Venezuela's national oil company, Petroleos de Venezuela SA (Pdvsa), is moving ahead with an ambitious investment program designed to substantially expand its activities in oil and gas exploration and production, refining, petrochemicals, and coal in the 1990s.
The company, which has stakes in refining and marketing companies in the U.S., Europe, and the Caribbean, also is seeking new investment opportunities in U.S. and European markets as well as in the Far East.
Pdvsa officials expect the company by 2000 to have developed a much stronger presence in the global energy market, with:
- Crude productive capacity of more than 4 million b/d.
- Crude output averaging about 3.7-3.8 million b/d.
- Exports of 500,000 b/d-1 million b/d of Orimulsion-a new boiler fuel for electric power generation made from an emulsion of extra heavy crude, water, and surfactants-and synthetic crudes.
- Liquefied natural gas exports to the U.S. totaling 110,000 b/d of oil equivalent.
- One million b/d in additional refining capacity, consisting of a new 200,000 b/d high conversion unit, 400,000 b/d added to existing domestic refineries, and another 400,000 b/d consisting of new domestic capacity plus stakes in foreign refineries.
- More than a threefold increase in petrochemical output capacity to more than 14 million metric tons/year.
- An enlarged and renovated tanker fleet that will handle 30% of the company's international shipments.
- Coal exports of 10 million metric tons/year.
MEDIUM TERM PLANS
Pdvsa's medium term development plan for 1991-96, recently approved by the company's board, calls for total investments of about $25 billion.
That breaks out as exploration $1.5 billion, production $9 billion, refining $6 billion, petrochemicals $6 billion, coal $1.5 billion, domestic marketing $800 million
One of Pdvsa's planning officials put the imported component at about 40% of total investments.
The Venezuelan oil company will finance most of these investments out of its own cash flow. However, Pdvsa petrochemical subsidiary Pequiven has programmed direct investments of $2.6 billion or around 43% of the total for its sector. The remainder is expected to come from international foreign and domestic private sector partners, as well as from project financing and other external credit sources.
Foreign partners are also working with Pdvsa on coal and LNG projects and are expected to provide equity in these areas.
In addition to these areas, the company hopes to attract international investment in exploration and production. Up until now, these two sectors were off limits to foreign companies and were exclusively the domain of Pdvsa.
EXPLORATION
Pdvsa plans to add 10 billion bbl of light crude to its proven reserves, which now stand at 59 billion bbl.
Pdvsa puts Venezuela's probable reserves at 85.5 billion bbl and possible reserves at 55.6 billion bbl, for a combined total of 200.1 billion bbl. That does not include 271 billion bbl of extra heavy crude and bitumen the company believes it can recover from the Orinoco Belt, which has an estimated 1.2 trillion bbl in place.
Much of the reserves to be added through 1996 will come from the northern zones of Monagas and Anzoatequi states in eastern Venezuela, where Pdvsa operators Lagoven and Corpoven are developing large fields discovered in 1985.
Other producing areas that will provide new reserves are Apure in the southwest and Ceuta on Lake Maracaibo. Pdvsa is carrying out exploratory and development work in both areas.
Other exploratory efforts target the Andean flank south of Lake Maracaibo, Perija in Zulia state, sites east of Maturin in Monagas, Guarumen, and offshore natural gas deposits.
Through 1996, Pdvsa plans about 50,000 line km of seismic surveys and more than 130 wildcats.
Proven natural gas reserves now stand at 105.7 tcf, with probable reserves estimated at another 27.6 tcf and possible at 93.9 tcf.
OIL PRODUCTION
Pdvsa plans to hike Venezuela's crude production potential to more than 3.6 million b/d by yearend 1996 from the present 2.75 million b/d.
During that time, average production is targeted to climb to 3.25 million b/d from about 2.3 million b/d in 1990.
Achieving this extra increment in crude production potential will involve drilling 7,000 exploratory and development wells, performing 10,000 workovers, adding 4.238 bcfd of gas compression capacity, building 1,000 km of oil and gas pipelines, and installing at least 4 gas processing plants.
Orimulsion, the product dubbed "liquid coal," is targeted for $1.5 billion in Pdvsa investments through 1996. Orimulsion production potential at that time is projected to be 750,000 b/d-of which 70-75% would be extra heavy crude-with average output of 500,000 b/d. Pdvsa estimates it will need to drill 1,500 exploratory and development wells in the Orinoco belt, build 1,200 line km of oil and gas pipelines, set up 25 production stations, and lay 500 line km of electric power lines for the Orimulsion project alone.
Maintenance of Venezuela's production system, one of the world's most complex, will absorb an important share of future spending. Existing facilities include 877 production stations, 164 gas compression plants, 11 gas processing plans, 141 water injection plants, 9,000 line km of major oil pipelines, and 9 terminals.
NATURAL GAS
Venezuela's natural gas production in 1989 was 3.67 bcfd, virtually all of which was associated gas.
Of the total, 37% was reinjected, 57% was sold directly on the domestic market or supplied to the petrochemical industry, and the rest used in Pdvsa operations.
Production capacity for gas now stands at 4.2 bcfd of gas per day. Plans call for that to jump by 1.6 bcfd by 1996. Capacity for extracting gas liquids will rise substantially from the current 108,000 b/d.
Pdvsa will be giving the gas sector a great deal of attention the next 6 years. The company will be investing heavily in production and transportation facilities in order to provide Venezuelan industry with more gas as a substitute for liquid motor fuels-to replace gasoline in part of the motor vehicle fleet-and to meet new demand for ethane and propane due to the big buildup in petrochemical capacity.
According to preliminary estimates from Pdvsa, the company will add compression plants with a total of 765,000 bhp capacity to handle 4.63 bcfd of gas, build five new gas processing plants, and lay 844 km of trunk gas pipelines through 1996. A 400 km propane pipeline also is planned between Jose in eastern Venezuela and the central city of Valencia.
In addition, Pdvsa is undertaking the Cristobal Colon LNG development, the largest single project in the industry's history.
The $3 billion project calls for developing gas fields off the eastern coast of Venezuela and exporting 4.4 million metric tons/year of LNG to the U.S. starting in 1977. Partners in the project are Pdvsa subsidiary Lagoven SA, Exxon Corp., Mitsubishi Corp., and Royal Dutch/Shell group.
They will have to drill an estimated 55 offshore development wells, install as many as 8 platforms, lay 50 km of gas pipeline, and build a liquefaction plant and export terminal on the mainland. It is not clear yet whether the partners will buy or lease LNG tankers.
REFINING PLANS
Pdvsa will boost refining capacity by 400,000 b/d by 1996 through additions to its existing refineries.
That currently stands at 1.12 million b/d of atmospheric distillation capacity and 815,000 b/d of conversion capacity.
Pdvsa also plans to build a 200,000 b/d high conversion refinery in eastern Venezuela and to find additional partners for refining/marketing ventures overseas, with an eye toward increasing exports to the northern Atlantic basin.
Pdvsa's new investments in domestic and foreign refining are motivated by several factors. The company wishes to export a high percentage of products, rather than crude and will need more capacity to process greater volumes of crude, especially heavier crudes, as production increases.
It also wants to improve the quality of its export product slate and to continue securing market share for Venezuelan crude and products by buying into established refining and marketing systems overseas.
PETROCHEMICALS
Pdvsa's current expansion program in petrochemicals is an extension of policies that were established several years ago.
The company's strategy is to make greater use of Venezuela's natural gas reserves, reduce imports of petrochemicals and fertilizers, and establish new businesses with significant export potential.
Most of the new projects being undertaken by Pequiven are joint ventures with Venezuelan and international investors.
Private investors are not seen simply as suppliers of capital and facilitators of foreign credit. Pequiven realizes that it will be better positioned to compete internationally if its joint venture partners provide advanced production technology and access to world markets.
Pequiven's updated development plan calls for increasing gross productive capacity to 14 million metric tons/year by 1996 from 4 million metric tons/year in 1991. Sales are projected to rise to 12 million metric tons/year from 3 million metric tons/year, with exports growing to 5 million metric tons/year from 1 million metric tons/year.
Pequiven already is undertaking a dizzying range of projects in plastics, industrial chemicals. and fertilizers at its petrochemical complexes: El Tablazo in western Venezuela, Moron in central Venezuela, and Jose in the east. These include ethylene, styrene, low density polyethylene, high density polyethylene, polypropylene, ethylene oxide/ethylene glycol, methanol, methyl tertiary butyl ether, tertiary amyl methyl ether, vinyl chloride monomer, polyvinyl chloride, caustic soda/chlorine, and ammonia.
COAL
Carbones del Guasare SA, the joint venture of Pdvsa's Carbozulia, Arco Coal, and Agip Carbone, exported 1.73 million metric tons of coal in 1990 and is aiming for at least 1.5 million metric tons in 1991.
Coal production at Carbozulia's Paso Diablo mine in Zulia is slated to reach 6.5 million metric tons/year by 1996.
Other international companies have been studying the possibility of opening another mine to tap a different area of the Guasare fields.
PDVSA'S PROSPECTS
Pdvsa's 1991-96 plan is not a consequence of Iraq's invasion of Kuwait.
The basic plan was first approved by Pdvsa at yearend 1989 and made public by Venezuela's Minister of Energy and Mines Celestino Armas.
Nevertheless, the Middle East crisis has prompted Venezuela to raise crude production by 500,000 b/d in 1990. and added a sense of urgency to the entire development program.
Pdvsa's medium term development plan, although highly ambitious, is generally viewed as sound and realistic by observers outside the Venezuelan oil industry who note the company has laid out its plans and projections carefully.
Further, it starts this new period of expansion with a number of advantages, such as extensive experience and a good track record in the international oil market, large proven and probable reserves of crude and natural gas, relatively low crude costs for producing crude and adding crude reserves-about $2.50/bbl and 570, respectively, a profitable corporate base, and an excellent location for markets in the U.S. and western Europe.
Pdvsa also contends that, in light of the Middle East crisis brought on by Iraq's invasion of Kuwait, it has become clear that Venezuela is the only country outside the Persian Gulf that can make a significant and sustained increase in crude production and exports over the long term without incurring prohibitively high costs.
Pdvsa often is held up as a model for national oil companies (NOCs). Unlike some other NOCS, Pdvsa has an excellent record of performance and profitability and continues to be run by professional managers who base their decisions on commercial considerations rather than political ones and refuse to allow featherbedding or other practices that have damaged other NOCS, say industry sources.
The company has earned very good profits each year since it began operations in 1976. In 1989, the last full year for which figures are available, Pdvsa posted a net profit of $2.11 billion on revenues of $13.75 billion. The company has very little debt and has consistently reinvested its profits.
CLOUDS ON THE HORIZON
This does not mean there are no clouds hanging over the company.
Pdvsa and its direct boss, the minister of energy, are still deeply divided over the future role of Venezuela within the Organization of Petroleum Exporting Countries, if that organization ever recovers from the Iraq-Kuwait conflict.
Pdvsa managers reject the notion that their company might once again be subject to crippling and unfair OPEC quotas after investing large sums in boosting production potential. However, Armas has made it clear that if OPEC returns to a system of production quotas, Venezuela will participate.
Further, Pdvsa has never carried out an investment program as large or complex as its 1991-96 plan, and delays, bottlenecks, and other problems are inevitable. One company official said that a key problem will be finding large numbers of Venezuelan engineers and other specialized personnel to meet peak demand as the program advances.
In addition, there are concerns on international ventures, such as those with foreign partners for the Cristobal Colon LNG project and for several megaprojects in petrochemicals.
The Venezuelan government has dragged its heels on approving dept-equity swaps that will finance part of the petrochemical plan, thus holding up projects that were ready to start at least 2 years ago.
The LNG project presents other problems. The government must obtain approval for this megaproject from the Venezuelan congress and must work out some kind of tax relief for its international partners. Pdvsa now pays more than 82% corporate taxes on oil and gas operations, a level foreign investors will not accept.
In both cases, Pdvsa must wait until the government acts.
As for other upstream joint ventures in exploration and production, where Pdvsa has high hopes for obtaining outside risk capital, the company has yet to set general conditions-including tax schedules-acceptable to foreign concerns that are being asked to work in Venezuela's nontraditional exploration zones.
Another long term concern is that the wages of Pdvsa's middle and senior managers remain very low in international terms. What this means is that key executives may be lured away from Pdvsa in the future by international companies with major commitments in Venezuela or by some of the very joint ventures Pdvsa is now promoting.
Domestic fuels subsidies pose another pitfall. In recent years, Pdvsa has lost hundreds of millions of dollars because of its subsidies to maintain low domestic prices for gasoline and other fuels.
Although the government has allowed some price increases, this area still remains a major drain on the company's finances. It may become an even more serious problem as domestic demand is expected to increase in 1991. If Pdvsa is to develop its huge reserves of extra heavy crude and bitumen in the Orinoco belt, it will require stable, long term agreements with foreign partners and/or clients.
As for Orimulsion, this new product is viewed with interest in the U.S., Canada, Europe, and Japan as an economical alternative to coal in electric power plants. Pdvsa has made important sales to Britain's PowerGen and Japan's Chubu Electric. However, Orimulsion still has not been tested commercially in the U.S.-Florida Power & Light will be the first such test-and there is some concern about related pollution levels.
U.S. GOVERNMENT RELATIONS
Venezuelan government officials have talked about establishing some type of "strategic oil link" with the U.S. government.
The most tangible form this idea has taken thus far was a proposal to set aside proven reserves of crude oil in Venezuela to cover any critical situation that might develop in the U.S.
Washington does not want a strategic oil reserve outside U.S. territory and the idea of selling Venezuelan crude to the U.S. reserve so far has gone nowhere. These issues are mainly in the hands of the energy ministry and the president's office, rather than Pdvsa.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
