Venezuela
-- Aló Presidente!
Hugo
Chavez y Lula da Silva in a rig at the Orinoco's belt
By
Dave
Cohen
The chief obstacle to the progress of the human race is the
human race.
—Don Marquis
In a world
where the National Petroleum Council talks about "continuing
risks" to the oil supply, Venezuelan president Hugo Chávez
is said to pose a significant threat to the interests of the
Organization for Economic Co-operation and Development (OECD)
member countries. Venezuela's production has declined since
2000, and the country is home to the world's largest unconventional
resource under development, the Orinoco extra-heavy crude.
A lot is at stake in Venezuela, so it is prudent to assess
the risk there now and down the road. Do Venezuela's policies
affect the peak of global oil production?
Venezuela
tightens oil grip (Christian Science Monitor, April 14, 2006)
reported on the country's ongoing nationalization
of its oil assets.
James Williams, energy analyst at US-based WTRG Economics,
warns that Venezuela's track record of changing contracts before
they expire could put future production at risk by making companies
reluctant to invest in multi-billion-dollar heavy oil projects.
Mr. Molchanov
says recent takeovers of private and corporate property encouraged
by the Chávez government have heightened
oil company fears. "If companies have to choose, they
might pick another country," he says.
"‘Everything that was privatized will be nationalized’,
Mr Chavez promised after he won an election late last year." El
Presidente (pictured left) has been true to his word. ExxonMobil,
ConocoPhillips and PetroCanada have left Venezuela, while other
companies have agreed to stay on as minority partners with
the national oil company Petróleos de Venezuela, SA
(PDVSA).
The EIA's
reserves page cites three different estimates for Venezuela's
conventional oil. According to BP and the Oil & Gas
Journal (Pennwell), Venezuela's conventional oil reserves amount
to approximately 80 billion barrels. World Oil (Gulf Publishing)
put the country's reserves at 52.650 billion barrels in September,
2006. This latter figure is remarkably close to the suspicious
OPEC doubling to 56.3 billion barrels that occurred in 1988.
Since that year, Venezuela has produced about 17.7 billion
barrels, most of which was conventional oil (the rest came
from the Orinoco formation, see below). The World Oil estimate
allows for ample reserves growth in this period, but the other
estimates have only grown over the years. Market analyst Joe
Duarte raises the possibility of "irregularities" within
PDVSA, saying that "over the last few years numerous questions
have been raised, not just about PDVSA's actual oil reserves
and production capacity, but also about PDVSA's finances" (Rigzone,
May 2, 2006). The conventional reserves question warrants further
investigation, but given Venezuela's nationalization of its
assets, we can expect less data transparency, not more.
Venezuela's oil production rate is in dispute. PDVSA's numbers
are higher than the estimates of the International Energy Agency
(IEA), which are shown in the graph (left). The large dip in
late 2002/early 2003 was caused by the failed coup attempt
and accompanying PDVSA labor strike. The IEA's estimates show
that Venezuelan production (crude + condensate) never reached
pre-strike levels. The IEA's latest oil market report has Venezuelan
production at 2.56 million b/d in 2006, a figure that includes
Orinoco extra-heavy oil (prior to upgrading to syncrude) since
March, 2006. Their 2007 1st and 2nd quarter figures are 2.44
and 2.37 respectively. The August Oil Market Report attributes
part of the recent drop to the turmoil caused by the nationalization
of the Orinoco crude.
Venezuelan supply is estimated marginally lower in July at
2.34 mb/d. Official pronouncements in July variously put output
from the four Orinoco projects at between 420 kb/d and 520
kb/d, compared with heavy crude upgrading capacity of 630 kb/d.
On top of uncertainties surrounding Orinoco output following
the departure last month of ExxonMobil and ConocoPhillips,
there are reports that PDVSA is struggling to obtain sufficient
rigs to sustain both Orinoco and conventional crude operations.
Oil Minister Ramirez was quoted as having reduced the active
rig target for 2007 from 191 to 120. Reluctance by rig contractors
to contribute 10% of contract value to social programmes within
Venezuela may be one cause of this.
The IEA's 2007 numbers are consistent with Venezuela's promised
OPEC quota cut of 138,000 barrels made in late 2006. The South
American producer also agreed to another reduction of 57,000
barrels in February, 2007.
The Venezuelan
Oil Stats War by Sohbet Karbuz,1 former head of the non-OECD
energy statistics section of the IEA, describes
in detail the dispute between PDVSA and the OEDC watchdog for
data from 2003 through 2005. Karbuz's adjusted numbers (comparing
apples with apples) show that Venezuela claimed all liquids
production of 3.56 million b/d in 2005 according to their SEC
F-20 filing, while the IEA's total was only 3.01 million b/d
for that year. The argument still raged in 2006 (See Venezuela's
oil model: Is production rising or falling? from the Christian
Science Monitor, March 31, 2006). The consensus of Western
analysts is that PDVSA is having production problems. These
two quotes describe that position—
While the
government denies it and high oil prices mask it, analysts
say Venezuelan oil production is declining. Since
Chávez took over in 1999, production in the state-run
oil fields has fallen almost 50 percent, say analysts at PFC
Energy, a global energy consulting firm based in Washington,
D.C., who spoke on condition of anonymity rather than risk
the wrath of the Venezuelan government. [Christian Science
Monitor]
The difference between [Venezuela's numbers for 2003-2005]
and [those of the] IEA is almost the same as Un-upgraded Orinoco
oil production. Is the IEA making a mistake there? I don't
think so. Then the difference should be in crude+condensate
production. But if that is the case is PDVSA lying to the SEC?
[Karbuz, Energy Bulletin]
The argument
between Venezuela and the IEA is now politicized. If you
believe the IEA estimates are accurate, then Venezuela's
claims are fraudulent, and vice versa. It seems more likely
that PDVSA, which is now a branch of the Chávez government,
has something to hide.
What
are the prospects for Venezuelan production in the medium-term?
As long as Colonel Chávez funds his Bolivarian Revolution
and cuts into upstream investment capital for PDVSA, production
will suffer. It seems likely that PDVSA no longer has the
exploration & production expertise it once had before
the 2002 strike. To make matters worse, increasing anti-Western
sentiment has led PDVSA to create "its own version of
the Houston-based oil-field services company Halliburton
to provide services within the oil-producing country." Good
luck. Venezuela's national oil company is now a fully fledged
political entity, as these quotes from their website (link
op. cit.) indicate—
PDVSA’s progress is non-negotiable — “Neither
PDVSA nor the Bolivarian Revolution are negotiable”,
affirmed the People’s Minister for Energy and Petroleum
and president of PDVSA, Rafael Ramirez, in front of a large
group of workers gathered in the Menpet-PDVSA La Campiña
facilities to tackle the most recent opposition media campaign
in the country.
Oil for
the people — To put the oil resources to the
service and well-being of the country; to build a new economic
and social model, ending inequalities that have been present
in Venezuelan Society over the last decades. PDVSA stimulates
the endogenous development of communities, realizing a fair
distribution of the Nation´s oil wealth.
And so forth. Similar statements do not appear on Chevron's
website, or that of Russia's Rosneft. They are even hard to
find at the Iranian National Oil Company's website. It is a
unique situation in the world today.
Chávez's
politics are anti-Western, but Venezuela is not isolationist.
Thus it comes as no surprise in a competitive
world that others are willing to walk where ExxonMobil, ConocoPhillips
and PetroCanada fear to tread (World Energy Monthly Review,
August 2007).
A collection of new-to-Orinoco players, including Russia's
Lukoil, China's CNPC and India's ONGC, have been invited to
explore investment in the region. In June, Brazil's Petrobras
announced a joint venture with PDVSA to invest $2 billion in
the development of the Carabobo block in Orinoco's heavy-oil
belt.
The extra-heavy
oil in the Faja region along the Orinoco river (pictured
left) is viewed as crucial to the world's longer
term future. (Rigzone — this is an excellent technical
overview). Russia's Lukoil is working with PDVSA to "produce
a quantitative estimate of hydrocarbon reserves" in the
Junin-3 block of the Orinoco river valley. China's National
Petroleum Corp is already working in the Junin-4 block (Reuters,
March 24, 2007). Chávez gleefully announced that "the
United States as a power is on the way down, China is on the
way up. China is the market of the future" after his meeting
with CNPC President Jiang Jiemin. The bummer for the OECD nations
is that El Presidente just might be right. The gold rush is
on, but now excludes greater participation by Western international
oil companies.
Despite
the fanfare accompanying developments in the Faja, the medium-term
outlook for Venezuela's conventional oil production
is dismal. Venezuelan Economic Growth Falls to Two-Year Low
was the Bloomberg headline on August 14th. Export revenues
and volumes—at least to the United States—are down.
Venezuelan economists are depressed. Venezuela still dreams
of 5.8 million barrel of oil according to PDVSA, but that is
looking more and more doubtful (Petroleum World and the PDVSA
website). The mutual dependency between Venezuela and the U.S.
remains strong, so most of the puffed-up rhetoric heard on
Chávez's Sunday broadcast Aló Presidente! ("Hello,
President!") is a bluff. Orinoco syncrude production is
unlikely to scale up to the levels that Venezuela achieved
in conventional oil production in the past.
Is the
Bolivarian Revolution an important factor affecting a medium-term
peak of the world's oil production? Do one-legged
ducks swim in circles? Colonel Chávez is a one-man wrecking
crew, and like comrade Castro, he will probably be around for
a very long time.
Contact the author at dave.apso@gmail.comThis email address
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1. It is not possible to describe the entire conflict between
PDVSA and the IEA in this column. See the Karbuz article for
a detailed account. The argument revolves around how production
is assessed from all the possible liquids sources i.e. Orinoco
extra-heavy oil, NGLs, other unconventional production and
crude + condensate.
Dave
Cohen is a contributor of The Oil Drum
(dave.apso@gmail.com . Petroleumworld not necessarily share
these views.
Editor's
Note: This
article originally published on 29 Aug 2007 by ASPO-USA
/ Energy Bulletin. Archived on 29 Aug 2007.Petroleumworld
reprint this article in the interest of our readers. (http://www.aspousa.com/index.php?option=com_content&task=view&id=202&Itemid=91) Petroleumworld
reprint this article in the interest of our readers.
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