Venezuela struggles to meet natural gas deficit

Venezuela hopes to supply Latin America with its vast natural gas reserves through a transcontinental grid, but the country is just beginning to take steps to resolve a domestic deficit of the fuel that has dogged oil operations for years.
President Hugo Chavez and his counterparts from Colombia and Panama celebrated the start of a 225-km gas pipeline that will start supplying Venezuela's Western oil fields with Colombian gas by next March. The $ 335 mm pipeline underscores Venezuela's newfound enthusiasm for natural gas as well the urgent need for the fuel.

The Colombian gas, supplied by Chevron's offshore fields in the country, will save state-run Petroleos de Venezuela (PdVSA) $ 30 mm a month by replacing the diesel PdVSA currently burns to power its oil activities. Previous management at PdVSA preferred to use more-expensive diesel than invest in a domestic gas grid.
Venezuela, which towers over Colombian in terms of gas reserves, plans to begin exporting to Colombia and Panama starting in 2009 through the same pipeline after resolving the domestic deficit of 1 bn cfpd.

Despite PdVSA's recent progress, analysts doubt the company will be able to supply all of its export projects and plug the domestic deficit at the same time. Apart from the Colombia pipeline, PdVSA plans to supply South American markets from Brazil to Argentina through a transnational pipeline.
"All these gas pipeline projects are strange, because Venezuela does not have enough gas (production) to fill them," said Miguel Octavio, an analyst with Caracas-based brokerage BBO Servicios Financieros.

PdVSA needs the gas not only for existing oil operations, but to power expansion plans at the vast Orinoco heavy oil basin, in which the country hopes to double output over the next six years. PdVSA is making some small steps in this direction. Argentina's Pluspetrol Resources began a $ 40 mm exploration campaign at two new gas fields in June after winning licenses for the two blocks in 2001.
PdVSA has been moreeager to invite private firms to produce gas than oil. The only two private energy projects PdVSA has taken from the drawing board through to commercial production under Chavez -- Total's Yucal Placer and Repsol's Barrancas -- pump natural gas.

Last year, PdVSA sold five exploration licenses to foreign firms like Chevron and Brazil's Petroleo Brasileiro, or Petrobras, and plans to sell licenses for another two blocks -- Blanquilla and Punta Pescador -- this year. PdVSA has offered no new oil fields to private firms since Chavez took office, opting to stiffen the contract and tax terms on existing projects instead.
Even the giant Mariscal Sucre gas field, that has seen no development since it was first discovered in the 1980s, will see initial investment in August.

Carlos Figueredo, an offshore manager for PdVSA, recently said initial production of 600 mm cfpd at Mariscal Sucre is on schedule for 2008.
PdVSA has invited Petrobras to take a minority stake in the venture, but plans to begin investments in August with or without its South American partner. By 2011, Mariscal Sucre should be producing 1.2 bn cfpd, most of which will supply oil operations in the Orinoco.

Venezuela wants to nearly double current natural gas production to 11.5 bn cfpd by 2012, with over $ 16 bn in investment by PdVSA and private companies over the next six years.
BBO's Octavio, however, noted that PdVSA hasn't been meeting its oil and gas investment targets in recent years. To meet its natural gas output target, "they would have to do a lot of exploration," said Octavio.
"PdVSA isn't investing enough," and private companies can't make up the balance entirely on their own.