VENEZUELA'S LNG EXPORT PROJECT GETS FINAL APPROVAL

Venezuela's Congress has given final approval to the proposed $5.6 billion Cristobal Colon liquefied natural gas export project. It represents the first time direct foreign equity investment will be allowed in Venezuela's upstream oil and gas sector since all private foreign companies were nationalized in 1976. In recent years, the government has approved service risk contracts by foreign companies that called for boosting production from old and/or marginal oil fields.

Aug. 16, 1993

3 min read

Venezuela's Congress has given final approval to the proposed $5.6 billion Cristobal Colon liquefied natural gas export project.

It represents the first time direct foreign equity investment will be allowed in Venezuela's upstream oil and gas sector since all private foreign companies were nationalized in 1976.

In recent years, the government has approved service risk contracts by foreign companies that called for boosting production from old and/or marginal oil fields.

The project, sponsored by a venture of state oil company Petroleos de Venezuela SA unit Lagoven SA 33%, Royal Dutch/Shell Group 30%, Exxon Corp. 297,, and Mitsubishi Corp. 8%, is the biggest to be undertaken in Venezuela's petroleum sector.

PROJECT DETAILS

The project calls for exporting as much as 6 million metric tons/year of LNG to the U.S. Northeast and Europe.

Gas supplies would come from four gas fields to be developed in the Caribbean Sea north of the Paria Peninsula, transported to shore by two pipelines, one 45 km and the other 32 km. Pdvsa discovered Rio Caribe, Mejillones, Patao, and Dragon fields in 1978-82.

Gas will feed a 6 million ton/year capacity liquefaction plant near Mapire on the peninsula's southern shore.

Final cost of the project will depend on whether the group purchases or leases five or six 50,000 dwt LNG carriers, among other factors.

Terms of the joint venture agreement are for 30 years after first commercial shipment of LNG. If construction begins this year, sponsors expect exports to begin in 1999.

CHANGE IN ATTITUDE

Congressional approval of the LNG project sends a clear signal to foreign investors of a sharp change in the country's attitude toward foreign investment in the petroleum industry.

Despite strong last minute opposition from lefist parties, Venezuela's two biggest political parties, Democratic Action and the Christian Democrat Copei party, voted together to approve the LNG project.

Under Venezuelan law, any joint venture between Pdvsa and private investors in oil and gas must be considered in the national interest and thus subject to approval by a joint session of the Venezuelan legislature.

Pdvsa executives lobbied hard to convince politicians the company cannot by itself finance investments in major projects involving natural gas and heavy oil. The congress also is considering two Orinoco heavy oil upgrader projects in joint ventures of Pdvsa unit Maraven SA and groups led by Conoco Inc. and Total.

The LNG project had been under discussion for about 4 years. Earlier delays related to concerns, since resolved, over projected LNG demand and prices in the U.S. and Europe, reluctance by Shell to expose its liquefaction technology to Exxon, applicable tax rates, and legal authority in case of disputes. The project will be subject to Venezuela's maximum corporate tax rate of 30% instead of the 67.7% tax typically applied to oil and gas operations. Legal disputes will be resolved by foreign courts.