Gas output problems pose Venezuela oil output risk

Venezuela’s prospects for natural gas output are dimming as the Mariscal Sucre project falls behind, Plataforma Deltana remains largely paralyzed and the new Cardon field owned by Repsol and Eni remains far from development, despite great drill results. Most analysis of this situation has focused on the domestic effects of this shortage, such as chronic shortages of cooking gas, the lack of fuel for gas-fired power plants, and the challenges faced by the petrochemical and nascent liquefied natural gas industries. The issue is much bigger. Venezuela’s natural gas shortage threatens global oil supply over the next five to ten years.

A lack of natural gas could cause existing oil fields to decline and delay the startup of new heavy-oil projects in the Orinoco Belt. The country’s most important existing field is El Furrial. According to PDVSA’s 2008 annual report, the field produced 408,000 barrels a day that year, comparable to the production of Colombia. It was more than half-again as productive as the second-place field in Venezuela, Zuata, which produced 284,000 barrels a day. Most of Furrial’s productivity is attributable to the PIGAP project, gigantic sets of turbines that inject natural gas into the field. Yes, that PIGAP — the one that PDVSA took over from Williams Cos and Exterran last year without compensation.

PIGAP consumes a tremendous quantity of gas. It can handle over a billion cubic feet of natural gas a day, a trillion every three years, as it forces oil out of its sandy home and into the waiting hands, buckets and refineries of PDVSA. President Chavez previously instructed PDVSA to divert 20% of the project’s gas for use in electricity production. I don’t know if that happened. A reduction in gas supply would, of course, mean that PIGAP couldn’t pressurize the field as much. At first, this will lead to lower output. Later, if the field pressure were to fall beyond a critical threshhold, the oil underground would convert to an asphalt that can’t be extracted by conventional means, destroying the field.

Meanwhile, Venezuela aims to develop the Orinoco Belt, possibly the world’s biggest concentration of liquid hydrocarbons. New projects there will need 3 billion cubic feet a day, according to Mauro Ristorto, an analyst at IPD Latin America, cited in Caracas daily El Mundo (posted improperly but conveniently at the Gerencia y Energia blog). The east of the country, including the Orinoco, will need 11.7 billion. The country’s full production as of June 2009 was 7.1 billion.

(Gerencia y Energia posted Ristorto’s presentation from a gas conference in Venezuela last week here.)

According to some sources, natural gas supply has also been a sticking point in negotiations between PDVSA, the Oil Ministry and private companies setting up new heavy-oil joint ventures in the Orinoco Belt. These companies, Chevron Corp, Repsol YPF SA, and their smaller partners, are concerned that PDVSA won’t be able to guarantee enough natural gas and electricity to make the projects work, leaving them with billions of dollars invested and no chance for a return. Even if the natural gas may be there in a few years, the current doubts — worsened by the sinking of the Aban Pearl last month — may delay construction.

Everyone’s oil supply model has a different number for how much Venezuela will produce in five years. But no one I’ve talked to forecasts that the country will produce less than it does at present. If the natural gas situation continues as it has, such a scenario could come to pass.

That said, I don’t think it will happen. I think PDVSA and the Oil Ministry understand what’s at stake, and are ready to get gas by any means necessary, including increasing purchases from Colombia. That, in turn, would add geopolitical risk to the existing risks in Venezuela.

2 thoughts on “Gas output problems pose Venezuela oil output risk

  1. otto

    Remember this one?

    El presidente Hugo Chávez anunció que prepara un plan de canje de vehículos familiares viejos por otros nuevos, que serán gratuitos y funcionarán con gas, como parte de los esfuerzos oficiales para ahorrar energía y combatir la contaminación ambiental.

    Durante un acto proselitista en el estado nororiental de Sucre, Chávez dijo que espera activar en 2009 una primera etapa de ese plan, que además …………..etc etc etc

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