Bob Williams
Executive Editor
Oil and Gas Journal
BUENOS AIRES, Oct. 24 -- Latin America will continue to be one of the world's most promising areas for oil and gas investment in the coming decades, heads of three of the region's biggest players told delegates at the World Energy Congress.
Delivering such bullish forecasts in a panel before an overflow crowd Tuesday evening were Petroleo Brasileiro SA Pres. and CEO Henri Phillippe Reichstul, Repsol-YPF SA Chairman and CEO Alfonso Cortina, and TotalFinaElf SA Chairman and CEO Thierry Desmarest. The three companies are among the biggest investors and arguably the dominant foreign players (including Petrobras's international arm Braspetro SA) in the key oil and gas producing and consuming countries of Latin America.
As evidence of the region's attractiveness for energy investment, Reichstul pointed to the fact that South America is hosting the two biggest global energy congresses in the current 12-month span, the WEC and the World Petroleum Congress (slated for September 2002 in Rio de Janeiro).
The theme of Latin American petroleum investment potential carried over to a technical panel Wednesday morning. Among the speakers at that panel was a PDVSA-Intevep executive who outlined progress in efforts to commercialize Venezuela's vast Orinoco belt extra-heavy crude oil resources both upstream and downstream.
Petrobras view
Serving as panel chair, Reichstul outlined a number of macroeconomic and other factors for Latin America's current attractiveness for oil and gas investment.
Among those factors, Reichstul cited:
-- Latin America's economic growth rate, which exceeds the world average.
-- The continuing trend of restructuring that is under way in nearly all of the region's energy sectors.
-- A relatively low per capita energy consumption level.
-- Growing environmental concerns that are propelling a search for cleaner energy sources.
This last factor also lies behind the tide of energy integration sweeping the region, especially the Southern Cone countries of South America.
"Natural gas is the primary driver in this process of energy integration," Reichstul said, in noting that energy integration in the region is well under way. He also said that, in terms of energy integration in Latin America, it is critical -- especially for Brazil -- to follow the example of Canada by ensuring that energy integration incorporates an electric power grid dependent on natural gas-fired power generation as well on hydropower.
For Latin America' energy investment potential to be fulfilled, Reichstul said, the region's nations must pursue these key initiatives:
-- Efforts to ensure a stable economy.
-- Continuing improvements in the region's regulatory framework.
-- Harmonized tax policies.
-- Preservation of relativity in energy pricing to ensure cross-border trade in energy.
-- Compatible specifications among the various countries for energy products and services.
-- Transparent rules for wholesale energy markets under a framework of free-market rules.
-- Creation of an energy futures market.
Repsol-YPF
Cortina pointed to the burgeoning energy consumption of Latin America as the main reason Repsol-YPF is the biggest investor in Latin America's oil and gas sector, with a capital outlay in the region in the past 5 years pegged at more than $22 billion.
With economic growth projected in the near term at more than 3%/year, Cortina said he expects energy demand to continue to show strong growth rates as well. He estimated that growth in annual per capita energy use in Latin America during 1990-2000 was three times the average world rate.
Much of the energy development in Latin America also is contributing to energy security in the Western Hemisphere, Cortina said, citing production of 520 million tonnes of oil in 2000, of which 40% was exported to the US.
The Repsol-YPF chief also noted the booming trade in regional gas trade, with more than 6 billion cu m (bcm) of gas traded last year in South America alone, mainly via eight pipelines that have a combined capacity of 20 bcm/year. He projected gas demand in Brazil alone would peak at 40 bcm/year in the coming decades. Cortina also noted the new interest shown by Mexico in establishing a string of LNG regasification plants, which augurs well for growth in LNG trade from Trinidad and Tobago, Bolivia, and Venezuela.
Desmarest
Desmarest also cited strong economic growth in the region as a key driver in TotalFinaElf's strategy to focus on Latin American oil and gas investment. He pegged that growth at 3.5-4.0%/year to 2010, "even if several countries of the region are currently facing difficult economic conditions."
The TotalFinaElf chief said that oil demand growth in the region would lag economic growth only slightly, averaging 3-3.5%/year in the coming decade. But growth in demand for natural gas in the region would outpace that of any other major energy source at 5.0-5.5%/year, "driven by the rapid development of gas-fired power plants."
Accordingly, the oil and gas shares of the region's primary energy mix are expected to rise to 61% and 26% by 2010, respectively, from 58% and 22% today, he said.
Another reason, and "probably the most dominant parameter" for Latin America's strong attractiveness for petroleum investment is its "very large but also very diversified energy resources," Desmarest said.
While Latin America's proved oil reserves are second in the world behind the Middle East at 120 billion bbl, its total is triple that of North America and six times that of Europe, he noted, adding, "...the ultimate recovery of Orinoco extra-heavy oil could radically improve this picture." TotalFinaElf operates one of the four major integrated heavy oil projects in the Orinoco oil belt.
Desmarest estimated Latin America's natural gas reserves at a relatively smaller 8.2 trillion cu m, contending, however, "There is no doubt that intensive gas-oriented exploration will lead to large-scale revisions in the reserves of the [region]."
He also pointed to the region's growing role on the international scene, citing its net exports of crude oil and petroleum products currently exceeding 3 million b/d: "This position should be maintained and even improved, thanks to the development of offshore production and extra-heavy oil projects."
These latter two areas, together with LNG, hold the greatest current interest as targets of TotalFinaElf capital investment, according to Desmarest.
Deepwater potential is especially strong in Latin America, he noted, with the Atlantic Basin currently holding almost 80% of the world's deep offshore discovered reserves, and more than a fourth of that total concentrated off Brazil.
"We expect the deep offshore to take a growing share in the conventional oil production of the region, possibly 20% -- even more -- in the long term," he said.
Desmarest also cited the projected investments of more than $12 billion combined in the four Orinoco integrated heavy oil projects, with the last of these projects slated to start up by yearend. Their combined primary production -- prior to upgrading -- is projected to plateau at 600,000 b/d; this volume could build, with further investment, to as much as 2.4 million b/d by 2020, he said.
The volume of natural gas produced and transported in Latin America in 2000 totaled 132 bcm in 2000, Desmarest said, adding that his company projects that this volume will build to 220-230 bcm by 2010. He predicted that LNG trade that totaled 3 million tonnes in 2000 will reach 17-23 million tonnes by 2010, posting an average growth rate of 6-7%/year. Most of those volumes are expected to be exported from new LNG plants in Peru and Bolivia to the US and Mexico and from Venezuela and Trinidad and Tobago to the US, Mexico, and western Europe.
Heavy oil
Recent technological advances and improvements in project economics promise to greatly expand the commercial potential of the massive extra-heavy oil resource in Venezuela, PDVSA-Intevep's Mariano E. Gurfinkel told WEC delegates Wednesday morning. PDVSA-Intevep is the research arm of Venezuelan state oil company Petroleos de Venezuela SA.
Venezuela's heavy oil resource is concentrated in two areas: in western Venezuela, in the Maracaibo basin; and in northeastern Venezuela, in the so-called Faja region.
More than 1.2 trillion bbl of original oil in place is in the Faja region alone, explaining PDVSA's particular interest for commercializing the region's extra-heavy crude oils, Gurfinkel said, citing the sheer size of the Faja reservoirs. He also noted their complexity and heterogeneous, thinly nonconsolidated sands, making development a technologically and economically challenging proposition.
Initially developed with simple vertical wells, Faja reservoirs now are being developed by means of integrating 2D and 3D seismic data, log data from existing vertical wells and new stratigraphic slim holes, and increasingly complex multilateral horizontal well completions.
The original horizontal well design in the Faja reservoirs typically entailed a 1,000 ft open hole with a slotted liner for sand control. These produced on average 800-1,200 b/d. Horizontal sections have been extended to as much as 2,000 ft, boosting production to 1,200-1,600 b/d, Gurfinkel noted. Advances in design of electric submersible pumps and progressive cavity pumps have opened the door for economically viable multilateral wells that have boosted individual well output to as much as an average 3,000 b/d.
All of the four integrated heavy oil projects currently resort to blending the extra heavy crude with diluent to transport production with a resulting average gravity of 16-17° to heavy oil upgraders at Jose, Venezuela. The quality of the Faja crudes is such that only minimal volumes would be marketable to refiners without further upgrading via delayed coking to an export-grade synthetic crude with an average gravity of 21°, Gurfinkel noted.
The economics of these projects are "very positive," Gurfinkel pointed out, citing production costs of $1.75/bbl and upgrading costs of less than $2/bbl. This bodes well, he contends, for further capital investments as capital and operating costs continue to fall and the quality of the upgraded crude continues to rise.
The next big advance in commercializing Faja extra-heavy crude could be in situ and infield upgrading, allowing sequential upgrading of the crudes. Among the technologies PDVSA has developed toward this end are Aquaconversion, which employs a catalytic upgrading process, and HDHplus, which incorporates high-severity slurry-type hydrocracking.
The first Aquaconversion field unit is expected to go on stream at Morichal, in the northern Orinoco region, by yearend 2004 (OGJ, May 14, 2001, p. 79). Its main purpose will be to back out the use of diluent for transporting the highly viscous crude.
HDHplus is under consideration for incorporation in the next generation of integrated heavy oil projects, targeting output of 120,000 b/d of high-quality crude oil while sharply reducing the volume of coke produced, boosting production efficiencies, improving product quality, and improving project economics.
It's likely that the next generation of Faja exploitation projects will incorporate both technologies, Gurfinkel contends, with even more radical changes to come with possible commercialization of gasification and gas-to-liquids technologies.