BMI: Venezuela still vital Latin American oil supplier

Jan. 9, 2008
Venezuela will account for just 8.04% of Latin American oil demand by 2011 while providing about 28.24% of its oil supply by then, according to a recent analyst report.

Eric Watkins
Senior Correspondent

LOS ANGELES, Jan. 9 -- Venezuela will account for just 8.04% of Latin American oil demand by 2011 while providing about 28.24% of its oil supply by then, according to a recent analyst report.

Business Monitor International's Venezuela Oil & Gas Report claims that Latin America regional oil demand rose to 7.15 million b/d in 2006. It said the region should average 7.33 million b/d in 2007 and then rise to 8.15 million b/d by 2011. Regional oil production was 10.58 million b/d in 2006. It is set to rise to 11.51 million b/d by 2011.

The region consumed 179 billion cu m (bcm) of natural gas in 2006, with demand of 268 bcm targeted for 2011, representing 50% growth. Production of 175 bcm in 2006 should reach 274 bcm in 2011 and implies just 6 bcm of net exports at the end of the period.

Venezuela contributed about 16.04% to 2006 regional gas consumption, while producing 16.35%. By 2011, it is expected to consume 17.92% of the region's gas, while contributing 17.50% to supply.

BMI assumes oil and gas liquids production of no more than 3.25 million b/d by 2011, with the country expected to produce 2.65 million b/d in 2007. Consumption is forecast to increase by around 3%/year to 2011, implying demand of 655,000 b/d.

The report said Venezuela's export capability would be about 2.6 million b/d by 2011, while gas production is forecast to rise to 48 bcm over the period from 28.7 bcm in 2006 matched by equivalent consumption.

Crude oil export revenues are estimated at $48.30 billion for 2007, assuming an OPEC basket price of $64/bbl. Based on BMI's assumption of $61/bbl crude in 2008, $55/bbl in 2009, and an average $50/bbl in 2010-11, crude oil export revenues will be $44.96-47.35 billion during the period. Gas export potential exists beyond 2011.

In the BMI business environment rankings matrix, Venezuela received a composite score of 30, ranking it sixth out of nine states included in the region.

"The overall business environment can be considered no better than neutral in a regional context, in spite of the country's perceived high level of long-term economic risk, plus the demanding licensing and production-sharing regime," it said.

While recent changes in taxation and its licensing system have reduced foreign involvement in Venezuela, several key players appear committed to the country while others are reassessing their involvement.

Meanwhile, BMI said the country has "considerable untapped hydrocarbons potential, with a high reserves-to-production ratio, significant output growth potential, and an established competitive framework."

Drawing attention to some of that potential, BMI cited statements of state oil firm Petroleos de Venezuela SA (PDVSA), which claimed in June 2007 that a study conducted by US engineering firm Ryder Scott has determined that Carabobo Block 3 in Venezuela's Orinoco belt holds 28.65 billion bbl of oil.

The firm said the block may hold proved reserves of 5.7 billion bbl, based on the expectation that 20% of the oil deposits can be recovered.

Venezuela is trying to verify the vast reserves of the Orinoco extra-heavy crude belt, as the government is negotiating majority stakes in the Orinoco projects, which were forcefully nationalized by President Hugo Chavez.

BMI also noted that Venezuela may be inflating its reserves claims. "In spite of recent underinvestment and reduced international oil company involvement, Venezuela claims that its proven oil reserves have risen to 100 billion bbl. This is well in excess of most external estimates."

The country's energy and oil ministry said it has certified 12.4 billion additional bbl of proved reserves in the country's Faja del Orinoco region, where the government assumed control of oil ventures with IOCs earlier in 2007.

In Carabobo Blocks 2, 3, and 4, in the Orinoco region, surveyors have certified 20.1 billion bbl of proved crude oil reserves and more than 140 bcm of gas reserves, BMI said, citing a government statement.

In the Orinoco Magna Reserve project, meanwhile, the Chavez government expects to certify more than 200 billion bbl of crude oil reserves, which—if correct—would give Venezuela the largest hydrocarbons reserves in the world.

Contact Eric Watkins at [email protected].