Technology pushes Venezuela's heavy-oil projects ahead

J. Inciarte
Petroleos de Venezuela, S.A.
Caracas

The technological advances which have made current development of Venezuela's extra-heavy oils and bitumens resource base economical can, in the future, make them even more so, within a given oil price range.

In addition, these advances can also make previously uneconomical developments economically viable and attractive.

The challenges

Accomplishing this, however, presents a challenge which, in the specific case of these types of crudes and bitumens, is even more formidable. What has caused this challenge to become ever more demanding?

On the one hand, research and development expenditures on heavy and extraheavy oils have been substantially reduced by most major oil companies.

On the other hand, technological advances are making gas and light and medium oil resources more competitive, as they continue to comply with stricter environmental regulations.

Also, as the petroleum industry approaches 2000, it continues to face not only the challenges of environmental protection, but also those of raising needed capital, efficiently allocating available funds to what is important, achieving some price stability and, most importantly, pursuing security of supply and improving the quality of life for all.

Here are some important figures:

• The estimated world resources of heavy, extra-heavy oils, and natural bitumen amount to some 6.3 trillion bbl of oil. The amount recoverable has been estimated at some 420 billion bbl of heavy oils
• Venezuela has about 65%, Kuwait 10%, the U.S. 3%, and the remaining 22% is distributed among the rest of the world.
• Approximately 350 billion bbl of natural bitumen is estimated as recoverable, of which 75% lies in Canada, 22% in Russia, and the remaining 3% scattered throughout the rest of the world (Venezuela holding 1%).

These data point to an important conclusion: now, more than ever, oil producers face the challenge of developing technologies to transform these immense resources into usable products.

In the case of Venezuela, a recoverable reserve base of heavy and extra-heavy oils and bitumens is approximately 240 billion bbl. These reserves, in addition to other current proven reserves of 73 billion bbl, yield a total of 313 billion bbl, surpassing those of Saudi Arabia (258 billion bbl).

Reserves; Orimulsion

An important feature of Venezuela's proven reserves is its current distribution: 30% light and medium oils and 70% heavy and extraheavy crudes and bitumens. Furthermore, out of these proven reserves, the country's present production capacity amounts to some 3.4 million b/d, of which 72% consists of light and medium oils (Fig. 1 [58,826 bytes]).

It should be understandable, then, why Venezuela, like Canada, must continue to develop ways to introduce this source of energy into a fuel market that has grown in demand for commercial products that are more environmentally benign.

Such development can only be achieved if Venezuela continues to be competitive. Currently, the country's capital development cost is $1.48/bbl; its operating costs, including upgrading, $4.10/bbl. Fig. 1b and Fig. 2 [26,594 bytes] indicate investment trends in Venezuela.

Consistent with its technology strategy and as part of Petroleos de Venezuela's (Pdvsa) business plan, the response upstream has been directed toward the optimization of thermal recovery processes, well completion, artificial lift of these types of crudes, as well as its handling and transportation.

Development of Orimulsion by Intevep, Pdvsa's research and technology support center, will permit commercialization of a great deal of the bituminous and extraheavy oils not otherwise recoverable.

Orimulsion is a new fuel creating a new market. Current Orimulsion production is on the order of 4.1 million metric tons/year with plans to increase production to some 36 million metric tons for 2006.

Orimulsion is sold at a price competitive to that of coal. Further benefits are already foreseeable for a second generation technology which will lower surfactant and transportation costs and increase significantly the calorific value per ton.

Downstream

As for downstream, the Venezuelan oil industry has been facing the challenge of introducing its refined products into a market that desires cleaner products and processes. This calls for an upgrading technology which, within the equation of "resources + environment + economy," could render products with improved environmental performance, ensuring at the same time, economic and financial viability.

From the large variety of technologies in the market, only a few can be successfully applied to processing heavy and extra-heavy oils with high metal and asphaltene contents. Among these, not yet commercially installed, is Intevep's hydro-cracking, distillation, and hydrotreating process "HDH."

This process was developed through a novel catalytic hydrogen conversion scheme which, operating at moderate pressures, constitutes an upgrading route able to produce higher value added products from a wide range of feed stocks. It does so without producing a residue to be disposed of because the process leaves no undesirable byproducts.

At present, Intevep is working on "aquaconversion," a new upgrading route for heavy oils and residues, on which more later.

Currently, Pdvsa has considerably increased its refining capacity to around 2.9 million b/d, with its share in 15 overseas refineries and includes distribution systems in U.S. and Europe.

Overall, the Venezuelan oil industry has spent many billions of dollars to increase its deep conversion capacity. This investment has allowed it to lower residuals from 60% in 1976 to only 17% in 1997, adapting products to meet more stringent environmental requirements.

Acquisition and development of a refining and distribution network throughout the U.S. and Europe has been the result of a strategy, devised in the 1980s, which has permitted placement of substantial volumes of crude and products internationally, close to the final consumers.

Technology's role

Continued application of new and existing technology combined with Pdvsa's own developments have been the Venezuelan oil industry's main weapons in reducing costs and maintaining viability as an international enterprise faced with relatively low oil prices.

Upstream, for instance, 3D and 4D seismic, integrated with advanced geological modeling and reservoir-simulation techniques, has given an allaround understanding of the underground reservoir, allowing for the best choice of the most cost-effective way of producing the vast reserves.

Production techniques-horizontal and deviated wells, slimhole, enhanced oil recovery with solvents and foaming agents-have all made important contributions to operations in terms of infrastructure and cost reduction.

New equipment and pumping devices, continuous online measurement and quality control of emulsions, coreflow, as well as asphaltene-deposition modeling (which was the result of a project conducted with the participation of IFP), have over the years taught how to respond to challenges with ingenuity and creative adaptations.

Thus, the challenge has not only been to come up with a conventional development scheme, but also to push available technology worldwide to its practical limits, adapting it to needs and particular circumstances.

As a result, Pdvsa's average exploration costs are on the order of $0.93/bbl which has allowed for the discovery of some 6 billion bbl with a higher than 40% success ratio. Overall production development and operating costs rank among the lowest in the world, at present on the order of $1.48 and $4.10/bbl, respectively.

Projects

In line with Pdvsa's strategy to increase the reservoir-recovery factor and the production of heavy and extraheavy oils and bitumens, its research efforts are centered in three main projects:

• An upgrading project, referred to as "in situ upgrading of heavy/extra-heavy oils and bitumens," is intended to develop new methods to upgrade these types of oils and bitumens within the reservoir by means of an integrated production/conversion scheme which in turn will allow for a substantial cost reduction.

So far, results have been encouraging with methods such as propane extraction and reverse and intermittent in situ combustion.

• Research is trying to establish production mechanisms for the Orinoco belt heavy/extra-heavy oils and bitumens through the concept of foaming crudes.

So far, results have allowed for the development of a methodology to evaluate foam stability and gas-entrapment behavior in a viscous crude.

• And a third research project on artificial lift, which is intended to reduce investment, maintenance, and production costs in artificial-lift installations, by means of new design schemes in electrosubmersible pumps and ways to increase the service factor in progressive cavity pumps.

Current research in manufacturing is being geared towards optimization of such fuels as reformulated gasolines, asphalts and lubricants formulation, and development and optimization of a new upgrading technology for heavy/extra-heavy oils and bitumens, previously referred to as "aquaconversion."

This technology is an inhouse development utilizing a lowcost novel catalyst which can be incorporated with the feedstock and can be partially recovered for further utilization. The technology allows for conversion of the Orinoco crudes with viscosities ranging from 8 to 10 °API to an upgraded oil of 16° API or better.

Pdvsa's present association with two major American technology and engineering companies is aimed at the scaleup and commercial application of this technology which will reduce investment and operational costs far below those of available technologies of carbon rejection and/or hydrogen addition.

Next for heavy oils, Pdvsa?

Exploitation of the Orinoco belt through strategic alliances with partners capable of sharing technology, markets, and capital, will account for some additional 600,000 b/d of production. Five multibillion-dollar strategic associations are currently operating in the Orinoco belt in heavy/extraheavy oils and bitumens: Maraven-Conoco, MaravenTotal, Corpoven-Arco, Lag- oven-Mobil, and Bitor-JVCO.

These associations will be handling 80,000 to 200,000 b/d of an 8-12 °API crude to produce a syncrude with 15-31 °API. The total required investment is on the order of some $900 million to $3.2 billion, with an attractive return on investment expected.

Two additional associations are being considered: Corpoven-Exxon and Maraven-Coastal. Also, in view of existing interests of several oil majors, there is the possibility of six other associations: Arco for the aquaconversion scheme, Shell-Texaco, BP, Amoco, Marathon, and also Chinese National Petroleum Co. for Orimulsion.

As incentive to third-party investments, Venezuela's government has established a special fiscal treatment consisting of a reduction from 67.7% to 34% fiscal payment, thus contributing to develop Venezuela's local infrastructure and industry.

Pdvsa has also decided to create a new nonoperating affiliate whose main function lies in ensuring success of ongoing projects and in unifying the criteria required for maximizing added value from these resources to the nation and to Pdvsa as well.

In considering the future of Pdvsa, it is important to remember that Venezuela is an oil country, not simply a country with oil. As the world's oil demand is expected to increase by 1.2-1.5%/year, consumption is also expected to grow to some 86 million b/d or more in 2006.

To satisfy this demand, large capital investments are required in those countries with major reserves and low production costs. In this respect, Venezuela is capable of increasing its production capacity from its current 3.4 million b/d to 6.2 million b/d in 10 years.

To give this goal perspective, consider that just to keep up current production capacity of 3.4 million b/d requires generation of more than 700,000 b/d. Most of the increase is coming from associations and joint ventures with the private sector.

Pdvsa's production plan for the next 10 years calls for:

• A 585,000 b/d production potential from reactivation of mature fields for which Pdvsa had no programmed activities. Third parties would be developing these fields for an agreed fee.

• Another 540,000 b/d from executing an exploration program which Pdvsa would not carry out within the next 10 years on its own.

This exploration program would be executed by third parties at their own risk. Any discovery would be developed under the scheme of profitsharing agreements, with a maximum Pdvsa participation of 35%.

• Approximately 665,000 b/d from the strategic alliances already outlined for the Orinoco belt.

Foreign presence

Pdvsa's business plan calls for investments of $65 billion, 60% of which would be undertaken by Pdvsa and 30% by the private sector.

Bidding for exploration and production on new areas, under the scheme of profit-sharing agreements, attracted 75 companies of all sizes representing every corner of the planet. Of these, 42 qualified to make bids for the 10 fields being offered at the time.

Bids were awarded on the basis of a percentage of profits to be given to Pdvsa, as well as a cash bonus. Eight blocks were finally awarded.

A third round, less than 7 months ago, under the scheme of "operational contracts" for inactive fields was intense. Of the 259 companies that prequalified, 129 were Venezuelan and 130 foreign-based.

The auctioning of these operating contracts for 20 mature fields was a highly competitive bidding round that brought in a total of $2.1 billion for the 13 fields awarded.

The bid levels call for all winners to exceed the minimum required programs and certainly for the latest technologies to be applied. This is in order to increase recoveries from these fields which can no longer be called marginal, rather "marginalized," as production will be close to 600,000 b/d in 2006.

It has also become apparent that some companies are willing to establish themselves in Venezuela so that they would be able to participate in future opportunities. Foreign firms also see opportunities in the fields of lubricants, petrochemicals, fuels, gas oils, and many more.

The Author