Gas the cornerstone of Venezuela's energy sector investment campaign April 24, 2000
Gas E&P Venezuela's total gas resource is estimated at 227 tcf, of which the 146 tcf of proven reserves places the country No. 1 in Latin America and No. 7 worldwide.A proposal by Enron Corp. to build a single-train LNG export plant, with capacity of 2 million tonnes/year, at Jose.
Natural gas forms the cornerstone of Venezuela's current efforts to attract foreign investment to its energy sector. That is a dramatic turnabout from the situation of just a few years ago, when the government and state petroleum company Petroleos de Venezuela SA pushed for foreign investment to help the country quickly ramp up its oil production. A change of government and of management at PDVSA has resulted in a decided shift in emphasis away from the oil initiatives (OGJ, Apr. 17, 2000, p. 25).
Venezuelan President Hugo Chavez Frias and his Energy and Mines Minister Al! Rodriguez Araque have vowed to establish a strong natural gas industry in a country where most of the gas production currently is flared or reinjected to maintain reservoir pressure in oil fields.
Project Gas gets under way in earnest this month, when PDVSA unit PDVSA Gas unveils a tender for 10-15 gas-prospective blocks to be auctioned this summer to private foreign and domestic petroleum companies. PDVSA has estimated that these blocks could attract exploration and production investments totaling as much as $10 billion during the next 10 years.
Some analysts and prospective investors question the feasibility of such an ambitious agenda, claiming that Project Gas is more politically driven than market-driven. Their view is that interest in the gas E&P initiative will at first be reined by Venezuela's current lack of gas infrastructure and lack of potential end users-and by uncertainty over the country's volatile political climate. (Countrywide elections are slated for May 28, including a presidential race that has recently attracted a surprisingly strong opposition candidate. Political analysts in Caracas say that a Chavez defeat might also doom Project Gas.)
On the plus side, say proponents of Project Gas, is a new gas
at first glance, has created a promising climate for investment in the
country's natural gas industry (OGJ, Apr. 10, 2000, p. 27). In
concerns about infrastructure and end users, PDVSA also has undertaken
PDVSA Gas in February started work on a tender for a strategic partner to operate and expand the gas pipeline from the major gas producing center at Anaco to the petrochemical and industrial center at Jose on the coast at a cost of $120 million. The initial expansion would boost capacity to 800 MMcfd from the current 600 MMcfd. A second tender would involve operatorship and expansion of a gas pipeline from Barbacoas to Margarita Island at a cost of $80 million. Both pipeline project tenders are to be ready by July.
Subsequent tenders are planned for the Anaco-Barquisimeto and
Ordaz pipeline projects.
Pigap III, also a BOO project, which is being prepared for a
It also involves gas compression and could include the sale of the
I facility, which PDVSA currently operates. Total capacity is pegged at
1 bcfd. Sercogas, being prepared for tender, which entails a
gas compression program that would entail the sale of existing
and the construction, ownership, and operation of new facilities that
would cover all the gas compression needs of Venezuela's crude
producing operations. Total cost of the program is put at $4 billion.
Plans by PDVSA, Royal Dutch/ Shell, ExxonMobil Corp., and Mitsubish Corp. to develop a $2 billion LNG project in northeastern Venezuela (OGJ, Apr. 3, 2000, p. 32). Project Venezuela Liquefied Natural Gas (PVLNG) will have a production capacity of about 4 million tonnes/year. The venture is a downsized version of the so-called Cristobal Colon project, which called for an investment of more than $5 billion and an estimated output capacity of as much as 6 million tonnes; it was shelved over poor economics. The new, smaller-scale PVLNG will tap gas reserves in the Gulf of Paria, off Venezuela's northeastern coast in the Caribbean Sea. It is expected to go on stream with its first exports in 2005 to markets in the Caribbean and the US East Coast.
A proposal by Enron Corp. to build a single-train LNG export plant, with capacity of 2 million tonnes/year, at Jose. The project would cost $700 million and target the US market and possibly Puerto Rico, where Enron has an LNG receiving terminal. If construction were to get under way this year, the project could be ready for start-up of exports in 2004.
PDVSA Gas is considering committing as much as 4 tcf of Venezuela's natural gas reserves to a GTL project that would produce ultimately a high- cetane diesel fuel that it can sell or blend with parent PDVSA's low-cetane diesel.
In addition, at least one major US company is venturing early into Venezuela's natural gas fray. Coastal Corp. unit Coastal Gas International Ventures Inc. and state utility Corp. Electricidad de Caracas CA recently signed a letter of intent to negotiate a joint bidding agreement regarding natural gas projects PDVSA will tender in Venezuela.
PDVSA Gas PDVSA Gas has its roots in the prenationalization
PDVSA predecessor Corp. Venezolana del Petr
PDVSA last year created a new Gas Division within its Oil & Gas unit, to which PDVSA Gas will report. This division is charged with developing and planning potential business opportunities along the gas value chain, including E&P, gathering, processing, transportation, industrialization, distribution, and domestic and international marketing of natural gas and its by-products. Chief among those by-products are ethane, propane, butanes, and natural naphthas that are mostly marketed domestically-66% of total volume in 1998-as petrochemical feedstock and as LPG fuel. The remainder, mainly propane, is exported. PDVSA Gas operates installed gas processing capacity of 4.023 bcfd and recovers and fractionates 254,000 b/d of NGL.
Venezuela's natural gas transmission pipeline system comprises 2,600 km of 4-36-in. pipeline with a combined total capacity of about 5.6 bcfd. About 1,500 industrial and 460,000 residential and commercial customers receive gas through a 5,000-km gas distribution system.
Because PDVSA Gas has shifted its emphasis from operations to marketing and its main goal to expansion of the natural gas business in Venezuela through partnerships along the gas value chain, the unit has created two groups internally to reflect the new business approach:
PDVSA Gas is undertaking this initiative amid projections that Vene- zuela's gas market will grow by a rate of 7%/year, reflecting a more-than-twofold increase in gas demand by 2009, and that NGL demand-currently absorbed almost entirely by a rapidly growing petrochemical sector-will continue to soar.
With that in mind, PDVSA has laid out these strategic
Accordingly, PDVSA Gas is seeking joint-venture partners and other cooperative arrangements in efforts to accelerate E&P for nonassociated gas; spur expansion of the gas grid, mainly domestically, but also with an eye to export opportunities; foster increases in gas processing and NGL fractionation; promote development of LNG exports; establish a presence in gas and gas by-products trading; and back development of GTL projects.
These business arrangements can include E&P operating
and agreements; accords to build and/or operate facilities under
lease, or transfer-of-assets schemes; partnering agreements and JVs
varying levels of participation; purchase or sale of feedstock; and
in processing or fractionation plants or in transportation and
infrastructure to market gas locally or abroad.
Gas E&P Venezuela's total gas resource is estimated at 227 tcf, of which the 146 tcf of proven reserves places the country No. 1 in Latin America and No. 7 worldwide.
Currently, all Venezuelan gas production is associated gas,
a modest exploratory program has targeted nonassociated gas.
PDVSA Gas expects the transmission pipeline expansions could absorb as much as $800 million-1 billion over the next 10 years (Fig. 3).
In addition to expansions of existing systems, PDVSA Gas
opportunities for new grassroots transmission lines to areas currently
being supplied mostly with other energy sources: "At the moment," it
"the San Carlos-Margarita-Barinas and Cuman To
these projects, the company envisions the creation of transportation
through JVs in which PDVSA Gas would take a minority stake represented
by an initial contribution comparable to the value of the existing
The JV would be responsible for operating and maintaining the
system and then gradually expanding it with capital provided by the
PDVSA wants to promote the creation of LDCs that would bid for certain geographical regions (Fig. 4) and then take over operatorship of any existing distribution grids. Each LDC would then be obliged to develop its region's maximum potential, including undeveloped sectors.
The LDCs would enter into supply contracts with
later, with other producers-and sign transportation
with the respective transmission pipeline entities. PDVSA Gas
the LDC market potential being leveraged from the foundation of
demand in existing grids to expand into nontraditional uses of gas,
as for air conditioning. Overall, PDVSA Gas sees a bright future
for foreign investment in Venezuela's natural gas
"The range of opportunities is vast and enormously attractive for
operators and specialized investors seeking to expand their activities
on a sound footing, in a market evidently undergoing rapid expansion,
the legal and fiscal rules of the game are clear-cut and the
of ample gas reserves is growing."