ENERGY-VENEZUELA: Developing the Neglected Natural Gas Industry

By Humberto Márquez Reprint | | Print |

Humberto Márquez

CARACAS, Apr 5 2004 (IPS) - Venezuela plans to significantly increase its production and proven reserves of natural gas, currently the eighth largest in the world, while U.S. demand for gas is on the rise and severe energy supply problems are plaguing the Southern Cone region of South America.

”For many years we have ignored the reality of the natural gas situation,” said Energy Minister Rafael Ramírez.

The minister reported that the government would develop ”new gasfields on and offshore, from the Deltana Platform (in the Atlantic Ocean to the east of the Orinoco Delta) to the Gulf of Venezuela (in the northwest, along the Colombian border).”

Venezuela ”is 10 years behind” in terms of developing its gasfields, Luis Xavier Grisanti, president of the Hydrocarbons Industry Association, which groups transnational corporations and Venezuelan companies, told IPS.

”But we are sitting on gigantic deposits and instead of being eighth in the world, we could have the third-largest global reserves of gas, after Russia and Iran,” he added.

Gas production in Venezuela grew just 26 percent in the last 80 years, said Grisanti.

By contrast, he noted, it grew 320 percent in Nigeria between 1992 and 2002, 180 percent in Trinidad and Tobago, 160 percent in Iran, 130 percent in Qatar, 80 percent in Bolivia and 53 percent in Colombia.

Venezuela pumps some 37 billion cubic metres of gas a year, 10 billion of which goes immediately into the oil industry, to accelerate extraction, while nearly all of the rest supplies the domestic market.

Venezuela’s lag ”runs counter to the growth of global demand for gas, which has grown by 13 percent a year in the past decade, and of its biggest natural market, the United States,” said Grisanti.

The United States absorbs some 670 billion cubic metres of gas a year, the equivalent of 26 percent of global demand.

But total global consumption of around 7.14 billion cubic metres a day will double in the next 25 years, said Luis Giusti, a former president of the state oil company Petróleos de Venezuela (PDVSA).

To give a better idea of what that means, current daily gas production is equivalent to 41 million barrels of oil – or 53 percent of global oil supplies – and the 2030 total will be equivalent to 83 million barrels a day of oil, more than the current daily global output of 79 million barrels.

Natural gas is considered a cleaner fuel than petroleum for generating electricity and for household consumption. It is also used by the petrochemical industry.

A select club of countries rich in reserves are in a position to take advantage of the growing market for gas. Russia heads the list with 1,680 trillion cubic feet (TCF) of proven reserves, which represents 30 percent of the global total. It is followed by Iran with 812 TCF, or 15 percent of the planet’s proven reserves.

After Russia and Iran come Qatar (508 TCF), Saudi Arabia (225), United Arab Emirates (212), the United States (183), Algeria (160), and Venezuela (148).

In this hemisphere, significant deposits are also found in Canada (60 TCF), Argentina (27), Bolivia (24), and Trinidad and Tobago (23.5), according to the Oil and Gas Journal.

But Venezuela hopes to become number one in the hemisphere, said Ramírez, who pointed out that between seven and eight billion dollars are to go into exploring the country’s gasfields over the next five years.

Prospecting should bring the total proven reserves to 196 TCF within five years.

Grisanti estimates that the country’s offshore reserves, in the Atlantic Ocean and Caribbean Sea, total around 100 TCF, including at least eight TCF in the Deltana Platform and between 12 and 14 TCF in the southeastern Caribbean, off of the small Paria peninsula.

The Deltana Platform was divided into five blocks, three of which have already been awarded to transnational corporations: two went to the U.S. firm Chevron-Texaco, and one to a consortium headed by Norway’s Statoil.

Another block is located along the maritime border with Trinidad and Tobago, and negotiations must await an agreement between the two governments.

The free gas deposits off of Paria will be exploited through the Mariscal Sucre project, which partners PDVSA (60 percent), the Anglo-Dutch Shell (30 percent), and Japan’s Mitsubishi (eight percent), with part of the rest reserved for local investors. PDVSA is also studying the possibility of participation by Qatar.

The Deltana Platform and Mariscal Sucre projects will entail the construction of liquefaction plants and seaports to export the gas to the U.S. market, starting in 2009, and with the possibility of exporting gas to Colombia and Caribbean nations in the future.

Due to the distances involved and lack of infrastructure, Venezuela has diffulties helping to meet the needs of markets like the one that emerged unexpectedly in March, when Argentina ran into a bottleneck in energy supplies.

Argentina had laid in pipelines to sell gas to Chile and other neighbouring countries while the domestic market found itself short of supplies due to a lack of investment in infrastructure since the privatisation of the Argentine power industry in the 1990s.

But as part of Venezuela’s offensive to seek regional accords to create an ambitious new regional joint venture that would unite Latin America’s biggest oil producers, named Petroamérica, Caracas offered Buenos Aires shipments of gasoil and fuel oil to run its electric power plants.

In exchange, Venezuela would receive new Argentine food imports.

Venezuela nationalised its hydrocarbons industry in 1976.

But through a loophole in the law on nationalisation which allowed for partnerships with private capital, a programme was adopted in 1990 to create partnerships, operating agreements and concessions for the exploitation of mature oilfields and the production of synthetic petroleum from super heavy crude, of which this country has enormous reserves in the southeastern Faja del Orinoco, an area running alongside the Orinoco river.

The Mariscal Sucre project – previously known as Cristobal Colon – in which Exxon initially took part, was created in the late 1980s, but investors were discouraged by the volatility of international oil prices.

Another factor dampening the enthusiasm of investors was a law taxing production with a 67 percent income tax and a 16 percent royalty. But a new law on ”gaseous hydrocarbons” passed in 1999 set a 54 percent ceiling on taxes on the natural gas industry.

Grisanti said that between 1992 and 2002, transnational corporations invested 23 billion dollars in Venezuela. ”But,” he added, ”that phase is starting to come to an end, and only investments for maintenance purposes will be carried out.”

That means investment in prospecting for and developing new gas resources is not planned, said the expert, who urged the state to ”flexibilize” the country’s laws and regulations in order to attract more capital for new ventures.