Collection Petroanalysis from 1989....

The new PDVSA President

Dr. ANDRES SOSA PIETRI has been named PDVSA's new President and will take possession on 12th. March. Sosa Pietri was born on this same date in 1943. He was educated to secondary level in Europe and graduated Cum Laude as a lawyer in the Venezuelan Andres Bello Catholic University. He later studied at Harvard and Cambridge. He received the Master of Laws L.L.M. in 1967. He has his own solicitors firm; has heen on important commissions for example the 1975 trip to the Middle East and North Africa as a Member of Parliament to study those countries' petroleum industry nationalizations. He is recognized as a successful businessman being promoter, founder and president of the CNV Group and its associated companies the National Valve Construction Company (CNV), Aceven (Iberoamerican Steel), CNV Marketing, CNV USA and CNV Europe and is founder of the other companies in the Group such as Valcontrol and FMC Wellhead de Venezuela. He is permenant advisor to the Venezuelan Petroleum Chamber, member of the Board of Dírectors of the Metallurgical Industries Association, member of the Fedecamaras (equivalent to the UK CBI) Petroleum Commission, of the Santa Lucia Group and of the World Economic Forum, Geneva.

Sosa Pietri: "l wíll respect absolutely the Industrys administrativa and rinancial autonomy ... my obligation ls to push forward the plans and programmes of the National Executive, for example raising production potential to 3.2 mill. b/d and later to 3.5 for 1993 and 1995 as well as petrochemical expansion and other important programmes". Other topics including domestic hydrocarbon industrialization he will touch on after taking presidency. "PDVSA has got to be on par with the biggest oil companies in the world – a place where ¡t already ¡s. lt is a commercial enterprise and should be administered as a commercial enterprise."

Facts and figures of the opening up of PDV seen by Andrés Sosa Pietri According to the ex-President of. PDV the opening up of the o¡¡ industry to foreign multinationais will increase Venezuela's o¡¡ production capacity at an astounding pace, almost duplicating current production leveis and income by the year 2003.

Venezuela currentiy produces around 3 million b/d and is increasing production at a rate of 200,000 b/d anually, an increase which transiates into an additional $1 billion per year (calculating the price of Venezuelan crude at $15 per barre¡).

Estimates from PDV show that production leveis should reach 6 million b/d by the year 2003, from this amount 1.5 million b/d will correspond to production from the multinationais and the remaining 4.5 million b/d to PDV and its subsidiarias. Sucha leve¡ of production will practically duplicate income generated by the o¡¡ industry taking ¡t up to $36 billion, almost twice as much as current leveis if an average price of $16.50 per barre¡ is considered.

Evidentiy, if such an expansion is to take place a huge investment effort will be required. In this sense Sosa Pietri estimates that total investments necessary to consolidase the opening up process will be around $55 billion, of this amount $35 billion will come from PDV and the remaining $20 billion will be invested by the foreign"multinationais in their specific areas of interest.

PDV will be able to make such a contribution thanks to the elimination of the Export Value Tax (impuesto sobre el Valor de Exportaciones) which had previousiy proved to be a heavy burden for the corporation.


May 1989

PDVSA Vice-President Reimpell said that the changes that had been produced in the international petroleum market appeared to be irreversible in the sense that it would cost a great deal to return to the extremely high prices of the late-seventies and early-eighties. Continued economic growth and stable prices have stimulated petroleum demand further than was projected two years ago, and that increase could be maintained if there is continued stability and reasonable supply is assured. Offering a panoramic view of the current petroleum situation, he noted that for the first time in various years OPEC production is growing again, and depending on the scenario that is chosen future OPEC production could be between 24 and 26 mill. b/d. "With these production volumes there will be countries both within and outside OPEC that will not be able to continue participating in the market. Other countries with sufficient resources, if they do things well, will be able to increase production and even to participate in a greater degree. Amongst these nations are those of the Middle East and of course Venezuela." He considered that there would continue to be periods of price instability followed by others of calm, including sporadic increases in prices, like in these days, as a result of accidents or other various factors present in various zones of the world. He expected that strong demand would continue for gasolines and gasoils especially for those that that fulfilled the necessary requirements for those countries which were increasing their environmental regulations. "Those that satisfy such requirements will be able to take advantage of the best prices and attend easier to that demand." He also expressed that electricity would continue to grow as an energy source, using various feedstocks including hydrocarbons. He continued saying that PDVSA was applying its forces to take advantage of the opportunities and to reduce risks for the future. For this the Company was emphasizing the following: 1/ Increasing reserves of hydrocarbons, including petroleum, gas, and coal through exploration and the increase in production potential so that it would be able to share in expected demand increases. 2/ Upgrading the refineries. 3/ Making best use of the enormous quantities of gas that Venezuela has to make sure that the petrochemical industry becomes of important size in world terms, and at the same time taking advantage of gas marketing to third persons. The petrochemical and coal sectors are additional sources of income for the country and that is why they are being emphasized. 4/ Continuing with technological developments, which have already paid good dividends as in the cases of Orimulsion, anular flow, refining processes, and environmental quality. 5/ Utilizing to the full overseas marketing chances. 6/ Having an active presence in the market reinforcing the Industry's position as a safe and responsible supplier.


March 1989

In order to raise reserves of light and medium crudes and condensates there are to be investments in exploration of Bs 1,862 million during the year. Bs 1,316 million going to exploratory drilling (17 wells), and Bs 546 million to seismic lines and gravimetric data. Two stratigraphic wells are to be drilled in the North-Andean Flank and one in the Cutufito region in the Venezuelan-Colombian border area.

Seismic lines are to be laid in the Chama area of the Flank and the Ceuta-Tomoporo area. Gravimetric data is to be taken in the El Tejero-El Carito area. Resulting from these efforts, petroleum reserves are expected to increase by 1,800 million barrels and natural gas reserves by 3 million cu. ft. In terms of production the following levels are expected: petroleum, 1,636,000 b/d; condensates 190,000 b/d; NGLs 107,000 b/d. Natural gas production estimates are the equivalent of 639,376 b/d of petroleum. Petroleum and products exports 1,585,000 b/d.

The country's production potential is to be maintained at 2,700,000 b/d.


October 1989

Minister Armas speaking after PDVSA's Extraordinary Assembly... Destinations of exports: North America 54%, Central America and the Caribbean 26%, Europe 14%, South America 3%, and other countries 3%. Domestic market sales averaged 523,000 b/d of which 335,000 b/d were liquid hydrocarbons and 188,000 b/d equivalent were natural gas. Of the liquids total 162,000 b/d were gasoline, 59,000 b/d gasoil, 44,000 b/d fuel oil, and 70,000 B/d others. Purchases made by PDVSA and the operating companies came to Bs 16,291 mill. of which nearly 53% were made domestically. The Industry's foreign exchange earnings added up to US$ 4,948 mill. a rise of US$ 914 mill. over the first 6 months of 1988.


July 1989

Dr. Alirio Parra, Director of PDVSA and Head of the company’s office in London said the following: through its downstream programme and commercial supply rules, PDVSA expects both to maintain and strengthen its presence in the EEC as a safe and secure supplier of hydrocarbons. He expressed that Venezuela is "a moderator in the petroleum world" and has "reserves of considerable proportions". With regard to OPEC, Dr. Parra commented on the increased reserves of both the Organization and Venezuela: "...Some Member Countries believe that an increase in reserves could be an advantage in terms of the distribution of production quotas in the future ... in a period of excess production capacity the existence of important additional reserves does not have repercussions in a positive way on stability. These recently reported reserves increases are not responsible for the fall in prices, the immediate cause is the excess of disposable production in the short term. Analysing the longer term, perspectives become very positive since OPEC's (and Non-OPEC's) increased reserves mean that there will be sufficient supply of petroleum to support the world economy for longer than has been estimated. When developing energy policy the consumer can not ignore these facts and must adapt to them.


June 1990

Twelve of Venezuela's 17 oil shipping terminals are dedicated to export operations. In 1988, these terminals handled more than 600 million barrels of crude and products, assuring a secure supply of Venezuelan oil, gasoline and other derivatives to markets in the United States, the Caribbean, Central and Latin America, and Europe And Asia.

All the terminals run by PDVSA's subsidiaries have been adapted to handle the most modern tankers and are equipped with all necessary safety facilities. Detailed contingency plans have been strictly defined.

The leased refinery on Curazao (Refineria Isla) and the acquisition of the terminal at Bonaire provide the Venezuelan oil industry with two additional terminals which are capable of Handling large volumes of oil and of receiving Very Large Crude Carriers (VLCCs). The infrastructure of the terminal at Refinería

Isla allows for the transference of crude and products from ship to ship, and for the blending of various crudes so that the customer is provided with the exact product formulation requested.

Over the last years, PDVSA and its operators have developed a comprehensive renovation and maintenance programme for all its oil terminals. The terminal at Puerto Miranda on the eastern shore of Lake Maracaibo, for instance was adapted to receive larger ships and it continues to be one of the principal oil terminals in the

Western Hemisphere. With a land storage capacity of about 5 million barrels, it can

handle up to four tankers simultaneously and load up to 20,000 barrels of crude per hour. At others, such as the San Lorenzo and Punta de Palmas terminals, on Lake Maracaibo, multibuoy systems have been installed, giving tankers greater flexibility and eliminating the need for tugboats. Projects are under way to modernize other terminals to adopt them to the industry's future needs.


Amuay 130 43 4 Lagoven

Puerto La Cruz 130 60 3 Corpoven

Puerta Miranda 115 39 2 Maraven

La Salina 112 39 2 Lagoven

Punta de Palmas 100 39 Buoys Maraven

Punta Cardón 90 45 4 Maraven

Jose 75 39 1 Corpoven

Caripita 61 33 3 Lagoven

El Palito 60 39 2 Corpoven

Punta Cuchillo 60 Variable 1 Lagoven

Bajo Grande 55 39 3 Maraven

El Tablazo 50 30 2 Pequiven

The water depth at the jetties of Venezuela's oil terminals ranges from 30 to 60 feet. The terminals at Puerto La Cruz and Amuay, with 60 and 43 feet respectively, can handle tankers up to 130,000 dwt, while ships up to approximately 90,000 dwt can berth at the Cardón terminal.

The oil industry also runs three river terminals,,, located at Caripito, an the San Juan River, and at Paradero and Punta Cuchillo, an the Orinoco River,. Water levels depend an the time of the year, but the terminals can receive tankers up to 60,000 dwt.

During 1988, the company’s major oil terminals handled 893 tankers at Punta Cardón, 730 at Amuay, 396 at Puerto La Cruz, 362 at Bajo Grande, 340 at Puerto Miranda, 234 at El Palito, and 96 at Jose.

PDVSA's oil-tanker fleet consists of 19 ships with a total deadweight of 748,000 tons. The tankers are distributed among the various subsidiaries.

In 1989, Venezuela shipped an average of 975,700 barrels of crude and refined products an oil tankers per day. 0f the total, more than 249,000 barrels were delivered to domestic customers while the remaining 726,000 barrels went to overseas customers.

Of the total exports, an average of 203,000 barrels per day were shipped in PDVSA owned oil tankers and the rest was shipped on rented or leased tankers or tankers owned by customers.

The figures show PDVSA was able to ship more than 20 percent of its traffic on company-owned ships, significantly higher than the 13 percent company-owned shipping capacity average for other oil companies around the world.

PDVSA also has plans to expand its fleet to around 40 ships during the next 10 years.


March 1989


The exchange rate modification promised by Head-of-State Carlos Andrés Pérez came into force on the 12th March. Gone now are the preferential dollars and the parallel free market. By the end of the week before unification the Bolivar had reached over 40 to the US$. After unification it started to appreciate gradually and now at the end of March is 36.

The 27th and 28th of February saw the blackest days of civil unrest in 30 years: looting, burning, and leading to a curfew and suspension of civil liberties Why was all this? Obviously there are different opinions: the New Economic Package is to blame; the shopkeepers are hoarding goods to sell them at highly inflated prices; subversive groups; the Debt; bus drivers put up their prices 100% instead of the decreed 30%... it’s a proof that the Old Economic Policies had brought the country to ruin. But one thing for certain is that now there is even more pressure on President Pérez to turn the country round, and correct once and for all the serious imbalances that have distorted economic, financial and social life.

But what if the policies fail? Serious consequences no doubt.

The NEW ECONOMIC MEASURES now being pursued by the current Administration:


-Single unified exchange rate.

- Partially respect letters of credit at 14.50 Bs to the dollar.


-Suspension of capital and interest payments of the public and private foreign debt until 30th September 1989. Reopening of renegotiations. The same treatment for the private foreign debt as the public debt.

-Decision to go to the IMF and accept its conditions to obtain approximately US$ 4,500 million in the next 3 years.


-All foreign transactions with abroad (imports, exports transfers, etc) at the free rate. Eliminate import permits and quotas (the RECADI system).

-Rationalization of customs tariffs, reducing their number in order to ensure an effective but decreasing protection for national production.

-Elimination of customs tariff relief.


-Freeing of interest rates.

-Preferential treatment for agricultural and housing loans: agricultural rate to be 7% below the market rate; preferential mortgage rate for social-need housing initially fixed at 15% but subject to periodic Banco Central (BCV) revision.


-Reduction of fiscal deficit to no more than 4% of GNP (approximately Bs 35,000 million).

-Freeze on jobs in the public sector.

-Establish a sales tax in 1990.

-Raise taxes and tax thresholds.

-Establish formulas to allow firms to depreciate assets on their present value.


-An annual increase over three years of petroleum derivatives in the national market. First increase an average of 100%.

-General increase in public transport tariffs of 30%.

-Increase in electricity and telephone tariffs (an estimated 50%).

-General adjustment of prices of public firms which produce goods and services.


-Increase in the minimum wage to Bs 4,000 in urban areas and Bs 2,500 in rural areas.

-Increase in public sector salaries: 30% increase for the first Bs 5,000, 10% from Bs 5,001 to Bs 10,000, 5% over Bs 10,000.

-Private sector increase of Bs 2,000 for each worker or employee.

-Top wage limit for subsidies on transport and food raised to Bs 6,500.

-Price regulation and direct subsidies for 18 products in the basic food basket. -Food transfer programme for children up to 14 years, pregnant and nursing mothers.

-Creation of 42,000 infant day-care centres.

Economic strategy section of the IMF Letter of Intent...


-Strengthen internal savings.

-Promote the influx of foreign capital.

-Diversify the economy towards exports on the base of comparative advantages.

-Eliminate the fiscal deficit within 2 years.


-Obtaining between US$ 5,000 and 6,000 million per annum in foreign finance until 1993.

-Repatriation of approximately US$ 3,000 million of private capital within 3 years.

-Refinancing and reduction of the foreign debt.

-Surpluses in public firms’ finances.


-It is fundamental to establish a single floating exchange rate at which all transactions will be realized. The only exception will be payments on the private foreign debt until 28/2/89 (US$ 250 million) and 50% of letters of credit pending from 1988 (approx. US$ 3,000 million) which are at Bs 7.50 and Bs 14.50 to the US$. The remaining pending letters of credit (US$ 3,050 million) will be refinanced until 1992 and paid at the new free rate.

-Liberalization of import policy: progressive elimination (until December 1989) of quantitative restrictions on imports, elimination of customs tariff relief in March 1989, simplification and reduction of customs tariffs.

-There is to be a prudent wages policy which contributes to strengthen competitivity, raise the level of employment and reduce inflationary pressures. After the 1st March increase there are to be no other wage increases during the year. Private sector wages are to be fixed by broad agreement or collective bargaining.

-Price increases in public goods and services. The internal prices of State firms should move closely towards international prices within 2 years. ALCASA and VENALUM will increase 40% in 1989, PDVSA 94%, CADAFE 5001,o, CANTV 50%. Obligatory Social Security base to rise from Bs 3,000 to Bs 10,000.

-Elimination of the previous system of price control with the sole exception of 25 essential products and services which will be adjusted to the rhythm of inflation.

-Liberalization of interest rates and restrictive monetary policy. Peal positive interest rates approx. 40% i.e. 5 points above the estimated rate of inflation). Liquidity increase of 26% (9 points below the estimated rate of inflation). 32% increase in bank credit (3 points below the estimated rate of inflation).

-Social subsidies on: 7 products in the basic food basket (Bs 1,4,800 million), mortgage interest on housing with a social need (Bs 2,000 million), on fertilizers by 50% (Bs 5,000 million), and on direct food and social transfers (Bs 9,000 million). basic economic disequilibria that the new policies attempt to correct

-Balance of Payments. Current Account accumulated deficit of USD 7,376 million between 1986 and 1988. Total exhaustion of international reserves (excluding gold).

-Fiscal. 1988 deficit of around Bs 60,000 million (7% of GNP).

-Monetary. Real negative interest rates of around 20% below the inflation rate.

-Exchange Rate. Overvalued official rate, undervalued free rate with a 170% gap between them.


March 1992


Officials denied reports from Zulia state, the heart of the nation's oil industry, that oil installations had been assaulted.

After word came of the attempted coup against President Carlos Andrés Pérez. PDV bonds registered an 8-point loss but regained 4 points later in the day once the news of the coup's failure was learned. The recorded losses were considered lighter than expected.

Officials from multinational oil companies said they still feel safe putting their money in Venezuela, despite the coup attempt.

The country has political stability as one of its major advantages for investors, distinguishing itself from its OPEC colleagues in the Middle East.

Energy and Mines Minister Celestino Armas, however, expressed concern that the coup most likely damaged the nation's reputation, and indicated that the nation's image would need some time to recover its former status internationally.


February 1991

CAP: "Venezuela is where it is today without breaking away from OPEC. OPEC has given the petroleum industry potential and strength". Answering calls for Venezuela to break with OPEC, CAP said "sometimes sincerity and honesty do not coincide with reality... and in this case the government has demonstrated that it is right."

ARRIAS: "We can not assume as a dogma our participation in organizations like OPEC... the only dogma that Venezuela can have is the quality and improvement of its interests."

SOSA: "The structure existing in the international economic system should be complemented with a new world petroleum agency which would serve as a permanent consulting mechanism between producers and consumers in order to create a more favorable environment for the development of business activity in the petroleum area."

"We want moderate and stable prices which, mean high production to keep income stable ... we will produce as much as we can."

President Pérez speaking at tlie National Defence Higher Studies Institute: "Petroleum's future now depends on the industrialized countries' energy policy and that depends on how OPEC manages petroleum @plicy." At a later date he stated that he was prepared to use Article 5 of the Petroleum Nationalization Law to establish petroleum and refining plailts in conjunction with domestic and foreign private capital so that the Industry continuas to be strengthened and to assure internacional markets. (Art.5 allows for the participation of prívate entities "in special cases and when ¡t is in the public interest").

Enfoque Petrolero

April 1996

Fourteen companies from eight countries took part in the bidding round for the ten marginal fields. Twenty-nine offers were received from forty-four companies associated in twenty-three consortia. Fourteen companies from the United States, Canada, Argentina, the United Kingdom, France, Germany and Japan participated in the eight winning offers, two areas remaining without interest. As can be seen from the table, US companies are present in seven of the eight fields.

Table 1: 1995 Bidding Round Results





La Ceiba

Mobil,Veba, Nippon

PEG 50%

US$ 103,999,999

Gulf of Paria West


PEG 50%

US$ 21,197,844


Elf, Conoco

PEG 50%


Gulf of Paria East

Enron, Inelectra

PEG 29%


El Sombrero


No offers



BP, Amoco, Maxus

PEG 50%

US$ 108,987,510

San Carlos

Pérez Companc

PEG 40%


Punta Pescador


PEG 50%

US$ 10,658,910



No offers


Delta Centro

Louisiana Land & Exploration, Norcen, Benton

PEG 41%


Note: The Bonus is offered as a tie breaker when equal PEG percentages have been offered.

Table 2: Fields assigned in previous bidding rounds

Company/ Consortium


West Guárico

Mosbacher Energy Company

East Guárico

Teikoko Oil de Venezuela


Pérez Companc- Norcen- Corod

Quiamare-La Ceiba

Astra-Quiamare de Venezuela- Ampolex- Tecpetrol- Sipetrol


Teikoko Oil de Venezuela



Total Oil and Gas de Venezuela


BP de Venezuela


Maxus de Venezuela- BP de Venezuela- Otepi


Benton- Vinccler

Urdaneta West

Shell de Venezuela



Tecpetrol- Corexland- Wascana de Venezuela- Nomeco

Zulia West Development

Compañía Occidental de Hidrocarburos

Falcón Offshore

Olympic Oil and Gas Corporation- Clayton

Falcón West

Samson- Vepica- Ingenería 5020- Petrolago

Falcón East

Pennzoil- Vinccler

Table 3: Companies operating in Venezuela before nationalization


Atlantic Richfield



CVP (Venezuela Petroleum Company)


Las Mercedes

Mito Juan







Note: Under nationalization, all of these companies were renamed and eventually grouped into what is now Corpoven, Lagoven and Maraven. Creole and Amoco became Lagoven; Shell and Philliips, Maraven; the rest were grouped into Meneven and Corpoven. Later Meneven was fused with Corpoven, some of Corpoven being integrated into Maraven.

British Ambassador Wilkinson Interview

These are times of high technology and investments. Is there a particular British approach in this regard in this fast growing region?

1’11 be frank, ¡t is very regrettable that British investment - which up until the Second Worid War was larger than that of any other country in Latin America - disappeared almost totally, first of al¡ in the Second Worid War and then in the following two or three decades. As you probabiy know we built the infrastructure in much of Latin America. We had a very strong position in banks, communications companies, raiiways, ports... you name ¡t we were there in a very substancial way. We sold off those investments very largely to pay for the Second World War, and then in the decades after the Second Worid War, Latin America began to seem rather remote. Our expertise ir) the region gradually faded away and it’s only in the last ten years 1 wouid say, or less, that we’re waking up to the fact that we’re missing something. So we’re starting, ¡’m afraid, not from a position which historically we ought to have. We’re starting from the back.

And looking at Venezuela specifically?

One of the areas which we really do understand and know weil is o¡¡ and gas. That explains 1 think why British investment in this country is either in the o¡¡ and gas field, or carried out by major multinational compa-nies that have global expertise - the Lasmos, the Glaxos., the Unilevers, the Weilcome’s, the United Distiller’s, the British American Tobaccos: the big British multinationais to whom Venezuela is a significant market that they don’t ignore.

Trade missions are clearly very important.

Could you brief us on the most recent ones and on those coming up?

The number of trade míssions this year has been very encouraging. There are two kinds of trade mission. The first kind is the one which is a means for very often smali and medium sized enterprises to get to know a market that they aren’t yet aware,of, and to assess a market in a cost-effective way They taik among themselves and they get, as ¡t were, a group vision of what the market is like. Then they go back home and decide whether it’s worth putting resources into that market. They are often led by a geographical focus. The mission that we had from Kent Chamber of Commerce and the Kent and South-East England Trade Association was a good example of a geographically-based group covering various sectors. The other kind is more specialised. There are people who have already identified Venezuela as a significant market, and by going out together they can very often get a degree of high leve¡ access. A good example of that mission was the Offshore Supplies Office and Scottish Enterprise mission that we had recently. So we have had both kinds of mission coming out this year, as weil as a smali but very effective training mission. Also we’ve got thé London Chamber of Commerce mission coming up which has two submissions within ¡t one directed to ports and the other directed to technology transfer by UK universities.

This is the first time for the last fifty years or so that British oil co ‘Mpanies are present in Venezuela. What is your appreciation of this, and how do you see the future developing for this new UK-Venezuelan relationship?

The Apertura involves basically the reactivation of the marginal fieids. Now this is something where the British are particularly weil placed... not just with their o¡¡ majors, but with their oil mediums like Lasmo. Also with the kind of experience that their equipment companies have, and in the final transfer of technology because of the North Sea being a very dífficult environment. Of course the North Sea isn’t like Venezuela, but none the less British companies are used to extracting o¡¡ in difficult conditions and they’re used to working to what are essentially smali profit margins. Because of the kind of technological expertise that they can bring to the development of the marginal fieids, the British companies obviously have competitive advantages over companies that have, for example, perhaps oniy worked in Kuwait - where you don’t need to extract the last drop in the ground because there’s so much of ¡t around. So we think that this gives our companies a particular competitive edge. What is exiting too is that when they carne out here they saw a hunger on the part of the companies operating here for this expertise. There are firms who were very pleasantly surprised at the degree of interest that there had been in the presentations that they had made in the oil and gas sector. They got the impression that the audiences were genuinely interested in the suggestions that they made and in what they had to offer. You have been the British Ambassador here for quite a few months now and you must have travelled to many places and talked to many people. From a personal point of view, what single instance has made the greatest impression on you?

Weil, let me just give an example. 1 think ¡t illustrates both the advantages and opportunities in Venezuela but also the immense problems the country has. Last month 1 attended the formal opening of a hydrogen plant in Cardón: fifty million dollars of investment by BOC Gases and Foster-Wheeler; ultra modern, ultra eff icient; a really good example of British technology; completed on time within costs; the first example of outsourcing by PDVSA. They said they wouid outsource the production of hydrogen and Foster-Wheeler and BOC gases got together with this plant, and PDVSA is very pleased - ¡t has worked extremely well.

¡t is a fifty million dollars investment, but how many people are going to work in it? Ten. That shows the kinds of problems that face Venezuela. What has impressed me is that ¡t is wonderfui having a petroeconomy, but goodness ¡t has problems.

1/ Reporte Petrolero

No. 9, 1995


This new boiler fuel will make excellent use of the vast bitumen reserves in the Orinoco Oil Belt. The European Union’s classification of Orimulsion as “a natural bitumen suspended in water” means that the fuel will be a competitive option in the wordwide fossil fuel market. A safe and steady marketing strategy means that production is tailored to the client’s needs.

The extra-heavy crude of the Orinoco Oil Belt has a gravity of 7 to 9 degrees API and will not pour until heated above 85 degrees Centigrade. Both Gatt and OPEC define crude as a liquid at 14 degrees centigrade, so anything not liquid at this temperature is not crude. Orimulsion is a cocktail of bitumen, water and an emusifier that can be pumped through unheated pipelines and be burnt in power stations at a cost competitive to coal.

To convert a conventional fuel oil burning plant, today not in use because of lack of competitiveness, takes around six to eight months, modifications being necessary in the handling system.

Experts see the fuel targetted against coal. In thermal equivalent terms 50 metric tons of Orimulsion is equivalent to 60 metric tons of South African steam coal, which in 1986 represented 34% of internationally traded steam coal or 43% of that carried by sea.

(Source: Petroanalysis Venezuela no.1, September 1988.)

The Orinoco Oil Belt, a giant heavy and extra-heavy crude oil and natural bitumen province in central Venezuela, contains 1.2 trillion barrels of hydrocarbons “in situ”, of which 270 billion barrels are economically recoverable using existing technology.

Bitúmenes Orinoco, or “Bitor”, is the PDVSA subsidiary company responsible for the exploitation and emulsifying of natural bitumen, and for the supply and trading of the resultant boiler fuel Orimulsion. Bitor has operational agreements with other PDVSA subsidiaries who carry out activities associated with bitumen extraction, emulsification, transportation, storage and shipping.

Trading activities are performed through the company itself as well as through Bitor America Corporation, Florida; Bitor Europe, London; and MC Bitor, Tokyo.

Plans are that by the end of the century twenty million metric tons per annum of Orimulsion should be produced and marketed – an increase of over fifteen million metric tons compared with the current 4.7 million.

Orimulsion sales are growing: exports in 1994 were two million five hundred thousand tons, 28% up over 1993. Contractual deliveries were initiated to New Brunswick Power in Canada, Kansai Electric Power in Japan, and SK Power in Denmark. Also ninety thousand tons were supplied to Eletricidade de Portugal’s Setubal plant for a full boiler trial. Most recently, Lithuania has signed a 17 year contract to buy 600,000 tons per annum.

Last year saw a record 49 Orimulsion shipments from the BOPEC terminal in Bonaire and from the Punto Cuchillo terminal on the Orinoco River. Also the deepwater Orimulsion terminal at Jose in eastern Venezuela was completed at year end meaning a significant

reduction in operating costs.

A study was completed on defining strategies and alternatives forthe marine transportation of Orimulsion to North America, and a team was formed to undertake a similar study targetted at Asia. In Latin America, there was progress on the Argentinian front: considerable advances being made in negotiations for supplying Orimulsion to the Central Electrica San Nicolás in Buenos Aires.
Brazil is prepared to offer a preferential customs tariff for Orimulsion. Chile is interested in a supply contract for a 120 MW plant in Calderas in the north-central part of the country. This project would be the first to use Orimulsion in diesel engines.

In Asia, the main accomplishment was the signing of a contract with China North Industries Corporation for the marketing and supply of Orimulsion. 1,200,000 tons were negotiated to be supplied starting this year. A Letter of Agreement was signed with the Ssangyong Corporation for the promotion of Orimulsion in that country. India is also interested in quantifying the domestic market potential of Orimulsion.

Construction was completed of the integrated storage, transport, and loading system known as Morichal Patio de Tanques Oficina (PTO) Jose. Initial annual capacity of the system is 8,100,000 tons and replaces the previous system whereby Orimulsion was dispatched from the Punta Cuchillo terminal on the Orinoco River to the export terminal on Bonaire. The new system connects the Cerro Negro, Morichal exploitation and emulsification areas with the Jose Orimulsion Terminal near Barcelona on the northeast coast through a 310 kilometre combined 26 inch and 36 inch pipeline. The terminal has a single buoy 8 km. offshore and allows the loading of tankers up to 250,000 tons deadweight at a maximum loading rate of 10,000 tons per hour. The storage tanks located at Jose, PTO and Morichal have a combined total capacity of 310,000 tons.

Various projects in the areas of process and industrial engineering were completed resulting in the satisfactory testing of operations in the production and emulsification plant MPE 1 at its designed capacity of 5,800,000 tons. Improvements were made in the emulsification system throught the installation of the new Intevep designed dynamic mixers (Orimixers). A new 17,300 ton storage tank was constructed increasing available reserves of diluted bitumen; a new fresh water storage tank of the same size was also built to increase reserve capacity; and a new high tension electricity link was put in to increase power supply reliability to the MPE 1 module.

Production levels had to be increased to keep up with Orimulsion sales contracts commitments as can be seen by the year end increase in production capacity of 1,046,000 tons of natural bitumen. This came through the drilling of nine new wells, the completion of an additional twenty two, the workover of another five, and the horizontal redrilling of seven existing wells.

1994 production of natural bitumen reached 1,877,000 tons and that of Orimulsion 2,589,000 tons. Available year end production of natural bitumen increased to 2,500,000 tons and that of Orimulsion to 3,600,000 tons.

During the year, the first turnaround of the emulsification plant encountered no major problems resulting in the decision to plan future turnarounds at three year intervals instead of two year intervals.

Bitor America made the first shipment of Orimulsion to the New Brunswick Power Corporation (NBP) of Canada under the long-term contract signed in 1990 to supply up to 800,000 tons per annum; the conversion of NBP’s 310 MW plant in Dalhousie to Orimulsion was completed with burning starting in September; a 20 year contract with Florida Power and Light (FPL) was signed to supply the 1580 MW Manatee plant - annual requirements will be 4,000,000 tons, and a contract was signed with Pure Air (a partnership of Air Products and Chemicals and Mitsubishi Heavy Industries) for the construction and operation of a flue gas desulphurization plant for the two 790 MW plant units at Manatee. This success with FPL and the incorporation of Citizens Lehman Power in a joint marketing effort have given added impetus to Bitor America’s business expansion...increasing interest has been shown by numerous other electricity utilities in the US, Canada, and Puerto Rico.

The European affiliate of Bitor is the London-based Bitor Energy PLC (BEC). Its main business subsidiary is Bitor Europe Ltd (BEL) which is responsible for developing, supplying, and managing Orimulsion supply contracts in Europe and North Africa. Early in 1994 BEC acquired the 50% ownership of BP International in BEL, making the company a 100% subsidiary of BEC. Jointly with Bitor, BEC has been promoting the participation of European companies in generation, flue gas cleaning, and ash recycling projects. Significant progress has been made in optimizing the technology for recovering vanadium, nickel, and magnesium from Orimulsion ashes. BEC has been working closely together in this with REAKT (British) and STRATCOR (North American) to set up a joint venture to process between 6,000 tons and 10,000 tons of Orimulsion ashes per annum.

After a two-year debate over the customs classification of Orimulsion, at the beginning of last year the European Union defined Orimulsion as a natural bitumen suspended in water, thus assuring the fuel’s viability as a competitive option in the fossil fuel market.

During the year, BEL delivered 1,450,000 tons of Orimulsion to Europe, and secured sales for 1995 of 2,800,000 tons. Two industrial trials in cement kilns in Italy and Germany were successfully completed: one at the UNICEM Cadola cement plant, consuming 250 tons of Orimulsion, and the other at Phoenix’s Beckum cement plant consuming 840 tons. Both trials confirmed that Orimulsion can be used as an alternative fuel for producing cement


Two single burner trials were completed during the year: one to evaluate the performance of the low NOx burners installed in the SK Power Asnaes 700 MW unit near Kalundborg (Denmark), and the other in the NEFO 300 MW plant of Elsam. Near year©end BEL signed a contract with SK Power for the Asnaes 700 MW unit. And this in a country where very strict environmental legislation is applicable. A full boiler trial was initiated at CPPE’s Setubal Unit 4 (Portugal) for which approximately 93,000 tons of Orimulsion were delivered in accordance with the permanent supply agreement. Also during 1994, feasibility studies were completed for five sites and support was given to National Power (UK) for the bid specification for the conversion of the 2000 MW Pembroke plant and in the preparation of the corresponding environmental impact study.

MC Bitor, an equal share partnership between Bitor and Mitsubishi Corporation, exported to its Japanese customers Kashima Kita Electric Power Corporation, Mitsubishi Kasei Corporation and Kansai Electricity Power company approximately 700,000 tons of Orimulsion. Kashima Kita consumed approximately 355,000 tons in 1994, Mitsubishi Kasei 215,000 tons, and Kansai 120,000 tons.

Hokkaido Electric Power company began construction of a new 350 MW capacity plant which will consume approximately 200,000 tons of Orimulsion per annum, to be burned alternately with heavy fuel oil starting in 1996.

In Thailand, Orimulsion was accepted as a base fuel together with natural gas and coal by that country’s Electricity Generating Authority and will participate the development of projects by independent power generation producers.

In the Philippines, the state owned National Power Corporation evaluated the usage of Orimulsion as a base fuel in plants whose consolidated power generating capacity is approximately 1,700 MW.

In Malasia, the state owned Tenaga Nasional Berhad utility is undertaking feasibility studies for the use of Orimulsion in its power plants of approximately 900 MW, either new ones or those under consideration for conversion.

Finally, research is under way by MC Bitor to promote the use of

deepwater terminals in order to improve the competitive position of

Orimulsion in the region.

Orimulsion is the opportunity for the country to develop the Orinoco Oil Belt on a grand scale, since it is the product which allows the immediate placement in international markets of those hydrocarbons which until now have had no commercial uses, except for some limited applications like asphalts and heavy lubricants, and which would never have received the investments required for their exploitation.

(Sources: Bitor 1994 Annual report, PDVSA Contact No.43, Rippet Jan-Feb. 1992)

2/ Enfoque Petrolero

October 1997


Despite major setbacks in Great Britain and the United States, Bitúmenes del Orinoco, Bitor, is expecting to export 4.4 million metric tons of Orimulsion this year as It looks forward to strengthening its sales to Denmark and China. This figure would be slightly up from the 4.17 million metric tons that the company sold in 1996.

According to Bitor President Carlos Borregales, the company will ship 2.1 million metric tons to Europe, of which 1.5 million tons will be sold to Denmark, 300,000 tons to Italy and the remaining 200,000 tons to Lithuania. Exports to the Far East will total 1.6 metric tons, with 1 million tons going to clients in Japan and the remaining 600,000 tons to China. An additional 800,000 tons of Orimulsion were sold to Canada’s New Brunswick Power - Bitor’s oldest client, and so far the only one in the Americas.

With these sales, Bitor seems to be compensating the big losses it suffered in September when two British power stations, Pembroke and Richborough, failed to renew their contracts for Orimulsion. The contracts involved 1.5 million tons of Orimulsion per year which accounted for US$50 million in revenues.

That same month, Bitor was dealt another major blow when a Florida state regulating committee decided to reject a deal with Florida Power and Light to use Orimulsion in its Manatee power plant, for the second time in as many years. The agreement with Florida Power and Light would have doubled Bitor’s curtent output as it provided for a four-million ton annual supply. lt would have also been the company’s first penetration into the U.S power market, which would have set the stage for worldwide expansion.

The environmental question...

Both the cancellation of the British contracts and the decision by the Florida were ultimately prompted by environmental concerns raised by the use of Orimulsion.

Dubbed “liquid coal” by its Venezuelan makers, Orimulsion consists of unrefined bitumen mixed with 30 percent water and a small amount of surfactant to blend the two together.

The fuel is attractive to electricity generators because it is far cheaper than coal or burning oil. But it has come under harsh criticism from environmentalists who call it “the world’s filthiest fuel”. Opponents to Orimulsion say the fuel emits a fine dust which is heavily laden with heavy metals that can affect crops and even penetrate into the blood stream.

Bitor officials have admitted that Orimulsion does contain high levels of some toxic substances, but they have also said that power plants can significantly cut emissions by installing high-tech filters.

Looking at the bright side...

Other clients have downplayed the allegedly polluting effects of Orimulsion. For example, in Japan, a nation which is known to have very strict environmental regulations, there are three power plants using Orimulsion, and another one is scheduled to start operating by the end of the year.

Kashima Kita, the first company to use Orimulsion in Japan, said it converted its plant to use the Venezuelan fuel in 1991 and so far it has shown optimum performance. Moreover, in the light of these excellent results, the company decided to build another Orimulsion-fueled plant, which will become Japan’s largest power facility with capacity to generate 4,400 megawatts.

The Japanese government gave its go-ahead to the companys construction plans last July. On that occasion, Mitsuo Ohi, general manager of Kashima Kita, even recommended the use of Orimulsion: “In víew of Kashima Kitas plans for power supply and the successful use of the Venezuelan fuel, we expect to continue using Orimulsion and widely recommend its use” he said.

Among its plans for the future, Bitor has signed a contract with a consortium made up of China Steel, Intergen, Taiwan Synthetic Rubber and APED to supply an annual 3.4 million tons of Orimulsion by the year 2000 to fuel a power plant currently under construction in Taiwan. And according to Bitor by that year the company aims to produce 14 million tons of the fuel, rising the output to 32 million by 2006.

In a shorter term, China’s National Petroleum Corp. is expecting to sign this month a $1.2 billion deal to produce and consume 5.2 million tons per year. The agreement involves a strategic association to build one to three plants to manufacture Orimulsion in Venezuela.

Another potencial client for Bitor might be Indonesia. Indeed, during a recent visit to Caracas, Indonesian Foreign Minister Ali Alatas and other top officials expressed their interest in the products offered by our oil industry, and Venezuelan experts said the Southeast Asian nation might be poised to start buying Orimulsion and heavy crudes in a not too distant future.

3/ China Country Analysis Brief, EIA

July 2004


Coal makes up the bulk, 65%, of China’s primary energy consumption, and

China is both the largest consumer and producer of coal in the world.

China’s coal consumption in 2002 was 1.42 billion short tons, or 27% of

the world total. The Chinese government has made major upward revisions

to coal production and consumption figures covering the last several

years. The new figures show coal consumption rising sharply in 2001-2002,

reversing the decline seen from 1997 to 2000. The decline during that

period also is much less than the previously reported data.

China’s coal industry has had a serious oversupply problem in recent

years, particularly in the late 1990s, and the government has begun

implementing major reforms aimed at reducing the oversupply, returning

large state-owned mines to profitability as a prelude to possible future

privatization, and reducing mine accidents. Large state-owned coal mines

had experienced buildups of unused inventories in the mid-to-late-1990s,

and many were operating at a financial loss. A large number of small,

unlicensed mines also have added to the oversupply. In 1998, the

government launched a large-scale effort to close down the small mines.

Many small coal mines were ordered closed. It has become clear, however,

through much anecdotal evidence, that not all of the “closed” mines have

actually ceased operation, and the upward revisions to the Chinese State

Statistical Bureau’s production and consumption figures appear to reflect

this. China also is increasingly seeking export markets for its coal as a

way of dealing with its surplus production, and as of 2002 it was the

world’s second-largest coal exporter. Japan and South Korea are the

primary markets, and China is beginning to emerge as a serious competitor

to Australia for Japanese coal imports. India also has been importing

modest quantities of Chinese coal. Increased domestic demand for thermal

coal in 2004, however, has led to a sharp dropoff in coal exports,

reversing the price decline in the Asian coal market which had taken place

in response to the expansion of Chinese exports.

Over the longer term, China’s coal demand is projected to rise

significantly. While coal’s share of overall Chinese energy consumption

is projected to fall, coal consumption will still be increasing in

absolute terms. Several projects exist for the development of coal-fired

power plants co-located with large mines, so called “coal by wire”

projects. Other technological improvements also are being undertaken,

including the first small-scale projects for coal gasification, and a coal

slurry pipeline to transport coal to the port of Qingdao. Coalbed methane

production also is being developed, with recent American investors in this

effort including BP, ChevronTexaco, and Virgin Oil, which was awarded a

concession for exploration in Ningxia province in January 2001.

ChevronTexaco is the largest foreign investor in coalbed methane, with

activities in several provinces. Far East Energy of the U.S. received

approval from Chinese authorities in April 2004 for a farmout agreement

with ConocoPhillips, under which it would undertake exploratory drilling

for coalbed methane in Shaanxi province, in a location near the

West-to-East Pipeline route.

In contrast to the past, China is becoming more open to foreign investment

in the coal sector, particularly in modernization of existing large-scale

mines and the development of new ones. The China National Coal Import and

Export Corporation is the primary Chinese partner for foreign investors in

the coal sector. Areas of interest in foreign invesment concentrate on new

technologies only recently introduced in China or with environmental

benefit, including coal liquefaction, coal bed methane production, and

slurry pipeline transportation projects. Over the longer term, China

plans to aggregate the large state coal mines into seven corporations by

the end of 2005, in a process similar to the creation of CNPC and Sinopec

out of state assets. Such firms might then seek to pursue foreign capital

through international stock offerings.

China has expressed a strong interest in coal liquefaction technology, and

would like to see liquid fuels based on coal substitute for some of its

petroleum demand for transportation. A coal liqufaction facility is under

construction by the Shenhua Group in Inner Mongolia, with a projected

startup date of 2005. Despite the high costs, Chinese officials have shown

increasing interest in further research into improving coal liquefaction

technologies, in the hope that it may eventually provide an economically

viable domestic source of liquid fuels.


As with coal, China’s electric power industry experienced a serious

oversupply problem in the late 1990s, due largely to demand reductions

from closures of inefficient state-owned industrial units, which were

major consumers of electricity. The Chinese government responded to the

short-term oversupply in part by implementing a drive to close down small

thermal power plants and by imposing a moratorium (with a few exceptions)

on approval of new power plant construction, which ran through January 1,

2002. Until recently, the backlog of projects approved in the mid-1990s

had kept pace with demand increases. In 2003, however, the Chinese

government has approved 30 major new electric power projects, with a total

of around 22 gigawatts (GW) of capacity. With the surge in economic growth

in 2003 came a surge in electirc power demand, which has outpaced previous

demand forecasts, leading to a shortage of generating capacity and even

load-shedding in some areas. A shortage of rainfall in some areas in 2003

and early 2004 has worsened this problem.

The largest project under construction, by far, is the Three Gorges Dam,

which, when fully completed in 2009, will include 26 separate 700-MW

generators, for a total of 18.2 GW. Plans were announced in March 2002 to

reorganize the Three Gorges project into the China Yangtze Three Gorges

Electric Power Corporation. The reservoir created by the dam began to

fill in June 2003, and it began operating its initial turbines in July


Another large hydropower project involves a series of dams on the upper

portion of the Yellow River. Shaanxi, Qinghai, and Gansu provinces have

joined to create the Yellow River Hydroelectric Development Corporation,

with plans for the eventual construction of 25 generating stations with a

combined installed capacity of 15.8 GW.

Many of the major developments taking place in the Chinese electricity

sector recently involve nuclear power. China’s total installed capacity

for nuclear power generation increased from 2.1 GW at the beginning of of

2002 to 8.7 GW as of June 2004. The first generation unit of the Lingao

nuclear power plant in Guangdong province began commercial operation in

May 2002, with a capacity of 1-GW. The second 1-GW generating unit began

operating in January 2003. An additional 600-MW generating unit at the

Qinshan nuclear power plant in Zhejiang province began operation in

February 2002, and another 600-MW unit at the same site came online in

December 2002. A new 6-GW nuclear complex is planned for construction at

Yangjiang in Guangdong province, to begin commercial operation in 2010. A

second generating facility also is planned for Daya Bay.

A major issue for China’s electric power industry is the distribution of

generation among power plants. China’s stated intention eventually is to

create a unified national power grid, and to have a modern power market in

which plants sell power to the grid at market-determined rates. In the

short term, though, traditional arrangements still hold sway, and

state-owned power plants which have government connections tend to have a

higher priority than independent private plants. Additionally, some

private plants with “take-or-pay” contracts, which provide for guaranteed

minimum sales amounts, have had trouble getting the provincial authorities

running the local grids to honor those terms. In the short term, the

strong growth in electricity demand in 2003-2004 has lessened this


Growth in Chinese electricity consumption is projected at an average of

4.3% per year through 2025. The largest future growth in terms of fuel

share in the future is expected to be natural gas, due largely to

environmental concerns in China’s rapidly industrializing coastal

provinces, though the largest increase in absolute terms is likely to be

coal. If a truly competitive market for electric power develops as

planned, the Chinese market may once again become attractive to foreign

investment. At present, foreign direct investment is allowed only in power

generation, but loan financing has been obtained for some power

transmission projects.

The Chinese government is in the early stages of formulating a fundamental

long-term restructuring of their electric power sector, embodies in the

National Power Industry Framework Reform Plan promulgated by the State

Council in April 2002. As with many other countries reform programs,

generating assets are being largely separated from transmission and

distribution. The State Power Corporation (SPC) divested most of its

generating assets and was split into 11 regional transmission and

distribution companies in December 2002. Electricity prices will still be

regulated, but there are likely to be major changes in tarriffs and the

overall regulatory structure for electricity pricing. The process is at an

early stage, and many of the details remain to be worked out. A new

electricity law, superseding the one established in 1995, is expected to

be probulgated within the next year.



China: Primary Energy Consumption (Million tons of oil equivalent). Figures include commercially traded fuels only.







Share of World Total 2003 %








Source: BP Statistical Review 2004


MD POWERSERAYA says its alternative fuel, Orimulsion, puts it in

a position to withstand pricing and supply shocks, which will

become more important as the prices of traditional fossil

fuels remain high and volatile.

‘Fuel is about 70 per cent of our cost structure, so having

alternatives helps us mitigate the risk of fuel supply

disruption,’ said PowerSeraya MD Neil McGregor. ‘It also helps

us move away from reliance on natural gas and conventional


Orimulsion is a fuel that is 70 per cent bitumen suspended in

30 per cent water, allowing the bitumen to be stored and

transported like conventional liquid fuels. Orimulsion is

produced by Venezuela’s PDVSA Bitor, which has shipped about

40 million tonnes of the fuel since 1987.

PowerSeraya has upgraded its three units of 250MW steam plants

and invested more than $100 million in emission control

equipment which reduces the emissions of pollutants such as

sulphur dioxide by 95 per cent and particulate matter by 97

per cent.

The company said the Orimulsion generation unit helps reduces

overall emissions in the power-generation operation by half.

It hopes to have three units of 250MW steam plants operated by

Orimulsion by year-end, adding to its current capacity of six

units of 250MW steam plants which run on conventional fuel oil

and two units of 370MW combined cycle plants which run on

natural gas. ‘Orimulsion as an alternative can produce

electricity at the same price as the current cheapest way,’ Mr

McGregor said.

‘SerayaPower has three alternatives and our competitors do not

have Orimulsion. So we can reduce our costs by hedging supply

and price risks, and pass that on to our customers.’

(Source: Business Times, 12 April 2005)

6/ Venezuela Country Analysis Brief

June 2004


Orimulsion® is a branded product that is used as a boiler fuel. It is a

mixture of approximately 70% natural bitumen, 30% water, and less than 1%

surfactants (emulsifiers). Bitumen is considered a non-oil hydrocarbon and

is not counted towards Venezuela’s OPEC crude oil production quota. Bitor

(Bitumenes del Orinoco), a subsidiary of PdVSA, manages the processing,

shipping and marketing of Orimulsion. Bitor operates one Orimulsion plant

in Cerro Negro, with a capacity of 5.2 million metric tons per year.

According to Bitor, economically recoverable reserves are estimated at

about 267 billion barrels.

The future of Orimulsion production, however, is unclear. In September

2003, PdVSA announced that it was dissolving Bitor into PdVSA’s eastern

operating division and not expanding production of Orimulsion. The reason

behind PdVSA’s decision was reportedly based on economics, namely, the

company decided that it could make larger profits by selling fuel oil than

Orimulsion. PdVSA also announced that it intended to fulfill long-term

contracts which Bitor had with utilities in Canada, Denmark, Japan, Italy

and Japan but would not sign any more Orimulsion contracts or respect

contracts under negotiation. PdVSA’s shift in policy has not been without

controversy, notably a botched deal with New Brunswick Power in Canada. NB

Power thought it had a deal with PdVSA to supply Orimulsion to its Coleson

Cove power plant, which had been reconfigured to burn the low-cost fuel,

but PdVSA officials said they never signed the fuel-supply contract with

NB Power.


In December 2001, China National Petroleum Corporation (40%) (CNPC),

PetroChina Fuel Oil Company, a subsidiary of CNPC (30%), and PdVSA,

through Bitor, (30%) created Orifuels Sinoven, S.A. (Sinovensa). The

partners invested $330 million to develop blocks to produce 6.5 million

metric tons annually of Orimulsion by the end of 2004. Construction of

Sinovensa project reportedly began in April 2004, with Inelectra as its

general contractor. On November 26, 2003, CNPC began constructing China’s

first Orimulsion-fired power plant located in Zhanjiang city in southern

China’s Guandong province.


In 2003, Venezuela continually faced the potential of electricity

shortfalls. The immediate reasons for this included reduced hydropower

capacity and electricity theft. Low rainfall had diminished levels in

reservoirs, reducing Venezuela’s hydropower capacity. In 2002, for

example, low water levels reportedly had resulted in six significant power

failures. Rampant electricity theft had also compromised the country’s

supply, with illegal hookups accounting for an estimated quarter of

Venezuela’s total consumption. In 2004, it appears that Venezuela will

likely avoid power shortfalls with higher reservoir levels at the Guri

hydroelectric dam and new generation units coming onstream, namely the

Caruachi hydroelectric dam. EDC also plans to begin construction of the

200-MW La Raiza power plant.



Electricity generation in Venezuela, 2002 and 2020


2020 Planned









Venezuelan social hunger needs extra income

President Chávez is well known for his extreme interest for the poor majority of the Venezuelan population and has repeatedly shown his desire to eradicate the serious problems affecting them in the shortest possible time. However, to do this does not only need cash – it needs energy.

At the moment the country burns 200,000 b/d of oil equivalent in its power generation stations. Why can the government not export these barrels, substituting them in the Venezuelan power plants with Orimulsion, thus reaping large and important foreign exchange income?

If Orimulsion is good enough for the Chinese to produce electricity for their population’s needs why is it being neglected for power generation in Venezuela?

In fact, Orimulsion could just as well serve towards energy integration in the “greater Bolivarian community of countries” and later towards the energy integration of South America and the Caribbean, as President Chávez dearly holds.

Several technocrats and scientists have been in contact with PetroAnalysis. The persons in question are pro-Chavist and consider Orimulsion to be a Venezuelan creation, and they coincide in the following: they can not find any justification for the country to share its Orimulsion patent with any other nation or company. One of them even expressed his frustration in by saying: “When the Chinese invented gunpowder, would they have accepted sharing this strategic knowledge with anyone else?”

A source close to the official position of the Venezuelan government said on this question: “This is part of the country’s new strategy of diversifying its markets and diminishing its dependence on just one market: the USA.”

“Communist” China is a growing trade partner with “neo-conservative” America, so there is no ideological hindrance for Washington to trade with Beijing.

With this being said, it is difficult to see any difference between the present situation and the pre-Chávez oil policy that was characterized by the expanding volumes of crude and labelled the “rentist” model.

The present Orimulsion deal indicates that the State is happy with being a tax collector of a 16 2/3 % royalty, accepting that the sacrifice of the loss of a valuable patent that has allowed the conversion of very low grade oil into a “fungible” product suitable for power generation.

Will all the other countries that are waiting for ratification of their Orimulsion supplies be treated the same way as China?

Mazhar Al-Shereidah

Director, PetroAnalysis Centre For Oil Studies


Volume 4, 7th June 2005.


“Orimulsion: A Nexus For Social And Economic Development In Venezuela

President Chávez is well known for his extreme interest for the poor majority of the Venezuelan population and has repeatedly shown his desire to eradicate the serious problems affecting them in the shortest possible time. However, to do this does not only need cash – it needs energy.

Orimulsion is a Venezuelan patent, and those people who argue against the use of the fuel anywhere but in China say that in the early 1990s PDVSA promoted it in order to satisfy the “Imperialists”.

However, as may be appreciated from the following extract, the argument that “Imperialism”, in other words the International Energy Agency, was behind PDVSA’s launching of Orimulsion with the intention of increasing the supply side and thus weakening prices further during the early 1990s does not match reality. It can be clearly seen that it was the same “Anglo-Saxon Imperialism” in the United Kingdom and in the State of Florida that rejected the use of Orimulsion.

“Bitor seems to be compensating the big losses it suffered in September when two British power stations, Pembroke and Richborough, failed to renew their contracts for Orimulsion. The contracts involved 1.5 million tons of Orimulsion per year which accounted for US$50 million in revenues.

That same month, Bitor was dealt another major blow when a Florida state regulating committee decided to reject a deal with Florida Power and Light to use Orimulsion in its Manatee power plant, for the second time in as many years. The agreement with Florida Power and Light would have doubled Bitor’s current output as it provided for a four-million ton annual supply. It would have also been the company’s first penetration into the U.S power market, which would have set the stage for worldwide expansion. Both the cancellation of the British contracts and the decision by the Florida were ultimately prompted by environmental concerns raised by the use of Orimulsion.” (Enfoque Petrolero, October 1997)

Orimulsion vetoed in Venezuela

At the moment the country burns 200,000 b/d of oil equivalent in its power generation stations. Why can the government not export these barrels, substituting them in the Venezuelan power plants with Orimulsion, thus reaping large and important foreign exchange income?

Energy Generated and Consumption of Fuels, 2001-2002


27,077 GWh

Of which:


6,093 GWh (28.5 x 10³ b/d)

Gasoil Diesel

3,153 GWh (22.96 x 10³ b/d)


17,831 GWH (577.94 MMGCF/d)


60,442 GWh


4.56 x 106 BOE/month

Electricity generation in Venezuela, 2002 and 2020









If Orimulsion is good enough for the Chinese to produce electricity for their population’s needs why is it being neglected for power generation in Venezuela?

In fact, Orimulsion could just as well serve towards energy integration in the “greater Bolivarian community of countries” and later towards the energy integration of South America and the Caribbean, as President Chávez dearly holds.

Several technocrats and scientists have been in contact with PetroAnalysis. The persons in question are supporters of the Chávez government and consider Orimulsion to be a Venezuelan creation, and they coincide in the following: they can not find any justification for the country to share its Orimulsion patent with any other nation or company. One of them even expressed his frustration in by saying: “When the Chinese invented gunpowder, would they have accepted sharing this strategic knowledge with anyone else?”

A source close to the official position of the Venezuelan government said on this question: “This is part of the country’s new strategy of diversifying its markets and diminishing its dependence on just one market: the USA.”

Will all the other countries - Canada, Italy, Denmark, Lithuania, South Korea, and Singapore - that are waiting for ratification of their Orimulsion agreements be supplied exclusively by PDVSA? Or would the Venezuelan state company allow the Chinese to share the strategic benefits of this commercial relationship?

“Communist” China is a growing trade partner with “neo-conservative” America, so there is no ideological hindrance or merits in commercial relations.

China: Primary Energy Consumption (Million tons of oil equivalent). Figures include commercially traded fuels only.







Share of World Total 2003 %








Source: BP Statistical Review 2004.

The present Orimulsion deal, if ratified by President Chávez, would indicate that the State is happy with being a “tax collector” of a 16 2/3 % royalty, accepting the sacrifice of the loss of a valuable patent that has allowed the conversion of very low grade oil into a “fungible” product suitable for power generation.

Mazhar Al-Shereidah

Director, PetroAnalysis Centre For Oil Studies

A finales de 1998

'Keeping out of the way of the hall is the national sport... nobody wants to catch it'. So reads a TV commercial that ends by saying:

'Take on your responsibility". Unintentionally, the creators of this commercial have summarized the ideological and intellectual platform prescribes by the detractors of the theory of the Rentist State. Such prescription was aimed at 'relieving" PDVSA from fiscal burdens, so that ¡t may allocate huge amounts of funds for its expansion plan, which subjected the treasury to a diet of the anorexic kind. They looked for a step-like privatization of PDVSA converting the State into some sort of submissive lap dog.

State undergoes serious surgery

For such purposes, the activists of the affluent sector of society - 4% of the population - based on the theoretical knowledge provided by a group of scholars who believe ¡t is immoral and inappropriate to keep on allowing an "inefficieiit, corrupt and greedy" State to take over resources which will be eventually squandered. So, they recommended downsizing the civil service, privatizing the public sector and restricting the States' functions to education, health and security. In short, they proposed and partially achieved to impose a model inspired in Adam Smith in a country like Venezuela, which is faced with grave social, economic and educational problems. The voraciousness of the State was subjected to a complex and multiple surgery, resulting in ¡t becoming a soft and castrated dwarf.

lt was not the mercy of the "medical team" (made up by the government staff and congressmen of both houses who acted as diagnosing physicians, lab analysts, surgeons, anesthesiologists, and nurses) that was the reason why everything was not mutiláted. The fact was that they simply did not find stretcher-bearers willing to take the nearly dead Treasury to the intensiva care unit. The outcome of such PDVSA-led surgery is similar to a billboard in which a monkey in a black tie utters the motto of the company: "We earn little but we sell a lot". The PDVSA-Governmentlawmakers alliance that voted for dramatically reducing the contribütion to the treasury by the oil industry seems not to have considered the effects of its "süccess" in a very low price scenario. What will the State's capacity to respond be? And, will the system be able to survive?

Within the framework of an affluent and peaceful context, there would be various choices. But that is not the case under the present circumstances of poverty and emergencias. Now, with such low prices, the Government can not see the light at the end of the tunnel despite the short time in which power has to be transferred to the new government. And the congressmen who were the champion lobbyists of the oil industry in the recent past are making desperate efforts to achieve a successful result for their respective parties or to get a slice of the cake of power for their individual projects. The moss does not let voters see who is taking on the responsibility vis-á-vis the country.

Rest in peace?

Covered behind the armor provided by the actual Government-Congress, PDVSA sails safely on board of the only lifeboat left for the country. lt recognizes that we are going through a storm, but that is not its problem but the Republic's! PDVSA is in charge of a profitable business. "Clients are desperately knocking at our doors with orders at hand", says the chairman of the State-owned holding. It is "low price season", there are many purchasers in integrated and profitable systems. But the treasury does not receive a penny from such business. lt is the case of a patient who is about to receive the extreme unetion, whose children abroad own the laboratorios manufacturing and distributing the necessary medicines, and who make juicy profits to moderniza their labs and purchase new ones.

Old men die and tradicional congressional alliances do not work anymore. Nevertheless, over twenty million Venezuelans, young people most of them, need education, health and security, even in the Adam Smith fashion. Only a State with a healthy Treasury can meet this need.

---The Republic has becorne a shipwreck. In the meantime, the PDVSA chairman speaks about "reasonable economies" for his corporation, placing them over and above the country.

Who takes responsibility?

The World economy is on the brink of a recession, according to the OECD, and the oil supply surplus continuas.

Venezuelan Finance Minister,

Maritza Izaguirre, refers to a 1999 budget based on an 'export volume which slightly surpasses three million b / d'.

To such a figure is to be added some 350,000 b / d for domestic consumption, so totalling 3.4 million b /d. This was the production figure used in February to come to an accord on the cuts that, in the Venezuelan case, represent 525,000 b /d. This means that we must be producing 2.875 million b / d and exporting 2.525 million b / d, and such should be the figures aplicable for 1999.

Now, ¡t is understandable why prices do not rise as expected? Does anyone want to catch the ball? There is an umpire in OPEC, but we will have the toughest umpire on December 6. E

Enfoque Petrolero

December 1996


On the 20th. and 21st. of November, PDVSA’s subsidiary company CIED - the International Centre for Education and Development - held the conference “Petroleum: Opening to the XXIst. Century”. Both the former US President George Bush and MIT professor Lester Thurow were present to give papers - an indicator of the importance of this event. PDVSA president Luis Giusti and high officials from CIED and the Ministry of Energy and Mines, Amoco, Mobil, CITGO, Sclumberger Limited, Arco, Exxon, Enron, Veba Oel AG, Science International Applications Corporation (SAIC), contributed papers on petroleum, petroleum services, gas, energy and electricity, telecommunications and fundamental tendencies - all with their eyes on the next century. Eventhough all the papers’ analyses were fundamentally important for the coming years, the contributions by Giusti, Bush and Thurow were very special... and to a certain extent make one understand the coming realities, as may be appreciated by the following extracts.

Venezuela at the Threshold of the Third Millennium”. Luis Giusti, President of Petróleos de Venezuela.

Dogmatic Burdens...

What can we say about what is happening at home, behind our own doors? Venezuela is a country which needs profound transformations. Not only has the economic model become depleted but it has completed a historic cycle. Oil brought with it a rent-dependent economic model, which during the first three decades of this century gave us the income to change Venezuela from a primitive country into the modern one that we have today. This model, collapsed and left us with a series of attitude problems that have totally impregnated the fibre of society and have to be corrected. The collapse of this this model has left us with a dogmatic burden that is reflected every day in the mass media, at meetings, in the dialogues we hear in national discussions, and must be eradicated in order to update the Venezuelan people’s belief in our technologies. And I would like to add to that equasion Venezuela’s vast potential and its immense resources for development. Of course, we must stress the fact that resources are not synonymous with wealth - that without education, work and clear development strategies those resources are worthless.

New Focus...

The struggle today in Venezuela is to focus the country’s attention on the discussion about economic adjustment. This is natural to do this because we are looking at the problems of current circumstances, but we have to assume that we are in the process of solving the problems and adopt a view of the future which will take us along the road of stable and sustained economic growth. This will enable us to undertake the institutional reforms that are essential to guide society to the modernization that is so necessary.

One of these reforms is the need to change the judicial system - fortunately, priority is now being given to this. Backing must continue to be given to privatization since it is the solution to the institutional problems of the State and the Government alike. If we can privatize all the companies in the hands of the state, we can downsize government so giving us a stronger government - one that is free to govern and get on with the work that it is supposed to do, that can take care of security and defence, health, education and social programmes. It must leave business to the private sector. There is nothing new in this. It has been done in many societies in the world. The private sector should be the driving force behind the economic development that Venezuela so badly needs.

Towards Sustained Growth...

What will oil’s role be? Without doubt it will play a fundamental role. Oil will exert its influence through sustained growth, but not according to the traditional model: it will not simply be that oil exports increase, but it will be together with both the overall growth in the economy necessary to improve our external accounts and give them permanent stability, and with the design of essential policies so that we can multiply the benefits of oil within our borders.

While on the subject of imbalances, it is only fair and necessary to acknowledge the fact that our success with oil abroad has not been equal to its success at home. And that is one of the challenges facing us - the necessary political reforms. That is why we are talking about an opening. This opening is part of that sustained growth plan for the national economy. It is not a capricious project, the idea is to open up more spaces to society at large, to the private Venezuelan sector, to Venezuelan citizens and to the private international sector so that they can participate with us, shoulder to shoulder, in the development of the Venezuelan economy. And that is the challenge that lies ahead, on the threshold of the Third Millennum. We have to shake off many of the dogmatisms that tend to invade us. There is no place for fear. When opening and privatization are mentioned, there is always a tendency to fear that someone is going to come and take our jobs away from us. There are endless examples, all over the world, that prove that this is not the case.

“After the Presidency...the Challenges that Remain”. George Bush, President of the USA, 1989-1993.

Six years ago I asked the nations of the regions to join in something we call “Enterprise for the Americas”, among other things, I called for creating a free trade zone throughout our hemisphere. Remarkable progress is taking place - reworking debts, democracy, stability, the market-based economy is on the move, and I marvel at the great strides your region - which is vitally important to my country - has made. Today Latin America is on the move. I know it’s true that most of the people, a huge majority, in the United States view Latin America - and certainly Venezuela - with respect and this is an important key point in any kind of foreign relations. Lat year the economies of the region grew at 3% and I understand your growth here is going to move forward, with optimistic GDP predictions for the coming year...

This morning I was honoured by being asked to have breakfast by President Rafael Caldera. I sensed there, talking to this wise president, his well-known commitment to democracy. We also talked about the economic opening for energy, as so many of you are involved in, and I believe that the opening goes well for the citizens of this great country. With the Brady Plan, with the Enterprise for the Americas initiative we are trying to move ahead with South America - but lately we haven’t been paying as much attention as we should to the region. I believe Washington understands our hemispheric relations merit renewed energy, but yet sometimes I think that we do not project this properly and I feel that our friends here feel neglected. The message to Washington should be clear - we neglect our neighbours at our own peril. I hope we are not going to let that happen. We tried in my administration to make Latin America top priority and I hope it came true...

You know, at the age of seventy-two, I’m old enough to remember what it was like in the late ‘thirties when we neglected our responsibilities to our friends, when we pulled back into selfish isolation... the results, I think, was our contribution to a world war. It took millions of lives and inflicted untold devastation and the cost we paid to learn that lesson should never be forgotten, and at aged seventy-two I haven’t forgotten it.

“The Future of Capitalism”. Lester Thurow, Professor of Massachusetts Institute of Technology.

By the time the 21st. century rolls around, you and I are going to live in a very different world, playing a very different economic game with very different rules, requiring very different strategy to win. What I would like you to do is imagine that you are Columbus. You know there is a place to get rich, the Indies. You know there is a conventional way to get there - Marco Polo did it three hundred years earlier, it is called Walking East. You think you have a better way to get there called Sailing West. But the problem is that you have to build the ship to sail in an unknown direction, for an unknown length of time, into storms of unknown ferocity. Of course, your most important decision is going to be how much water you put on the ship because if you don’t instead of becoming mankind’s most famous person, you and all your men are going to be forgotten and never known about on the pages of history. I think that this is precisely your problem in the world oil business - it is a new ballgame, and no matter how successful you have been in the past you are going to have to do something very different to be a success in the future.

There are five structural transformations that are hitting our economies all at the same time. Any one of these things by themselves would be considered a major event. But the fact that all five of them are occurring at the same time makes it into a very different world. I think that the only way to explain it is to borrow a concept from evolutionary biology called punctuated equilibrium. You are normally in evolution, and if you are the most successful top of the food chain species you have nothing to worry about - you simply become bigger, meaner, more dominant. Of course the best example is the dinosaurs. For a hundred and thirty million years they roll the surface of the Earth and every single generation of dinosaurs is bigger, meaner and tougher than the previous generation of dinosaurs. Then all of a sudden comes along punctuated equilibrium which is probably as short as ten thousand years, and within that ten thousand years every single dinosaur dies and out the other side the dominant species on the face of the Earth comes the mammal - something very different.

Let me mention the five forces which in economic terms are are creating a period of punctuated equilibrium:

First, is the end of Communism - 1.9 billion people, one third of humanity used to live in the old communist world. They are going to join the market economies, this will change them in fundamental ways and change us in some very fundamental ways too... What communism did badly was care for individual needs; what it did well was run the best school systems on the globe... there is an enormous influx of high quality, well-educated talent into the world economy and that is going to change wages everywhere.

Secondly, we are moving from an era of natural resource industries into an era of man-made brainpower industries. This is going to change how we keep and sustain competitive advantage and generate a high standard of living for our citizens... with man-made brainpower industries the bottom line is that there is only one source of long-range strategic competive advantage - the skills and education of the workforce. Show me a well-skilled person, a well-skilled company or a well-skilled country and I’ll show you somebody who has a chance to be successful in the 21st. Century. Show me an unskilled person, an unskilled company and an unskilled country and I’ll show you an economic failure in the 21st. Century.

Third is 2025 every major industrial democracy in the world will have a majority of people over the age of 65. We are going to have the first human society on the face of the Earth dominated by the elderly. This is almost impossible to exaggerate, it is going to change sociology, psychology, government and business in some very profound ways.

Fourth, and this was not even true fifteen years ago, today we have all the communication and transportation technologies to have a genuinely global economy, we do not have international trade any more. If there was a cheapest place on the face of the globe to make any one product, all of that product would be made at that place, and the rest of the globe could be served from that one location - this has never before been true in all of human history.

Fifth, and this is something we do not talk about enough, for the first time in more than two hundred years we will not have a dominant economic power - like the British Empire in the 19th. Century or we Americans in the 20th.Century that says: “I am the judge, you play the game in this way. In the 21st. Century there will be nobody who holds that position. This means that the game will be amorphous, undefined and probably played in different ways in different parts of the world, which makes it a more complicated game.

The most effect of the above for the oil industry is, of course, the fall of Communism... and let me talk about “no dominant power” because you are going to have to think about this in your industry too. ?

Entrevista a “Ronald Pantín, Vice-president of Corpoven”

Venezuela - a much better investment

The opening of the oil sector was started four years ago when Dr. Luis Giusti was the coordinator of strategic planning in Petróleos de Venezuela. Now all of PDVSA’s businesses have private participation - exploration, production under risk contracts and operational contracts, Orimulsion, petrochemicals, coal, refining, gas, and non-core activities are in the process of being outsourced to the private sector...the opening is a reality and will be bringing a lot of foreign investments into the country in the coming year - in the oil sector alone we expect US$ 1 billion.

Ronald Pantín, Vice-president of Corpoven, builds up a very positive picture for the country with oil-led economic growth at 3% to 4% a year for the next ten years.

In your opinion, what have Corpoven’s major achievements been in recent years?

- Corpoven has a very impressive history. I always like to compare Corpoven with the story of the ugly duckling because when we had the nationalization there were two main companies here in Venezuela: Shell and Creole, an Exxon company . These became Maraven and Lagoven and the rest of the companies merged into what is today Corpoven. That was a difficult situation because over fourteen companies had to be merged into one company. But now Corpoven has its own culture and is a very impressive company in terms of management - it is aggressive and reliable, and has quality and good access to new technology. Over the last ten years the company has grown from 300,000 bpd. to about 1 million bpd., and this will rise to 2 million bpd. in ten years’time. In the first half of this year Corpoven grew by 90,000 bpd. - very impressive. Our costs they are the lowest in the industry, 16% below the industry average. The cost of a Corpoven barrel is around US$ 1.15 including capital. So to sum up, our main achievements are technology, management and growth.

In the oil industry we say if you want to send a man to the moon you send a Maraven man because they are risk takers, but if you want to come back you need a Lagoven man because they are very reliable, and if you want to plan it well and do it efficiently you call in a Corpoven man. This short story more or less tells you where the main emphases are of the different PDVSA subsidiary companies.

And what about gas?

- Corpoven is the major gas company in Venezuela, we control distribution in the East and the Central part of the country and most of the production and reserves are in our hands, and we are opening the gas business to the private sector. We have three major plants for liquid extraction - ACCRO 3,4 and 5 - which we will be doing under a built on and operate (BOO) scheme with the private sector, and there will also be some strategic associations to market this LPG in the US market. Also we will be sharing the gaslines business with the private sector who will do all the investment for them under a BOO scheme - this will cover the lines that go from Anaco to Puerto Ordaz and Anaco to the western part of the country, going as far as even the refineries in Paraguaná. There will also probably be a line to Margarita - this is dependent on the progress of the power generation privatization process on the island. In addition, we are in the middle of negotiations with a company, the name of which must remain confidential at the moment, for a small - one third the size of the Cristóbal Colón gas project - onshore LNG plant with free gas from an onshore field. The plan is to export the liquified natural gas to the Caribbean.

Would you outline the role your company will be playing in PDVSA’s business plans over the next ten years or so?

- In ten years’ time Corpoven is going to become the number one subsidiary company of Petróleos de Venezuela in terms of volume. We are also opening our business a great deal - we have now various deals with marginal fields, for profit sharing and also using the CRINE initiative for developing emerging areas with the private sector...what happens with this initiative is that costs are reduced as a result of treating the contractors as partners. We are also working in the natural gas business and also with the private sector developing the Puerta La Cruz refinery expansion projects.

In terms of the “opening”, from your point of view why are the companies coming to Venezuela? How does the country fit into their strategy as you see it?

- Well, the companies are coming to Venezuela because the country has a very large resources and reserves base - and in the oil business the main thing is the reserves. We have 66 billion barrels of proven reserves of conventional oil, plus what is in the Orinoco Belt - around 270 billion barrels, and we should add to that what we have in natural gas - 140 trillion barrels of oil equivalent. The other consideration is that the oil exploration risk in Venezuela is lower than in other parts of the world. In the last ten years of the history of Petróleos de Venezuela, for every two wells we have found one commercial well; and our exploration cost is very low - in the order of 30 cents a barrel. When these figures are compared with international statistics, we see that out of seventeen wells one is commercial, and exploration costs are in the order of US$ 3 to US$ 4. So you can see that this is a good reason to come to Venezuela. On the other hand our fiscal terms are very stiff, but this compensates for the lower geological risk here.

Everybody must know quite a lot of what is in the ground in Venezuela, especially all the companies that are here in the opening. Are they coming here because it is an easy country?

- Well, in some respects Venezuela is easier than other places...I always like to say that Venezuela is like Disneyland for foreign investors. When you compare Venezuela with the Middle East countries or other places where the oil companies could go, Venezuela has more political stability. For example the oil companies that are going to Iraq or Iran are going to more difficult countries than Venezuela from the political point of view, and it is the same with Vietnam, Libya, Nigeria. So when you compare Venezuela on those terms, and consider that the country is in the western part of the globe, very close to the markets, and with a democracy that has been in place for many years, then in relative terms Venezuela is a much better investment than the other countries.

What do you expect the multiplier effect of the opening will be on the economy as a whole?

- Probably not too many people understand the real reason for the opening of the oil sector - the idea is to change the relation between oil and society. Until now Venezuela has had a “rentist” economy whereby the oil sector provides the fiscal contribution and the government distributes this amongst the society in a very inefficient way. What we want is to have a different type of model to this - instead of having a rentist society we want a more productive society where the Venezuelan people have openings to work in the main economic sector of the country, the oil sector. So the idea is to open to private capital - mainly to Venezuelan companies, and also international ones, but we really want the Venezuelan people to participate in this and work in all the breadth of the corporation’s businesses.

What is impressive is that we started working on this four years ago, when Dr. Luis Giusti was the coordinator of strategic planning in PDVSA, and now all of PDVSA’s businesses have private participation - exploration, production under risk contracts and operational contracts, Orimulsion, petrochemicals, coal, refining and gas. And the other thing that we are also doing is to give to the private sector the outsourcing of non-core activities, for example the information systems where we have already selected the company - SAIC. We are also in the process of outsourcing all the telecommunications of the company; plus gas compression that we have been doing for years, as I have already mentioned pipelines: gas- and oil- lines; ports, all that we consider non-core activities will be given to the private sector.

What about the non-oil sector, what is going to happen there?

- The world is now in a global economy and every country has to find their competitive advantages. In Venezuela one of these advantages is energy and energy-related could be hydro, gas or oil. We also have some other competitive advantages, tourism for example, and probably we have some others that we have not realized yet - biotechnology perhaps. But certainly we could establish some highways using these businesses where we have the competitive advantages to link into the global economy. And then once these highways are in place you could have other sectors branching into them. For example, if I produce oil in the Orinoco Belt and I use a pump then I will need electric motors. If I try to compete in the international market with electric motors I will be in trouble. But if I start building electrical motors here in Venezuela to put in these pumps, then I can indirectly export electric motors - the motor itself would not be competing with other motors from other companies or countries with competitive advantages.

The model is that we should have some superhighways like oil, energy, electricity and some sideroads that go into those highways for the development of the economy. The oil sector in Venezuela represents only 23% of GNP, however when you calculate what the effect of the sector is on the Venezuelan economy as a whole you find that around 60% depends on oil. Our investment plan for Petróleos de Venezuela amounts to US$ 60 billion - this is like a locomotive which is going to pull all the other sectors of the economy. We can almost guarantee a growth of around 3% to 4% due to PDVSA’s expansion plans in oil, Orimulsion, coal and petrochemicals. The rest would be done by the private sector, not only in the activities related to oil but also in independent activities.

Furthermore, the balance of payments of the oil industry in ten years’time will have a surplus of around US$ 190 billion - this is enough to pay all the Venezuelan foreign debt and to pay all the imbalance that the non-oil sector has. This leaves around US$ 140 billion, so you can still keep US$ 20 billion for reserves and you will have US$ 120 billion for developing the non-oil sector.

So the development of the non-oil sector would not be on a particularly high-tech basis?

- No, I would not say that. You have these highways, mainstreams, where you link the Venezuelan economy to the rest of the world, and there you will need some core activities to support the mainstream. This concept has been proven to be right in some other countries in Southeast Asia, China...and we can do this also. But it is very hard for us to compete exporting computers, for example; but we can export a lot of oil and then we will have a lot of knock-on effect on the other sectors.

Why are people wanting to privatize PDVSA?

- I do not see any reason to privatize PDVSA now. What we are doing is privatizing the Venezuelan oil sector. We had a state monopololy and now we have some private companies and PDVSA - this is the best one can have. A strong state oil company where you can have some benchmarking with all the international companies, not only benchmarking on prices, on how the business is done and on taxes, but also on the competitiveness of our operations. So I consider that the best situation we could have is this mixed form where there is the private sector and us competing in the same business.

The Middle Way?

- Yes. We have been competing very successfully with the majors outside Venezuela - in the US through Citgo, in Europe through Veba and Ninas - and we have proven to ourselves that we can compete successfully outside why not in Venezuela where we have more competitive advantages?

As a strategic planning professional, what are the most important comments that you can make regarding the short- to medium-term future of both Corpoven and PDVSA?

- I would say that the most important thing is what is happening with the economy. Remember that when we in Petróleos de Venezuela plan we are not planning solely for the corporation - we are also planning a very important part of the development plan of the nation, because of the importance of PDVSA in the rest of the economy. Now we see the future with a lot of optimism - economic problems are being solved, although some structural changes still need to be made in government, the judiciary and educational systems. But now we will have the economic base to do that. What we expect is that in the future we have again an oil boom but we hope that this time the leaders of the Venezuelan people understand the mistakes of the past and use the income for the development of the country.

And a final comment?

- I am very optimistic about the country. The government and the Congress have been giving a lot of support to PDVSA’s plans; and we have been helping the government with the Agenda Venezuela. The opening - now a reality - will be bringing a lot of foreign investments into the country this coming year, in the oil sector alone we expect US$ 1 billion. All this is very impressive.

Two years ago nobody wanted to do anything with Venezuela, now you just have to go to the different hotels here in Caracas and you see the boom that is coming through these mainly oil sector investments.

Curriculum vitae - Ronald Pantín Carvallo

Petroleum engineer, graduate of the University of Mississippi in 1974 where he also graduated in Business Administration with a mention in Management Sciences. He has masters in Petroleum and Industrial Engineering from the University of Stanford in 1976 and 1977 respectively.

He joined Maraven in 1977 in Production Technology, and in 1980 was transferred to the Financial Evaluation Unit. In 1982 he went to PDVSA as Submanager for Corporate Planning. Two years later he returned to Maraven as manager of Economy and Planning. In 1985 he was designated Manager of Petroleum Engineering, and in 1987 Company Treasurer.

In 1987 he becomes Operations Manager of the Production operations Division, and in 1989 was transferred to the Main Office as Manager of Corporate Planning for Maraven.

In October 1990 he was transferred to PDVSA’s Strategic Planning Coordination as Functional Planning Manager. In 1994 he was named Advisor to the President, and in November of the same year Strategic Planning Coordinator - occupied until he was designated Vice-President of Corpoven effective on the 15th. April, 1996.

Source: Corpoven and an exclusive interview by Stuart Wilkinson

Enfoque Petrolero

September 1996


“We are the only oil company to have participated in all three of the rounds - we participated in the first round through Pedernales, in the second round through Quiriquire, and most recently in the exploration round through Guarapiche. So we have been very consistent in our approach”.

Anthony B. Hayward, President of BP Exploración de Venezuela, explains more...

Q- British Petroleum was one of the first oil companies established in the world. Could you give a brief outline of your global operations, with specific reference to Latin America?

A- As you know BP is an integrated oil major - number three in the world, or four depending on how BP and Mobil play off against each other. Mobil and BP are at the top of the second division given that Exxon and Shell are very definitely in the first division.

Today BP is a company dominated very much by US and UK operations - seventy to seventy-five percent of current capital employed is in these two countries. Upstream we produce one and a half million barrels oil equivalent per day of which something like one point two million is from the US and the UK. The major oil producing areas for BP are obviously the North Slope, Alaska, and the North Sea.

We have refining capacity of one point eight million barrels per day and we are in the process of rationalizing that quite significantly - refining is a tough business to be in at the moment. Most of our refining capacity is in Europe or South East Asia with a relatively modest presence in the US, and it is the subject of ongoing rationalisation. Also we have a chemicals business, the third leg of the stool, which has three components to it acrylic nitriles, polyethylene and speciality chemicals business.

We operate in around one hundred and thirty countries around the world. In terms of Latin America we have a major presence in Colombia where we have enjoyed a string of significant discoveries for the last four or five years, and are currently producing one hundred and eighty thousand gross barrels per day - this will rise to five hundred thousand gross barrels a day by the end of 1997. And we have a growing presence in Venezuela.

Our activity in Latin America is at the moment focused upstream, we do not have any refining or downstream marketing activity, but we are looking very hard at developing the gas business in Colombia. Our Latin American activity is very focused on Colombia and Venezuela - we started in Colombia before we started in Venezuela, but we have very similar ambitions in both places... to make them major areas, profit centres for BP in the upstream.

I would like to add something about BP globally: the company’s financial performance is regarded as being the best in the industry - we have a return on capital employed of close to 19% which is the best of our major competitors and we have just announced a record first half 1996 in terms of financial performance, and we have enjoyed very significant exploration success in the first half of the nineteen nineties - the challenge being to see if we can continue it in the second half! So the company is in very good shape, we’re moving quickly and doing very well.

Q- Just a quick question, why did BP rationalise with Mobil?

A- Downstream in Europe... well, when we actually looked at the European market and refining we were either number three or number four everywhere - where we were number three, Mobil were number four; and where we were number four, Mobil were number three, and Exxon and Shell were always one and two. Our view is that one of the keys to retailing success is market share, so in terms of retailing, by combining forces we will have typically twenty-five to thirty percent market share in a position to be able to compete with Exxon or Shell. The refining business in Europe is in bad shape - no-one has made any money for a long time, and there is a need to rationalise. By putting the two businesses together we believe that we can rationalise and take a lot of costs out of the system - something like three to five million dollars on an annual basis. So the two drivers were: firstly, capturing market share so that we would be in a position to compete with either Exxon or Shell; and secondly, to further rationalise the refining business - meaning fundamentally to reduce the cost base.

Q- Now that BP is in Venezuela, and in the upstream, are there any similarities in environmental or geological terms with BP’s other operating areas around the world? And how attractive do you consider Venezuela to be when compared with these areas?

A- Let me start by giving you a thumbnail sketch of BP’s history in Venezuela. Unlike - I think - all the American majors, we were not present prior to nationalisation. We first came to Venezuela in 1976, the year that nationalisation took place, to do technical service work principally with Intevep and we’ve enjoyed a very long and very beneficial relationship with them - we have been involved in developing a lot of technology over the last twenty or so years. In 1979 we opened our first small representative office, and throughout the eighties it was building relationships - we had a lot of Corpoven people at the time working in our offices in Aberdeen learning about the technologies that we were using at the time in the North Sea. And then in ‘91 we increased our presence in the country and we conducted with PDVSA a joint regional geological evaluation of Venezuela in 1992.

Subsequently we are the only oil company to have participated in all three of the rounds - we participated in the first round through Pedernales, in the second round through Quiriquire, and most recently in the exploration round through Guarapiche. So we have been very consistent in our approach. When we first looked at Venezuela - I’m talking about the upstream now - and particularly following the regional study with PDVSA, we decided that the place to focus for exploration was in the east of Venezuela. And that is what we have done. That map on the wall is a land-sat image of eastern Venezuela - that is Trinidad, this is Pedernales, this is Guarapiche and this is Quiriquire so we have a very focussed upstream portfolio which we believe has significant potential... we are quite excited about the possibilities that we can see in developing a very material piece of business.

Geologically there are many similarities with the area we are operating in Colombia (See note below) and we will be ensuring that we make best use of the things we have learnt about Colombia, transferring technology appropriately. We actually have a group of Lagoven people visiting our operation in Colombia today to share technology. Operationally in terms of the operational environment - we don’t have many swamp operations anywhere in the world in terms of tropical swamp operations, but Guarapiche and Pedernales are actually not so dissimilar from the North Slope of Alaska - just the temperature is different. It’s a swamp-grass, wet grass-land which is very fragile and needs to be managed very carefully, and the only thing that’s different is that in Alaska it freezes and snows for six months of the year - that’s the only difference, it’s a very fragile wet-land environment. So we will be able to make use of a lot of the things that we have done in Alaska particularly with respect to managing the impact on the environment. We have done quite a lot of work on Pedernales now and I think that we have demonstrated a commitment to absolutely minimise the impact on the environment. We are actively engaged in a programme for Lagoven - it is a Lagoven-BP programme - to restore many of the wells. Pedernales is an old field that was abandoned and some the wells were abandoned in not very good shape so the programme is to clean them up.

Q- Are they very deep wells out there?

A- No, they’re not very deep - six or seven thousand feet in Pedernales. In eastern Venezuela there are two sorts of plays of interest; one is a Pliocene play which is the Pedernales play and is shallow; and the other one is the extension of the El Furrial trend which is much deeper - eighteen to twenty thousand feet.

So in terms of what we are doing at the moment in Venezuela: in Pedernales we are producing approximately 15,000 b/d today, and that will rise to 20,000 b/d. by the end of this year, and around 50,000 b/d. by the beginning of 1998. We are going to commence seismic operations in Guarapiche in September-October of this year - we will drill the first well in the third quarter of next year. We are also with Maxus who are the operators for Lagoven in Quiriquire, producing a few thousand barrels a day from a reactivation programme. More importantly, we are drilling an important exploration well called San Luis Lagoven-1 at the moment, and on the results of that will depend what we will end up doing in Quirequire.

Q- BP will have to contract some engineering services locally. What is your impression of the quality and abilities of the Venezuelan companies that you have seen? As domestic companies, their costs should be more competitive than a company brought in from abroad - is this an important consideration in your choice of contractor?

A- I would say yes we will and yes we are. We have four Pedernales phase two projects which we are currently engineering. We have set up an alliance between Jantessa - a Venezuelan engineering company - and CBS Engineering of Houston, who are doing all of the engineering for our phase two projects on Pedernales. And we will establish an alliance for fabrication which will again be a Venezuelan-US combine, and we will be using a Venezuelan company for installation.

Quality and abilities are very mixed - some of them are very good and some are not so good, but there is certainly plenty of quality and we think that the process of developing relationships between Venezuelan and US-based companies is a very good way of ensuring that we get the best of both - we get the best of the Venezuelan experience and the culture and all the knowledge that Venezuela has about operating in Venezuela, and from the US side the very best technology - in certain cases it may be no different to the technology in Venezuela but in other cases it will be different. Together, we can make sure that we have got the best of both worlds. We think it’s a powerful way to go.

Q- From BP’s point of view, will the new economic policies that are being undertaken in Venezuela (i.e. the Agenda Venezuela) be of benefit to your current, and perhaps future, plans here? And a delicate question, but an important one - Do you see any weak points either in the Agenda or in the PDVSA opening policy that should be ironed out?

A- Clearly economic stability and knowing what the economic environment that you are going to be operating in is very important when you are planning something for the long-term - and we are definitely here for the long-term, the Guarapiche contract is for 39 years. So I think that the Agenda Venezuela is great news, and I am very encouraged by the progress made to date. There are very big challenges still to come, challenges that everyone recognises and is working to fix. The progress made in the first three months of the programme is very good and it will be important that momentum continues. And it will be of great benefit to us to plan on a stable economy over the longer term. Venezuela is of course very stable politically, which is also very nice to be able to plan on, with a long-established democracy and a track record of tremendous political stability really. The two things together make us very comfortable about the level of investment that we will be making here, which will be quite high - we will be investing somewhere between 300 and 400 million dollars a year in Venezuela for the foreseeable future, and we are very happy to do that.

In terms of PDVSA, well for me it is the most professional state oil company I have ever worked with (and I have worked with a lot). They have managed the opening in a very transparent way, and have been sensitive to all political opinions, both positive and negative, it would have been difficult to have done it any better. And I have great personal admiration for Giusti who I think has managed the whole process in a remarkable fashion. They are a delight to do business with - and I mean it - when we sit down with PDVSA at the table it’s like sitting down with Shell or Exxon, no different - and its not often you can say that about a state oil company. For my money they are the best state oil company I’ve come across. Everything they do is professional, all the details are worked through, nothing is left to chance, everything is planned, programmed, you know where you are, and when they say something they deliver it, they have a track record of doing what they say they’re going to do. It’s a comforting place to be when you’re doing business with them because when one of them says to me something I know that they’ll deliver it.

Q- What is the most important comment that you can make regarding BP’s new relationship with Venezuela?

A- I’d summarise it in one sentence - it’s a relationship based on mutual advantage and for the long term. And that summarises how we see our partnership with Venezuela. A partnership of mutual advantage and for the long term.

Note: Colombia

“Our Colombia operations include a 2 billion barrel discovery at Cusiana/ Cupiagua plus another three recent discoveries in Florena, Pauto and Volcanera which are likely to add another 1 billion barrels of liquids and several trillion cubic feet of gas.

Phase 1 production built up rapidly and sucessfully to nearly 200,000 barrels per day. Phase 2 to develop Cupiagua is well under way to bring in another 300,000 barrels per day. We are also working on our plans for a further phase develpopment for the new discoveries.

BP operates this huge development for our partners and our overall share of production will will rise from an initial 125 towards 25% as production comes in from the later discoveries.

Costs in Phases 1 and 2 are fully in line with our global averages for the new developments. Phase 3 in the Piedemonte region is less well defined as we are still in the early stages of field appraisal and planning.”

Source: Exclusive interview by Stuart Wilkinson

Enfoque Petrolero

June 1996


Congressional approval has yet to be given to the results of the 1995 Bidding Round. Until this happens the companies and consortia involved in the reactivation of the marginal fields will remain in a state of limbo - they are here but are unable to say that they will definitely be here in the future and so, understandably, a number of them are keeping a low profile avoiding commenting on their specific plans here. This uncertainty will not last much longer since a decision from Congress is expected sometime in July. Rationality and objectivity would lead us to expect Congress to give the green light, but the firms in question do not want to jump the gun.

A recent headline in one of the main national dailies said “The majority of sectors oppose the sale of PDVSA” - perhaps one should ask whether political parties should be read for sectors, and also whether a constant political line should be adhered to when conditions have changed or are changing.

The debate on the opening seems of fallen into black and white terms - when Luis Giusti, the PDVSA president, suggested putting 15% of the company’s shares in the capital market, Erwin Arrieta the Minister of Energy and Mines pounced down hard saying crude deposits were not to be sold, lent or given away. Former Head-of-State Carlos Andrés Pérez and now former member of Acción Democrática, considered that the “privatization” of PDVSA is absurd, adding that in developing countries basic industries should be in the hands of the State. Pedro París Montesinos, a leading member of AD, categorically stated that the country was in real danger from the foreign financial sectors behind the cries for privatization, and criticized heavily political opponents from mainly the Social Christian party COPEI who, he said along with other “decrepit” people, had never accepted the nationalization of the hydrocarbons industry. And Teodoro Petkoff, Planning Minister, considered that the state should not renounce its control over “its main instrument of economic and fiscal policy”.

A very clear point of view comes from oil-expert Alberto Quirós Corradi who stated recently in the conclusion to one of his widely-read articles:-

- The “Petro-State” has to be dismounted and the nature of the relationship between the State, society and petroleum changed.

- It must be clearly established that the country’s natural recources including petroleum are the property of the Venezuelan population and not the State.

- Whatever the operating system used for the exploitation of the country’s petroleum deposits, one can not talk of “de-nationalization” of the petroleum industry if the transfer to private hands of those deposits is not being considered.

- The nationalization of the petroleum industry in Venezuela on the first of January 1976 was really a statification of the industy’s operations. So now if foreign companies are coming into the operations area again, one should talk of the de-statification of operations rather than denationalization. In Quiros’ argument he makes it clear that the three Venezuelan companies operating in established fields before nationalization (Mito Juan, Petrolera Las Mercedes and Talón) were prevented from operating after nationalization - and this in itself shows that the industry went into the hands of the State rather than going to the “nation”.

This argument seems to indicate that the analyst would consider that share ownership by the general public in PDVSA would be more in the spirit of nationalization than the state being the sole shareholder. The argument also may well fit into a greater context - that of defining a petroleum policy alternative to the one that exists and is entrenched within the philosophy and principles of the Acción Democrática party. Looking at reality, petroleum policy has been defined by AD over many years and other political parties have not yet produced sufficiently powerful alternatives. Now that changes are coming on an international level - Russia and the petroleum company Yukos, for example - and now that it seems to be becoming accepted that changes must occur in Venezuela, there is an important debate going on here with respect not only to the opening of PDVSA to private investment but also with respect to the privatization of the so-called “strategic industries” i.e. heavy industry, telecommunications. So Quirós’ differentiation between “statified” and “nationalized”, and what “nationalized” implies is an important intellectual and political point in the debate here.

Also, what a Nobel Prize winner recommends surely can not totally be ignored - Douglas North, former advisor to the Caldera government, considered that in the medium and long term PDVSA should convert itself into an energy holding company of international proportions, dedicating itself to the hydrocarbons business but also to other energy-related areas, as well as opening the industry to foreign participants in order to establish comparative efficiency parameters in the areas of exploration, exploitation and domestic marketing.

Closer to home, the well-respected economist Emeterio Gómez commented the following regarding the privatization of PDVSA: the mere announcement, whether formal or informal, from PDVSA that it was going to privatize even only twenty or twenty-five percent would be profoundly significant and would provoke very positive reactions in the international economic community. And specifically he added - “Now at these hights of the twentieth century, nobody in Latin America defends the model based on State-ist philosophy - the model of the benefactor state. Now nobody can convert himself into a defendor of ideas that do not fit into the demands of the historical moment in which we are living. The State-ist model has failed”. ?

January, 1989


Extract from the speech “Mutual Concerns; Mutual Interest: Venezuela's Role in U.S. Energy Security” given by Carlos Vogeler Rincones, Director PDVSA, in Washington Dec. lst.1988.

As a principal supplier of petroleum and petroleum products to the United States for over 60 years, Venezuela is extremely cognizant of the fact that security of supply and price stability will be the central topics of the energy agenda for the 1990s and beyond. For this reason, we are presently pursuing a course of action that is designed to directly address these issues and hence mitigate the concerns of the consumer.

Perhaps the most significant, and successful, development to date has been our national oil industry's ability to fortify its resource base. In recent years we have engaged in an intensive domestic exploration program that has been very successful, indeed beyond our initial expectations. During the last decade, our proved reserves of conventional crude oil have increased over threefold to more than 58 billion barrels. In comparative terms, Venezuela presently stands in seventh place worldwide with regard to crude reserves, and, significantly, first among countries outside of the Middle East and the Soviet Union. At present rates of production our crude reserves would have a life span of almost 100 years.

Particularly noteworthy is the fact that we have recently made the most important discovery of light and medium crudes in the last thirty years. Initial results indicate the existence of giant accumulations of petroleum in the northeastern part of the country which could ultimately rival Alaska's Prudhoe Bay. These deposits consist of low sulphur, high quality crudes that are well suited for the production of gasoline. Production started last year from these highly prolific wells and is expected to reach almost a half million barrels per day in the early 1990S.

Nevertheless, the magnitude of Venezuela's resource base can only be understood by considering the immense deposits of bitumens and extra-heavy crudes situated in the Orinoco Belt. These resources have been estimated at 1.3 trillion barrels of oil in place. It is worth emphasizing that this basin represents the largest known oil accumulation in the world that can be developed by conventional production methods.

In addition to the enormous resources of the Orinoco Belt and our greatly enhanced reserves of short-haul conventional crudes, my company has pursued a "flexible response" policy in determining production capacity. Specifically, we maintain a margin of security in the form of idle production capacity which can be quickly utilized to help offset unforeseen international shortages in the oil market.

Our approach to downstream investments, like all of our policies, is fundamentally designed to enhance stability in the oil market. We believe that operational continuity is an important element for this stability. For that reason, we have entered into the downstream sector in association with highly reputable companies that have an established presence in the market.

As you may know, we have made significant investments in the refineries and distribution systems of two companies in the United States: Citgo Petroleum Corporation and Champlin Refining Company.

These joint ventures, although different in refining capacity as well as in marketing reach, provide our national oil industry with dependable markets in Gulf Coast states and in the states along the Atlantic seaboard. In turn, these operations, besides providing a guaranteed source of supply, contribute to the overall economic wellbeing of the communities in which they are located.

These business operations reflect my company's willingness and desire to link itself to its natural markets in the Atlantic basin through commercial relationships with stable companies. These relationships provide common ground for long-term cooperation between our two countries.

Certainly, it is in the best interests for both nations to foster this cooperation. Venezuela relies upon the export revenues derived from its sales of oil to the United States to service its foreign debt and to fuel its economy. In 1987, over 60 percent of Venezuela's oil exports went to the United States. From the vantage point of the United States, Venezuela supplied 13 percent of all petroleum imports and ranked first among foreign suppliers to the East Coast and third in the Gulf Coast.

To conclude, let me say that at Petróleos de Venezuela, we believe that our nations’ complementary needs can become a source of mutual cooperation in Hemispheric energy affairs: secure supplies for the United States and natural markets for Venezuelan hydrocarbons."

21st March, 2002

The Promotion of “Useless Effort”

Mazhar Al-Shereidah

The New York Times editorial of the 18-02-02 arrives at a moral: “it doesn’t matter how many holes are drilled in American territory, we will simply not be able to drill our way to energy independence”.

Competitive costs of production are determinant for the feasibility of projects with strategic importance. This rule has greater validity in the case of countries that do not use force as a resource of power.

On 14-03-91, an oil expert wrote an article in El Universal (Venezuela) entitled “Venezuelan Oil... Secure and Trustworthy?”. Here he questioned the optimism of our expectations about the United States’ energy policy after the Gulf War with regard to our being recognized as secure and trustworthy suppliers. He said “(...) the Cristóbal Colón gas project, with its enormous costs and technical complexities, merely represents 100,000 b/d of oil equivalent. On oil he argued: “There is a thesis that advocates a production increase at all costs, because if this is not done we will never make best advantage of it (...) and it will just become simply an historical curiosity, not to say “touristic”. But the author of that article explained what he called “a worse scenario (...) and it is that historical or touristic curiosity is made up by the large oil complexes and developments in which we once invested without good judgement (...). There is nothing more unproductive than “useless effort”.

Eleven years have passed since then. Again there is war in Central Asia and perspectives of war in Southwest Asia (the Middle East). The writer just quoted above was correct in 1991, and his considerations are still valid today.

In 1991 the OPEC oil basket had an average price of $18.62/b, which in constant 1960 dollars represented $3.08/b. At this moment the OPEC basket stands at $3.24/b in real terms and in current dollars is $18.60/b.

We can verify the great similarity of the conjuncture during which the above quoted article was written with the present situation. The values are almost identical. In 1991 Venezuela produced 2,286 million b/d, the quota was 2,235 million b/d and the country was producing at full capacity.

In comparison, our quota is now 2,480 million b/d and production capacity is around 3 million b/d. This means that a high level of spending must be destined to the maintenance of something over half a million b/d of shut-in capacity, so inflating PDVSA’s costs and decreasing fiscal income.

The Venezuelan newspaper El Nacional (17-02-02, Section E-8) published an article the author of which proposed that The country should leave OPEC and raise oil production to 8 million b/d.

Looking at the situation, to produce 3 million b/d Venezuela needs 15,090 wells. Another exporter produces more than 8 million b/d with 1,535 wells. Remember about the competitive costs of production!

The alternative of producing at capacity was the supposed unfitness, which led the author of the article in 1991 to give the sentence “There is nothing more unproductive than useless effort”. To increase production now would be to repeat the painful experience of 1997-98 that ended in Venezuelan crude prices at around $5/b. Against this, the cited expert pronounced in 1991 “(...) the large oil complexes and developments in which we once invested without good judgement are historic or touristic curiosities”.

It is difficult to conceive that the current proponent of the aim to produce 8 million b/d is the same oil executive that emitted the alert against “useless effort” in 1991, since both strategies correspond to Dr. Alberto Quirós Corradi.ÿ

PetroAnalysis, May 1991

“Bush and CAP: A new chapter in the same old story?”

President Bush telephoned Venezuelan Head-of-State Carlos Andrés Pérez again to see if they could meet during CAP's private visit In May to the US. They met and discussed Bush's Enterprise for the Americas initiative which could be considered the most important theme throughout Latin America. Bush continued not to agree to a Summit between petroleum producing and consuming nations and for this the meeting was classified in certain quarters as a failure, CAP having wasted his time with the US President. Maybe, but not in terms of the plans for hemispheric integration in general: the creation of a massive trading block with greater fluidity of goods and capital movements implying an increase in living standards and real wages In Latin America. It is argued that the Bush Initiative is a mechanism whereby economic reforms In Latin America can be accelerated within the philosophy of Open Economy, and where petroleum just like any other commodity in such a system would not be the patrimony of any one country bid of the hemisphere as a whole. This has significant implications for Venezuelan petroleum policy and compromises negotiating postures.

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