Venezula's Chavez using oil for influence in S. America

Aug. 25, 2005
Venezuelan President Hugo Chavez is increasingly using oil to gain influence in South America and to advance his effort to create a regional oil company called Petrosur.

Peter Howard Wertheim
OGJ Correspondent

RIO DE JANEIRO. Aug. 25 -- Venezuelan President Hugo Chavez is increasingly using oil to gain influence in South America and to advance his effort to create a regional oil company called Petrosur.

Chavez envisions an energy cooperative unifying all state hydrocarbon companies in the region, with the goal of excluding multinational oil companies from energy development. He lately has made inroads in Uruguay, Argentina, Brazil, and, most recently, Ecuador (OGJ Online, Aug. 23, 2005).

With only 8 days' supply of oil left, Ecuadorian President Alfredo Palacio suspended exports and asked Chavez on Aug. 20 for a loan to meet export commitments with Venezuelan oil.

"Venezuela will cover commitments the Ecuadorian government has not been able to fulfill these days," Chavez said Aug. 21 in a television broadcast from Sandino, Cuba. "They will not have to pay a cent."

On Aug. 15, protesters in Ecuador started blowing up pipelines and vandalizing pumping machinery to demand more investment and employment in the oil industry and renegotiation of contracts with multinational oil companies.

Protest leaders called for a truce Aug. 22 after the government freed about 40 people arrested under a state of emergency declared by Palacio. Ecuador's government says crude production will not return to normal before October.

The attacks took place at the Amazon provinces of Sucumbios and Orellana in 35 Petroecuador facilities occupied by striking workers and local protestors.

Petroecuador's production dropped to 30,000 b/d of oil from 210,000 b/d by Aug. 17 and by Aug. 18 had ceased. Private companies, largely US oil majors, produce some 300,000 b/d of oil.

During official visits in August, Chavez struck deals with Uruguay's state-run energy company Administración Nacional de Combustibles, Alcohol y Pórtland (Ancap), offered an Orinoco block to Argentina, and proposed a joint venture for the development of another block with Brazil.

On Aug.10, following the signing of several joint bilateral accords with the government of President Tabare Vazquez in Montevideo, Chavez announced that Venezuela will guarantee Uruguay's oil supply for the next 25 years as part of an energy deal that includes the upgrading of a government-owned cement plant, which will provide Venezuela cement under favorable conditions.

A Venezuelan vessel carrying 1 million bbl of crude is en route to Montevideo. Uruguay imports all the oil it consumes, about 50,000 b/d.

A further $12 million is to be invested in refurbishing a sugar cane alcohol plant that will export fuel to Venezuela. The agreement includes refining Venezuelan heavy crude in Uruguay's only refinery, on the south Atlantic coast. Petroleos de Venezuela SA (PDVSA) plans are to expand the refinery and export fuel to energy-short Mercosur members, which include Brazil, Argentina, Paraguay, and Uruguay.

The project would double the refinery's capacity to 100,000 b/d and adapt it to Venezuela's heavy, high-sulfur crude.

"The technical, legal, market, and option studies will take 6 months," said Daniel Martinez, president of Uruguay's oil company. "If the decision is made to build a new plant, it will take at least 5 years of work and more than $600 million."

For the last 2 years, Argentina has bought Venezuelan fuel oil worth $200 million to produce electricity.

On Aug. 11, Chavez also began negotiations with Argentine President Nestor Kirchner for construction of medium-size oil tankers in a Buenos Aires shipyard, renewal of fuel oil contracts for thermal plants, construction of a hydroelectric plant in Venezuela, and creation of a joint financing mechanism.

Market analysts estimate that these deals involve more than $500 million.

During a 1-day visit to Brazil on Aug.12, Chavez proposed to Brazilian President Luiz Inácio Lula da Silva the joint development of a block in Venezuela's Orinoco belt by Petroleo Brasileiro SA (Petrobras) and Petroleos de Venezuela SA as a further step in the campaign to improve regional economic integration.

Brazil's mines and energy ministry said Petrobras and PDVSA will soon start technical and feasibility studies.

Chavez and Lula in February agreed to create a strategic alliance. The 20 resulting accords include cooperation in oil and gas production, refining, petrochemicals, and energy and avoidance of double taxation (OGJ Online, Feb. 22, 2005).

In Venezuela, four projects upgrade Orinoco tar sands into more than 500,000 b/d of synthetic crude. They involve six major oil companies working in joint ventures with PDVSA.

Venezuela is looking to ramp up Orinoco heavy oil production and is turning to state-run companies in the region to help out. Venezuela has said it will offer 27 new exploration blocks in the Orinoco region soon.

Chavez, at odds with Washington, DC, is trying to reduce Venezuela's economic reliance on the US by signing energy deals with South American countries, as well as China, Russia, and India.

He is also extending Venezuela's regional influence by offering oil on generous terms to Caribbean nations.

Venezuela and 13 Caribbean countries have taken the first step toward the formation of a large regional petroleum company (OGJ Online, July 14, 2004).