heavy crudes - 'the government has made a gift of the Orinoco Belt to big global capital.'
But Rodrigo Cabezas, a former Chávez administration finance minister, explained that Venezuela 'needed significant funds to develop the Belt, and the national oil industry could not do it quickly on its own.'
© Inter Press Service (2009) — All Rights Reserved. Original source: Inter Press Service