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Venezuela’s gas ambitions thwarted as developments struggle

Venezuela has the potential to become a major natural gas player, but it is struggling to develop its huge offshore reserves

The vast trove of natural gas in Venezuela’s Caribbean waters once inspired late president Hugo Chávez to draw up hugely ambitious export plans. Venezuela, Chávez said, would finally realise its long-held ambition to become a major liquefied natural gas (LNG) player with the construction of a multi-billion-dollar export plant on its east coast.

The country would also pioneer South American energy integration by supplying a network of gas pipelines across the region. The most ambitious plan, announced to great fanfare in 2006, was an 8,000 km pipeline stretching south from Venezuela’s northeast coast through the Amazon to Brazil, Uruguay and Argentina. Chávez also envisioned a pipeline from Venezuela into Colombia where it would branch off north into Panama and south to its Andean neighbours in Ecuador and Peru.

The reality has turned out quite different. Chávez and his regional allies did little to push forward their grandest pipeline plans and in 2011 state-run PdV quietly shelved its LNG export plans, too, saying any development would focus on supplying the domestic market. The country has yet to produce any offshore gas.

Gas pipeline

Venezuela and Colombia did build a 176.5 billion cubic feet (cf), 225 km gas pipeline between the countries. But since its start-up in 2008, Venezuela has relied on the pipeline to import gas from Colombia into its western oil-rich Maracaibo region, where much of the gas is re-injected to maintain production at mature oilfields. And even those supplies have not been enough to avoid occasional shortages and blackouts in parts of Venezuela. 

The failure is not for lack of resources. The government claims nearly 200 trillion cf of natural gas reserves, most of which is associated gas, making it South America’s largest gas reserves holder by a long way and second only to the US in the Western Hemisphere.

Caracas says its non-associated offshore gas reserves could add significantly to that level. “We are a giant in gas and we’re looking toward a process of incorporating another 453 trillion cf with our offshore opportunities,” Rafael Ramírez, the head of PdV and Venzuela’s energy minister, said last October.

Venezuela is some way from realising that ambition. The most promising offshore project is the huge Perla gasfield, discovered in 2009 by Spain’s Repsol and Italy’s Eni. The field, in the Cardón IV Block in the Gulf of Venezuela near the Colombian border, holds more than 16 trillion cf of gas-in-place, of which around 8 trillion cf is believed recoverable.

It is the largest ever gas discovery in Venezuela, and was one of the five largest discoveries in the world in 2009, Repsol says. Yet development has been slow. PdV wanted to start producing in 2012, but gas is now not expected to start flowing from the field until late 2014, according to Eni chief executive Paulo Scaroni. Like the major onshore oil projects, the project has been held up by financial and infrastructure problems.

Perla would be a huge boost to gas-starved Venezuela. After an initial stage of producing around 300 million cf a day (cf/d) for a few years, the field is expected to ramp up production to 1.2bn cf/d, which would boost Venezuela’s total current gas production by about a third. Repsol and Eni had hoped to be able to export gas from the field, but Venezuela has pushed to keep Perla’s production for the domestic market.

The government has agreed to pay around $3.50 per 1,000 cf for Perla’s gas, well above Venezuela’s heavily subsidised domestic natural gas prices. At around $1/’000 cf, they have been a major deterrent for companies looking to develop Venezuela’s offshore gas reserves, especially after the government shelved potentially more lucrative export plans.

The Loran-Manatee field, which straddles the Venezuela-Trinidad and Tobago maritime border, could also help boost production. In September last year, the countries signed a long-negotiated agreement to split the field’s 10 trillion cf of reserves, opening the door to development. Under the deal, Venezuela owns 73.75% of the Loran-Manatee gasfields estimated reserves.

New development

US supermajor Chevron owns a major stake in the field on both the Venezuelan and Trinidadian sides of the border and will carry out development alongside PdV. The plan is to build a 273 km pipeline from the field to the Paria Peninsula on Venezuela’s coast, where it is expected to supply the domestic market. Development plans, though, are in the early stage and any production from the field is likely to be years away.

Perhaps Venezuela’s largest offshore gas project is Mariscal Sucre. But its future is unclear. The project, which includes the Dragon, Patao, Mejillones and Rio Caribe gasfields, holds around 14.75 trillion cf of reserves, according to PdV.

That potential has attracted some of the world’s largest companies into the project over the years including Shell, ExxonMobil, China National Offshore Oil Corporation, Mitsubishi and Petrobras.

But all have left, mostly because Venezuela’s highly subsidised domestic gas made development unprofitable. In 2010, PdV pressed ahead with development on its own, but suffered a major setback when its Aban Pearl exploration rig sank into the Caribbean Sea. 

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