Venezuela: The New Saudi Arabia

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Venezuela’s state-owned petroleum company, PDVSA, has announced plans to reach crude oil production levels of 5.8 million barrels per day by 2012 and 7.5 million barrels per day by 2020. PDVSA also wants to invest $3 billion in expanding its refining capacity. It will form strategic alliances with numerous countries in order to use refineries located in the Caribbean and South America. PDVSA will invest $56 billion between 2005 and 2012 to accomplish its goals. Venezuela will pay 85% of this investment with its own resources, and the remaining 15% will come from private entities. Venezuelan President Hugo Chavez has divided this expansion project into two stages. The first phase will occur between 2005 and 2012, and the second phase between 2012 and 2030.

PDVSA is hoping to turn Venezuela into the country with the most crude oil reserves in the world, surpassing even Saudi Arabia. Over the last few years, the Venezuelan petroleum industry has been trying to increase its crude oil production since it is estimated that Venezuela’s crude oil reserves could be greater than 77 billion barrels.

Venezuela initially attempted to become the world’s oil superpower in the 1990s, but the plan was abandoned in 1998 due to a fall in oil prices. However, lately the high price of oil, uncertainty about worldwide oil reserves, increases in the demand for energy, and recent initiatives to increase regional integration in South America have convinced Venezuela that now is the time to undertake an aggressive expansion project.

Boost in Production

During the first six months of 2005, Venezuela’s oil production reached 3,312,000 barrels per day. Of this, 2,291,000 barrels were supplied by the Venezuelan oil company and 352,000 barrels were supplied by private companies. Luis Vierma, PDVSA’s Vice President of Exploration and Production, has declared that PDVSA hopes to increase production to as much as 4,019,000 barrels per day by 2012, as well as generate 615,000 additional barrels per day of new synthetic crude oil products in the Franja de Orinoco region. Vierma also stated that, in order to achieve these goals, PDVSA will emphasize the recovery of oil from known fields, accelerate exploration for natural gas within Venezuela, and begin numerous new projects in Franja de Orinoco.

Moreover, Vierma indicated that there will be a need to construct, adapt and improve Venezuela’s entire petroleum infrastructure, including refineries, terminals, oil pipelines, and tanks. The effort will be focused in the eastern portion of the country where PDVSA estimates it can increase oil production by 6.6 million barrels per day. PDVSA will construct 21 tanks, three new ports for oil transport, and 650 additional kilometers of pipelines in this eastern region. It is estimated that PDVSA will need to spend $40.9 billion to support these exploration and production activities.

Eulogio del Pino, a director of PDVSA, stated that PDVSA will increase natural gas production from 6.3 billion cubic feet to 11.5 billion cubic feet. The increases will be distributed as follows: in Zulia production will increase from 1.1 billion cubic feet to 1.4 billion cubic feet, in Yucal Placer, in the center of the country, it will increase from 1 billion cubic feet to 3 billion cubic feet, and in Anaco the increase will be from 1.7 billion cubic feet to 2.8 billion cubic feet. Moreover, the production of natural gas of the Proyecto Mariscal Sucre (currently at about 1.2 billion cubic feet of production) and the Plataforma Deltana (currently at 1 billion cubic feet of production) will also be increased.

New Projects

Alejandro Granado, PDVSA’s Vice President of Refining, explained that Venezuela’s petroleum industry will concentrate on increasing crude oil processing capacity through the expansion of existing refineries and investments in plants in the Caribbean and South America.

Granado said PDVSA is considering spending $10.5 billion to build three new Venezuelan refineries in Cabruta, Caripito, and Barinas. If they are built, processing capacity in Venezuela will increase to 700,000 barrels per day. Moreover, investments in four of PDVSA’s existing Venezuelan refineries could result in an increase of processing of heavy and extra heavy crude oil by 62%. These investments would most affect the Paraguana refinery.

Granado also explained that PDVSA has the intention to reach an international processing capacity of 2.3 million barrels per day by 2012.

Relations with other countries

Granado said that the governments of Venezuela and Cuba are working together to reactivate the Cienfuegos refinery, which will require an estimated $44 million investment. Cienfuegos has a processing capacity of 70,000 barrels per day, which is to be used to meet the local fuel demand.

Venezuela and Jamaica are working on a project to expand the capacity of the Kingston refinery to up to 50,000 barrels per day. They are planning to invest $197 million between 2006 and 2008 for this project.

Venezuela is also considering the possibility of processing 50,000 barrels per day from the La Franja de Orinoco region at the La Teja refinery in Uruguay. This project could be ready by 2011 and would require approximately $600 million in investment.

Granado also announced that Venezuela would construct the San Jose Abreue Lima refinery in Brazil through its alliance with Petrobras. This $3 billion investment is expected in 2011, and the refinery is expected to have a processing capacity of 200,000 barrels per day of crude oil coming from La Franja de Orinoco and Brazilian oil fields.

There is also talk of possibly refining Venezuela’s crude oil in the Cartagena refinery in Colombia. While at the same time, PDVSA also wants to expand its market share in Chile and Peru.

Increase in PDVSA’s petroleum transport fleet

Asdrubal Chavez, PDVSA’s internal director, announced that by 2012 PDVSA will have 58 tankers in its fleet. These tankers will carry 45% of the petroleum exported by Venezuela.

The building and maintenance of ships will occur via strategic alliances with Argentina, Brazil, China, and Spain. PDVSA will spend an estimated $2.2 billion for the construction of 42 new oil tankers.

Other Projects

President Chavez has also announced the Petroandina Initiative, which includes the building of an oil pipeline from Venezuela to the Pacific Ocean. The pipeline will traverse Colombia. This will allow Venezuela to gain greater access to Asian Markets by making oil transport faster and lowering freight costs.

Asdrubal said that PDVSA will use its plants in Aruba, Bonaire, and Isla in Curazao as distribution centers to distant markets such as China and India. These centers have deep water terminals that are compatible with tankers that have the capacity of holding two million barrels of oil.

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