OGPSS - Venezuela after Hugo Chavez

With the death of the Venezuelan President Hugo Chavez the future production, and exports of Venezuelan crude are gaining a little new attention. I had noted in the last post that there is a difference of around 400 kbd between the 2.379 mbd that outside observers report to OPEC that the country is producing, and the 2.768 mbd that Venezuela itself reported. The question now becomes one as to whether the new President will be able to resurrect an industry that has overseen a slow decline in overall production, with a more rapid decline in exports.


Figure 1. Venezuelan oil statistics (Energy Export Databrowser)

My short answer to that question is No! It is based on a number of reasons, and may be swamped by the voices that note that the country has a vast remaining pool of oil in the Orinoco Basin, that the USGS has estimated to be more than a trillion barrels in size, of which some 513 billion barrels are technically recoverable. But there have been a number of posts about those numbers and the more critical number which is that of the rate of oil production.

Colin Campbell reminded us in his 2006 Review of the country that the Venezuelan Government was one of those urging the creation of OPEC, back in 1960. Back when that piece was written Colin expected that production, which had been falling as the reserves in the Lake Maracaibo region declined, would start to wind back up, as the heavy and extra heavy oils of the Orinoco were brought into a higher level of production. And he anticipated that, by now, the country would be producing around 3 mbd, which it is not.

One of the requirements before one can market the heavy oil is to have refineries that can process the oil. The United States, which imports around 1 mbd of Venezuelan crude, has the Citgo refineries, which are wholly owned by PDVSA (the Venezuelan oil company). Whether that will influence their switch to Canadian crude if the Keystone pipeline is put in place is an open question. But easing the American demand might help with Venezuelan relations with China.


Figure 2. US Monthly imports of crude and Petroleum Products from Venezuela (EIA )

China, which has refineries that Sinopec built that can also handle the crude, has stepped in here and spent over $40 billion with much of this in loans to be repaid through increased oil exports. Back in 2007 China had made the decision to pull out of Canada, and to concentrate its investments in Venezuela instead. Since that time they loaned Venezuela over $20 billion, in return for a commitment for oil exports that were to reach 1 mbd in 2012. The date to reach that target has now slipped to 2015 as overallproduction has continued to decline.

Last August President Chavez announced a $130 billion plan for investment in the Orinoco.

He said that there are 150 different clusters of oil wells in the Belt, but the goal in the next six years is to increase that number to 500. Before the nationalization of the Belt, there were just 37 clusters.

The clusters are comprised of 24 separate oil wells, each of which extract around 1,200 barrels per day. At these facilities, hydrocarbons are extracted using 45-meter drills purchased in Venezuela and assembled in Venezuela.

“All this has been nationalized, which before was the property of multinationals, and production has also been increased,” the president said. He recalled that before the government took control of the Belt, there were just 2,800 wells, while now there are more than 4,000.

Because the Orinoco crude is very heavy, to an API gravity of 9 degrees, it is difficult to produce and requires a considerable energy investment to extract and process the crude.

Last September two joint ventures came on stream. That at Petromiranda, where PDVSA has Russian partners began producing 1,500 bd, after an investment of $800 million, with a goal of eventually reaching 45,000 bd. At the same time Petromacareo, where PDVSA is partnering with the Vietnamese, came on line at 800 bd, with an initial target production of 4,000 bd. (The project has slipped from a target start date of early 2011, and the ultimate goal of 200 kbd from Petrimacareo is in more doubt.)

The crude has to be upgraded, and TNK-BP is partnering to double the capacity of the Petromangas upgrader from 120 to 250 kbd. Until that capacity is increased Orinoco production may be limited.

There is thus a history of project slippage and missed targets that is unlikely to improve in the short term. New plans for further investment either by the Chinese, Indians or Russia are now on hold, while the Presidential election to replace President Chavez is decided, but the experience in the last couple of years is likely indicative that progress in increasing production will be difficult to achieve and when set against a rising domestic consumption (as the Export Land Model predicted) is already leading to a fall in exports.

One of the drivers for that increase in domestic consumption is that the price of gasoline in Venezuela is $0.04 per gallon (four cents). In contrast, in Saudi Arabia it is around $0.61. The low price of gas means that there has been a significant increase in demand, exceeding that domestically available. As a result the country has been importing gas at up to $100 a barrel to sell it for $5 – you can’t balance those books by increasing the volume of sales!!

Yet cutting back on domestic consumption, or increasing prices could prove difficult for the incoming President. So maybe it would be a good idea to invest in the Keystone pipeline, as a simple precaution??

OGPSS - Production from Venezuela and new customers for them

Last week I wrote a little about the planned production of heavy oil from the Orinoco Basin in Venezuela and used that as the basis for a discussion on API gravity and refinery gains. What I would like to do today is to revisit this area of Venezuela and discuss a little more of the region and the potential for increased production, and how it might be achieved. But let me start with overall production from Venezuela, for which (as my comment on Chinese imports last week exemplified) data is not always consistent.


Taking the curve developed at Energy Export Data Browser for the country, the initial impression is a classic example of a depleting system, with rising internal consumption having a negative impact on overall exports, which have already fallen below 2 mbd. The EIA note (and this has been a problem for a while) that it is difficult to assess the make-up of the production stream, but estimate that in 2008 about 250,000 bd came from condensate, NGLs and refinery gains. The United States has seen a steady decline in the amount of oil that it imports from Venezeula, with the daily rate falling below 1 mbd towards the end of last year. Within the past two weeks it has fallen as low as 650,000 bd.

The steady fall in Venezuelan imports to the USA (EIA )
Please note there is an additional comment appended on the loss in volume on going through the ugraders.

Overall Venezuela was reported as producing 2.25 mbd in November with production falling over the course of the last year. This is somewhat less than the 3 million barrels that the Venezuelan Oil Minister claims that they are producing. Hopes for the future therefore rest on increased production from oil sands of the Orinoco that I briefly described last time. I should also clear up what may be a little confusion in nomenclature. This is a map of the Belt from a study done by the Baker Institute at Rice in 2002. (H/t KLR)


At that time production came from four strategic operations built around individual upgraders: Petrozuategui, Petromonagas , Petrocedeno, and Petropiar. As some of the references here note, the upgraders are beginning to suffer from a poor record of maintenance and are thus more difficult to maintain at the original levels of production.


More recently there has been a renaming (as in the table) and the bids relate to zones now defined by PdVSA as:

Different regions of the Orinoco Belt (Energy-pedia news )

To a degree Venezuela in the same situation as Canada, as conventional production of oil diminishes, so the rise in oil prices is making it more practical to produce the heavier oils of the Orinoco Basin, although almost all the oil from Venezuela is both heavy and sour. However this also may lead to volume calculation concerns since there is a reported 10% loss in volume as the heavy crude passes through the upgraders to be pipelined as a syncrude. Thus from the four major current producers there is a variation between 640,000 bd of raw crude (API gravity between 8 and 9.3 degrees) input; and the 579,000 pf syncrude (API gravity 16 to 32 degrees) that is produced. The heavier crude is also discounted in price, so that, with the OPEC basket at $90.38 at the end of last year, the Venezuelan basket was reported to be selling at $ 84.83. Heavy Oil Guy over at TOD has commented on this loss.

Any practical process will have to reject something like 20 wt% of the original crude as useless high-sulfur, high-metals coke or asphaltenes that must be stored forever (or dumped into a deep ocean trench ;-]). Also 10% by weight would come off as fuel gas, including ethylene, that would be burned as process fuel, not recovered as a liquid.

Because of the high specific gravity and viscocity of the oil, particularly when cold, conventional methods of production cannot rely on reservoir pressure to produce the oil. In some cases it is possible to use progressive cavity pumps (Moyno pumps) that are lowered down the wells, to pump the oil out of the reservoir.

The reservoir properties for the Hamaca wells are excellent, with porosity values of up to 36% and permeability values of up to 30 darcies. Hamaca crude is considered 'foamy' and is generally saturated with gas at reservoir conditions. Over the 35-year life of the field, more than 1,000 horizontal laterals are planned to deliver the required 190,000bpd to the upgrader facility.

Oil is produced under 'cold production' methods (no need for heated steam to mobilise the deposits) using progressing cavity pumps to bring oil to the surface. Cold production is possible because of the extended length of the horizontal wells (5,000ft), excellent reservoir properties, and the foamy-oil nature of Hamaca crude.

Once at the surface the crude is mixed with a chemical/diluent that allows it to be pumped to the upgrader. It was the use of the pumps to extract the oil with sand that led to the acronym CHOPS (Cold Heavy Oil Production with Sand), although in an earlier article I discussed the use of the technique in Canada, where higher reservoir pressures and lower viscosity allowed the oil to be produced without the pump, by allowing the well to flow freely.

In Venezuela, though it is thought to be used in many of the heavy oil deposits, it is estimated to be only able to produce 5 – 10% of the oil. Problems are then anticipated to arise in changing the well designs to use alternate means to go after the remaining 90%, and it is anticipated that by 2012 CHOPS will no longer, in consequence, be used in Canada.

With 80% to 90% of the resource still in the ground after cold production, the reservoir is in a disturbed state, perhaps with wormholes or channels that have found a way to water. It may, however, be a severely depleted reservoir with low pressure and a network of channels.

If CHOPS has not been used extensively in Venezuela there are a variety of ways that the heavy oil can be encouraged to flow to the production wells. More modern trends are to rely on such thermal techniques as Steam Assisted Gravity Drainage, (SAGD). These are necessary since the deposits are too deep to be mined using the surface mining techniques that are used in Canada. SAGD is where steam is injected into the formation from one horizontally drilled well, and the heated (and thus less viscous) oil then flows through the deposit to a second well where it is recovered.

Artist's illustration of the SAGD process (Devon Canada Corp)

An alternate has been proposed, in which single horizontal wells can act both as an injection source for the steam, and then after the oil has been conditioned, they will serve to produce the lower viscocity, hotter fluid.

Kerosine can also be injected into the formation ahead of the steam, which then forces it through the oil. In this way it is claimed that production can be greatly enhanced. However, to be viable more than 70% of the solvent must be recovered for re-use. Canada is also investigating the JIVE process. (Joint Implementation Vapour Extraction)

(Source HeavyOilInfo.com)

However all this development will cost a considerable amount of investment, and as Robert Rapier noted last September, Hugo Chavez is not keen to make those investments himself, and the result has been seen in the declining levels of production.

However he is still trying to persuade others to make the investments that he will not, and the evidence, given the perceived coming shortage of oil, and the needs of countries to ensure a steady, stable supply, means that he is currently still able to negotiate deals to get those funds. The different alliances that have evolved for this development can be seen from this map from Petroleum World.



The swop deal that I mentioned last week involving Venezuela, Belarus and Azerbaijan is proving to be a little more complex than the original simple swop I mentioned, since it involved lighter crudes from Venezuela, particularly the Santa Barbara crude which has an API gravity of 39 degrees.

“We have to work with different blends, and in terms of its functional properties, the Santa Barbara blend is among the best. This blend can produce 20 percent more gasoline, kerosene, or diesel fuel than Russian blends, and these products are in high demand in Europe.”

Originally that was being shipped to Belarus in tankers from Venezuela, and my impression initially was that Venezuela was swopping production with Azerbaijan (Venezuelan crude would go to the USA and Azer crude would go to Belarus) as a way of reducing the shipping. However this week, it transpires that the problem apparently is that Venezuela cannot supply sufficient of the sweet crude to meet world demand, and in particular the 30 mb it sold Belarus. PdVSA is thus having to buy Azer crude to make up the difference between what it can send and what it contracted for.

Plans, stated recently by the Belarusian authorities, to use the swap scheme in oil supplies "do not deal with the substitution of Venezuelan oil with Azerbaijan," the diplomat said.

"Oil company PDVSA will purchase an additional amount of oil in Azerbaijan to ensure the execution of the contract to supply up to ten million of oil a year to Belarus," ambassador said.

This oil will go to Belarus through "Odessa-Brody" pipeline. The Belarusian side will pay Azerbaijan not for the oil itself, but only for its delivery. "As you can see, this cooperation is beneficial for both parties and, in particular, for Belarus," Americo Diaz Nunez said.

Belarus has now found it makes more money (about $30 a ton) doing it this way, since the pipeline is cheaper than the rail transport they would have to pay for in buying from Russia, which also charges a 100% duty. But the limited supplies of the sweet Santa Barbara crude have also been bought by the Japanese. However Venezuela may have a further problem, since in October they signed a deal with Belarus that will increase the amount shipped to 220 mb over the next three years. They are apparently getting $88 a barrel for it. (Though the price for Urals crude to Belarus was only $57 a barrel – that may have been before shipping and duty were added.)

So Venezuela has a global market, the question now becomes as to whether it can supply it.

Energy Summit - a radio visit and the Keynote

Today was the first of the 2-day Missouri Energy Summit but before I could go and grab my seat for the Keynote (covered below the fold), three of us were invited to a local radio station, KFRU, to appear on the Morning Meeting with Simon Rose and Renee Hulshof. Being a little unfamiliar with the town we barely got there, when we were on the air, talking about what had brought the three of us to the meeting. Lea-Rachel Kosnik was there to talk about her work with micro-hydro. Given that both wind and solar energy are variable producers, small scale-hydro provides a resource that can readily be brought on line when needed as backup. Further, as a mature technology, the parts are available and are thus more "shovel ready" than many alternatives. She had found some 5,000 locations in Missouri where this might be a viable option, without running into controversy over environmental problems, and where the plant could produce more that 1 MW. Lea is an economist, and was less concerned that some of us about the imperatives of finding an early solution to energy supply, feeling that as the price rises again so market economics will restrict demand and encourage alternate supplies.

Byran Becker from UMKC talked about energy efficiency, and gave the example of food storage in supermarkets. Where the cold food is stored behind doors, he noted that the conventional wisdom was that this would reduce sales, in fact their study showed that sales increased. (Tip - take the food at the back of the shelf since it has seen less temperature fluctuation) In addition he noted that the store would save 2/3 of the storage energy bill, where these displays were closed. Were this to be adopted nation-wide then we would save the equivalent output from 2.5 250 MW coal-fired power plants.

I talked a little about my day job, and the energy saving value of putting high-pressure waterjets on mining machines to reduce the overall energy cost of mining, but really also tried to turn the discussion to recognition that while solutions were evolving, the time for answers is much closer than the discussion would suggest. But when I pointed out that Cantarell was dropping in production by 250,000 bd/year and that Ghawar had very few years left, I got the feeling that I was the only one in the room who knew what I was talking about. (I did check with the one person I thought might, and he didn’t). Simon and Renee were gracious hosts, and kept the discussion moving in such a way that at the end they had us agreeing that we needed all forms of energy as soon as possible, to help. (But I did get a sense that they had the odd concern over ethanol, and Renee did note that with prices falling for ethanol, food prices were still up).

Yet the conversation prefaced my sense of the whole meeting, that then followed. The atmosphere seems to be that we have survived the energy crisis. That little blip when the oil price went so high, well that was it, and now we can sit back, relax and take the time to work out what we need to do next. No hurry! (At least over oil supplies, global warming is entirely another issue).

(Ed. note: The paragraph above on Dr Kosnik's work has been corrected to reflect the immediacy of application of the technology, and that here are 5,000 sites in Missouri, and not as originally written in the country. My apologies for the inaccuracy).

When I. later, mentioned Jevon’s Paradox, this was not something that folk were aware of. (Basically the paradox was noted back in the 1830’s as railway locomotives were made more efficient coal demand still went up.)

Jevon’s Paradox tells us that when we increase the efficiency of the use of a resource, we initially decrease the demand for that resource, but that ultimately this lower demand reduces price, which causes a “rebound” of increasing demand. When applied specifically to energy efficiency, this is commonly referred to as the “Rebound Effect.”

But hurry we did, to get back to the main campus, in time to hear T. Boone Pickens, come out to talk about Pickens Plan. As he admits in his video he is giving much the same presentation to folk around the country, seeking support for H.R. 1835, which has the following key parts.

Title I: Promote the purchase and use of NGVs with an Emphasis on Heavy Duty Vehicles and Fleet Vehicles
Title II: Promote Production of NGVs by Original Equipment Manufacturers
Title III. To Incentivize the Installation of Natural Gas Fuel Pumps and Service Stations and Depots and Domestic LNG Production Facilities for Small Energy Producers
Title IV: Natural Gas Vehicles (Not later than 2014, at least 50% of all new vehicles purchased by the US Government shall be capable of operating on natural gas.)

From which you might be able to guess why it is called the Natural Gas Act, and since Boone has a company Clean Energy Fuels that is “the largest provider of natural gas for transportation in North America” why he is that excited to get his “Army” to support it.

He noted something that I had not thought of. Until now Venezuela has been selling their heavy oil into the United States, not because they love us, but because we have the refineries that can process the heavy crude, and then sell it into the American market. However last May the Chinese signed an agreement with President Chavez, and will be building a refinery in China that will be able to refine 400,000 bd of Venezuelan crude. Apparently this number is now confirmed, but the deal has grown to include Total, and the construction of an upgrader facility in Venezuela to clean up the oil before it is shipped. Boone thinks that this prefaces a total coming sale of Venezuelan oil to China at 1 mbd, which will dramatically cut into the oil that we get from there.

It is information like this that has Boone predicting that we will soon be importing 75% of our oil, and that it will be costing us $300 a barrel. Money that we should be spending on health care and education will all go for oil. And if we are now willing to sit back and let this happen, then we should be filed under “stupid” in the drawer. (His humor was much better than this, I’m just a slow writer). He is not impressed with how much oil is left offshore in the US, where the “Drill, Baby, Drill” crowd want to drill, and when he looks at the future picture, only natural gas is going to be available to balance out declining fuel supplies, and to power an 18-wheeler. (That was his criterion for a replacement fuel, since without that power the fuel hasn’t enough practical value). He felt that with enough incentives natural gas could replace enough transportation fuels that we could be independent of foreign oil in 10 years.

He then took a few questions from the floor (when asked if he would have done things differently knowing what he does now, he commented that he thought things hadn’t turned out too badly.) He sees his plan as a way of spreading information about the coming crisis, and plans to continue and expand the activity. And then he was off.

I will cover the next part of the meeting in the next post, it having been a long day.