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| Caribbean-Latin America |
| Venezuela Takes Center Stage in Oil and Gas |
| 2006-05-05 |
| From Pumps and Systems Magazine email letter. Also available on line. We had some info on Hugo's nationalization plans before, but here are some more details. Industrial Info Resources (Sugar Land, TX) reports that Venezuelan President Hugo Chavez has decided to put pressure on the petroleum industry to receive a greater share of revenue from its worldwide influential oil and gas industry. Since June 2005, the Venezuelan government has enacted a law that was originally proposed in 2001 which increased the tax rate up to 50 percent (from the previous 36 percent) to foreign oil companies working within their borders. According to estimates under the provision of this law, foreign operating companies owe Venezuela 's government a total of $2 billion from which Venezuela has already received $54 million since the law first went into effect. Venezuela has begun to put this pressure on major oil companies at a time when rising oil prices, political instability in the Middle East and new buyers in Nigeria and Asia have put the world's fifth-largest oil exporter in a strong negotiating position. At the same time, Venezuela 's state-owned oil company, known as PDVSA, controls almost every barrel of oil produced in the country, thus placing the company in a very important and influential position. Companies operating in Venezuela , which have invested over $10 billion in the country's 32 field operation contracts and are currently pumping about 460,000 barrels of oil per day, will have to consider becoming minority partners with PDVSA if they are looking to continue operation. The joint venture between PDVSA and foreign companies requires handing over a minimum of half of its revenues to the state. Even though foreign companies know Venezuela is not considering the cost of production in their decision to increase "regalia," which is the amount of money paid by those companies to the Venezuelan State for the use of its territory and resources, they accept it as the cost of merely holding onto the possibility of having a part of Venezuela's important and powerful future. Venezuela 's Oil Reserves Surpasses Saudi Arabia 's During the 1990s, the price of oil was around the $20 mark and also fell as low as $10 a barrel in early 1999. Ever since the passing of the hydrocarbon law in 2005, President Chavez has been willing to set the price at $50 a barrel. Moreover, the U.S. Department of Energy (DOE) estimates that the Venezuelan government controls about 1.3 trillion barrels of oil, which is more than the entire declared oil reserves of the rest of the planet. It is even said that Venezuela 's deposits alone could extend the oil age for another 100 years. During the upcoming OPEC meeting in Venezuela on June 1, 2006 , it is said that President Chavez will ask OPEC to formally accept that Venezuela 's reserves are now bigger than that of Saudi Arabia 's. PDVSA is hoping to turn Venezuela into the country with the most crude oil reserves in the world. Over the last few years, the Venezuelan petroleum industry has been trying to increase its crude oil production since it is estimated that Venezuela 's crude oil reserves could be greater than 77 million barrels. Lately, the high price of oil, uncertainty about worldwide oil reserves, increases in the demand for energy and recent initiatives to increase regional integration in South America have convinced Venezuela that now is the time to undertake an aggressive expansion project to become the world's oil superpower. PDVSA has announced plans to reach crude oil production levels of 5.8 million barrels per day by 2012 and 7.5 million barrels per day by 2020. This petroleum industry will concentrate on increasing the crude oil processing capacity through the expansion of existing refineries and investments in plants within the Caribbean and South America . Joint Venture with PDVSA Among the terms stated on the guidelines approved by the Venezuelan Congress on March 24, 2006 , companies faced a minimum of 60 percent stake for PDVSA in each field, as well as a jump in royalties from 16.6 percent to 33.3 percent. ChavezŽs declaration on April 7, 2006, explained, "Now that PDVSA and foreign companies have built partnerships, all parties involved are more committed to the cause, thus creating a more solid framework. It's no longer a contract for doing a service, it's a strategic alliance." The already-signed operating agreements are part of a plan that the Venezuelan government had during the 1990s to give incentives to private investments. They were subcontracting agreements under which private companies pumped around 500,000 barrels of oil per day for PDVSA. PDVSA will have a 70 percent stake in Teikoku, 75 percent in Chevron, 80 percent in Hocol (owned by Nightsbridge; London , England ) and 75 percent in CNPC (China National Petroleum Corporation; Bejing , China ). Also, PDVSA will have 60 percent in these fields: Kaki, located southwest and southeast from the city of Anaco in the state of Anzoátegui, together with Inemaka (51 percent Inepetrol, 39 percent Polar, 10 percent EPIC; Venezuela); Cabimas, Maracaibo basin, with SueloPetrol (Caracas, Venezuela); Onado, located in Monagas state, with CGC (Argentina); Quiriquire and Mene Grande in the oriental coast, with Repsol; Casma Anaco, eastern Venezuela, with Open (Venezuela); Colon, Maracaibo Basin, with Tecpetrol (Argentina); Pedernales and Ambrosio, in the Orinoco River delta and Lake Maracaibo respectively, with Perenco; Campo Urdaneta, northwestern Venezuela in Maracaibo Basin, with Shell (NYSE:RDS-B); Monogas Sur with Harvest Natural Resources (NYSE:HNR) and Boqueron in eastern Venezuela with BP (NYSE:BP). Most of the oil companies are operating in the Orinoco Belt located in eastern Venezuela , which holds the world's largest reserve of heavy crude oil. Sincor ( Sincrudos de Oriente , Venezuela ), which processes heavy crude into more marketable light oils, is also being jointly run by Total ( Courbevoie , France ). The relationship between Total and Venezuela began last year when the government decided to increase regalia for Sincor from 1 percent to 16 percent and then accused Sincor of overproducing and threatened to levy a surcharge of 30 percent on every barrel produced above the 100,000 barrel per day mark. Venezuela 's government ordered BP, one of the world's largest energy companies, to pay $61.39 million in back taxes for 2001-2004. At the same time, ENI (NYSE:ENI)( Tripoli , Italy ) will have to pay $46 million in unpaid taxes accumulated during this same period. These companies were given until the second week of April to either pay up or face fine increases of 25 percent to 200 percent. PDVSA Takes Control Over Oil Fields According to Oil Minister Rafael Ramirez, on April 1, 2006 , Venezuela took control of two oil fields operated by Total and Eni since they failed to reach an agreement with President Chavez to transfer into a joint venture with PDVSA. Total (NYSE: TOT ) operated the Jusepin field in northeastern Venezuela , which was producing almost 35 million barrels per day of crude oil. Meanwhile, ENI ran the Dación operating contract, a field located in the northeastern region of Venezuela and produced almost 60,000 barrels per day. According to Christophe de Margarie, TotalŽs Director of Exploration and Production, even though the oil company is willing to negotiate with Venezuela 's government, if they do not reach an agreement, Total will sell the activities in question. Due to the fact that ENI has delayed the payment of nearly $68 million worth of profit tax, Venezuela 's tax authority known as Seniat will take the Italian oil company to international arbitration. Moreover, PDVSA has also taken over operations in the Maulpa field, which is operated by Inemaka, the Sanvi-Guere field by Teikoku, and the Guarico Occidental and Quaimare-La Ceiba fields by Repsol YPF. Every company operating in Venezuela , with the exception of ExxonMobil ( Irving , Texas ), signed the deal before the imposted deadline on December 31, 2005 . Exxon Mobil has been the challenger to the government since it was the only company to reject the new joint venture agreements. ExxonŽs strong attitude is supported by the company's position in Venezuela since it continues to hold a 41.7 percent stake in the 120,000 barrel per day Cerro Negro heavy oil-upgrading project in the Orinoco belt with BP and PDVSA as partners. In March 2006, Tillerson, ExxonŽs Chief Executive, said that at least for this moment, he would avoid making any major investments in Venezuela . This country has repeatedly been a challenging operating arena for this company ever since they started with their $3 billion petrochemical project in February 2006. PDVSAŽs lawyers are drafting the final contract for each of the 32 new E&P joint ventures that have been established between PDVSA and the foreign oil producers after the national assembly approved a contract model on March 30, 2006 . These contracts will last up to 20 years. The foreign oil companies participating in this joint venture are Royal Dutch Shell (NYSE: RDSB LN), Chevron (San Ramon, California), ENI, Total, Teikoku (Tokyo, Japan), Repsol (NYSE: REP España), West Falcon Samson (Tulsa, OK), Perenco (Caracas, Venezuela), Petrobras (NYSE: PBR)(Rio de Janeiro, Brazil), Vinccler (Caracas, Venezuela), China National Offshore Oil Corportation (Beijing, China), and Harvest Natural Resources (Houston, TX). Overall, President Hugo Chavez, driven by his desire to avoid multinational exploitation of Venezuela's resources and to create new markets for the countries benefit, it seems more and more like he is trying to change the country's investment plans toward those that fit with the Venezuelan government's foreign policy objectives. Complete Shutdown at Cardon Refinery in Venezuela Industrial Info Resources reports that on April 14, 2006 , an electrical fault at substation T-31 led to a power outage, which paralyzed operations at the Cardon refinery in Venezuela . PDVSA said that a flaw in the substation caused the electrical fault, which affected the refinery's vapor, air, and power services, forcing the shutdown. This refinery, which normally processes 305,000 barrels per day, together with Amuay and Bajo Grande form the Centro de Refinacion Paraguana CRP ( Paraguana Refining Center ), which is the biggest refining center in the world. This has a capacity of 955,000 bbl/ day, and it is Venezuela 's main source of gasoline exports. PDVSA guaranteed continued fuel supply to domestic and international markets since the state oil company claims to have sufficient reserves to keep up regardless of the interruption. Moreover, PDVSA declared that production has been partially restored at the Cardon refinery since the shutdown and that it is currently producing 200,000 barrels a day. Miguel Hernandez, PDVSAŽs international public relations manager, told Industrial Info Resources that the Cardon refinery will not be back fully into operation until at least April 20, 2006 . According to Hernandez, the Amuay refinery has not been affected due to this power outage at the Cardon refinery. On March 29, 2006 there was an explosion at the Amuay refinery due to a gas leak during a routine maintenance inspection where one of the hydrogen compressors was in the process of being shutdown. Due to this explosion, different units, such as the hydrotreater 1 and 2, as well as the VGO unit, shutdown, forcing other units to produce well below normal capacity even to this day. PDVSA highlights that the shutdown at the Cardon refinery will not affect domestic and international markets, although it is known that an interruption of operations in a refinery complex of this size translates into global losses of millions of dollars. A complete shutdown at Cardon can only bring about negative consequences to the international market and especially the United States since Venezuela is the world's fifth-largest oil exporter and one of the top suppliers to the United States . Explosion at Amuay Refinery in Venezuela has Worldwide Effect On March 29, 2006, there was an explosion at the Amuay refinery located on the Paraguana Peninsula in the northwest of Venezuela, reports Industrial Info Resources. This explosion triggered the immediate activation of the safe plant-shutdown protocol, which brought about a large decrease in international supply, as well as particularly affecting the USA 's gasoline prices. Amuay together with the Cardon refinery form the Centro de Refinacion Paraguana ( Paraguana Refining Center ), which is the largest refining center in the world with a total processing capacity of 940,000 barrels of crude oil per day. According to Venezuela 's state-owned oil company, PDVSA, a gas leak may have been the cause of the explosion. This happened during a routine maintenance inspection where one of the hydrogen compressors was in the process of being shutdown. Due to this explosion, different units, such as other hydrotreaters and the Vacuum Gas-Oil (VGO) units were also forced to shutdown. This not only resulted in the production of a higher sulfur content in the refined products, but also brought about a domino effect in other areas consequently forcing other units to produce well below their normal capacity even to this day. Units such as the flexicracker, delayed Coker, VGO 2, and VGO 3 units were all affected. Due to the explosion and its consequent shutdowns, the normal rate of 635,000 barrels of crude oil per day was curtailed to nearly 469,000 barrels per day. PDVSA guaranteed continued fuel supply to domestic and international markets since they claimed to have sufficient reserves to keep up regardless of the interruption. But, recent information shows that due to the interruption, the sulfur content could not be lowered in the final gasoline product, resulting in two cargoes carrying 300,000 barrels heading to the United States needing to be deferred elsewhere. According to estimates, all the units at Amuay will return to normal rates as soon as the hydrotreater units 1 and 2, and the VGO unit returns to normal. Also, since there were three operators killed in the most recent explosion, as well as a total of seven deaths in the Paraguana Refining Center between 2005 and 2006, many are demanding that an investment be made in the safety and maintenance departments of the complex. Antecedents In April of 2005, a power failure at Venezuela 's large Amuay oil refinery meant that the plant had to shutdown its processing units, thus reducing oil supplies significantly. The failure was caused by a breakdown in the supply system to the steam-generation boilers in the CRP block 29, which resulted in disturbances to the generation of electricity. Experts say this paralysis was due to the lack of experience in the maintenance of the flexicoker. This failure, in turn, affected all the production and transmission services: steam production, water and electric energy, leading to an interruption of the whole complex. The accident took place while the major maintenance of the flexicoker, which reduces viscosity and metal content of heavy oils, was in progress. Due to the fact that this unit was down for more than three weeks as a result of the power outage it suffered in April of 2005, almost two million barrels of unleaded gasoline were lost due to the paralysis of the refinery. In December of 2005, PDVSA shutdown two pipelines supplying nearly half the petroleum supply for the complex. These pipelines, which supplied the refinery with 400,000 barrels a day, were back in operation within four days. However, according to PDVSA, there was no interruption to production since the refinery maintains a five-day supply of crude on-site. Meanwhile, political speculation by the Minister of Energy continued to point at anti-government groups and their protests as the culprit to the outage that occurred earlier that year. In such a major refinery complex, an interruption of operations no matter how brief, translates into global losses of millions of dollars. If something unusual happens in one of the systems within the refinery and it is not properly controlled as soon as possible, it tends to generate a domino effect involving all of its systems. Once the complex comes to a halt, it may take days to restart. Having to shutdown a substantial portion of this complex, especially in these days of high oil prices and demand, can easily cause a major catastrophe for the Venezuelan oil industry, leaving a devastating impact on the world economy. |
| Posted by:Alaska Paul |
| #4 BTW, I'm not saying we shouldn't cheer (if not assist in) the demise of such creatures, just that the replacement candidate pool needs a heavy dose of chlorine as well. The world has dire need of good people willing to stand and deliver - and as far as I can see the only forge creating such people in quantity is our professional military, though I would guess there are (possibly) other sources. |
| Posted by: Slineng Sherong7902 2006-05-05 21:57 |
| #3 But to be replaced by what? I look around at ZimBob, Chubby here, dEvo, etc and the only likely replacements are just more of the same. Actually, as I see it, it's the same most everywhere. We see the domestic politics equivalent everyday - where are the Good Guys? Who will step forward and, being squeaky clean and possessing real guts, clean up [insert mess here]? Rare as hen's teeth, "good" cojones seem to be the rarest commodity on the planet. |
| Posted by: Slineng Sherong7902 2006-05-05 21:48 |
| #2 Sprocket-boy has a great opportunity to be swimming in oil money. But by nationalizing oil assets, and socking it to the companies, like Chevron, BP, even the Chicoms, Hugo will find that investment will start drying up, because outside investors will be gunshy about putting money in a place where the rules can be changed on a whim. I think that Hugo's days as pres and possibly an organism on this earth are numbered. |
| Posted by: Alaska Paul 2006-05-05 21:31 |
| #1 Hard to understand why Hugo has to buy 100,000 bbl a day to fullfill contracts. PDVSA has announced plans to reach crude oil production levels of 5.8 million barrels per day by 2012 and 7.5 million barrels per day by 2020 Oil production has dropped 60% since hugo fired all the PDVSA professionals. |
| Posted by: 6 2006-05-05 20:20 |