I want to convince you that the way out of Venezuela’s current economic impasse transits straight through a Natural Gas field. But first, I just want to say: I get it. I understand that writing about long term energy policy at a time when people can’t find Harina PAN in the shops can look totally ridiculous. Painfully desubicado. Nobody has time for the long-term when people are rioting for food, right?

 
One reason people at the Mercado de Coche can’t find food right now is that some of the dollars that should have been used to import food are being diverted, instead, to buying light crude abroad.

Wrong. And it’s important to understand why it’s wrong. It’s wrong because one reason people at the Mercado de Coche can’t find food right now is that some of the dollars that should have been used to import food are being diverted, instead, to buying light crude abroad. That’s an outrage with a logic, a logic we could break relatively quickly.

How?

By centering our energy strategy on Natural Gas and the condensate that come out with it.

The case for natural-gas and condensate isn’t just about the far-off future.  A Natural Gas and Condensate-centered strategy is one of those rare policy areas where what you need to do to meet today’s crisis and what you need to do in terms of long-term energy policy coincide.

The Trouble with the Faja

First off, you have to understand how Venezuela got into this bizarre, coal-to-Newcastle position of importing crude from far off places like Algeria, Nigeria, Russia, Angola, and even, more recently, from the Great Satan itself: the USA.

Why do we do that? Because three out of every four barrels under the ground in Venezuela are what is euphemistically known as “extra heavy oil”.  And of the 2.4 million barrels per day currently produced in Venezuela, around half come from the Orinoco Tar Belt, better known as the Faja.  So the bulk of Venezuela’s reserves and the majority of our production are made up of extra heavy oil.

 
If you pour a drop of WTI and scoop a bit of Faja crude into a glass of water, the WTI will float elegantly to the surface while the Faja gunk will settle in the bottom of the glass.

“Heavy” and “light”, by the way, are ways of describing oil’s density. In technical terms, density is measured in the industry in API degrees.  The more API degrees, the lighter the crude.  WTI – a very light crude – is approximately 40°, while water is 10° and the Faja extra heavy is around 8°. That means if you put a drop of WTI and scoop a bit of Faja crude into a glass of water, the WTI will float elegantly to the surface while the Faja gunk will settle in the bottom of the glass. This density explains why Faja crudes are more challenging to transport and much more expensive to “digest” in refineries than normal oil.

Just moving Faja oil is a challenge: this gunk so thick and goopy it won’t even flow through a pipeline unless you mix it with something lighter first. So just to move it from Southern Guárico state to the seashore, you’re going to need to mix it with something. You’re going to have to dilute it.

The usual choice of diluent is light crude, but because our light crude production is also down and out, we’re stuck importing light oil to mix the Faja stuff with. That’s why, rather than importing food and medicines; Venezuela is now devoting some of the desperately scarce dollars it has left to buying oil: a total absurdity. And it’ll keep getting worse, now that PDVSA’s production is now declining at a terrifying rate.

 
As production of light crudes in Lake Maracaibo in the West and in Anzoategui and Monagas in the East continues to decline, the need for something to dilute the extra heavy Faja crude can only keep rising.

As production of light crudes in Lake Maracaibo in the West and in Anzoategui and Monagas in the East continues to decline, the need for something to dilute the extra heavy Faja crude can only keep rising.  It’s a vicious circle, at a time when dollars for imports are more needed than ever by a starving and ailing society.

Managing Venezuela’s increasingly heavy mix of crude production is a long term problem, and I’m not here to peddle easy answers.  The consensus is that building more Upgraders —big facilities able to pressure cook extra-heavy crude into just “synthetic” crude— like the ones built in Jose in the late 90s, is unrealistic given the intense capital requirements and the time required to build them.

Increasing the processing capacity of Venezuela’s existing refineries so they’re able to process extra heavy crudes and export refined products faces similar problems: that also takes enormous capital and time, not to mention the capability required to safely operate the refineries. We don’t have the money, or the time, or the expertise to do it that way.  

The simplest and fastest solution would be to increase production of light oil that serve as diluent for the extra heavy oil. If you just mix in the better crude from, say, El Furrial with the gunky crude from the Faja you can sustain production and export levels without sending a fat check to Algeria once a month. But to really increase light oil production you’d need to change Venezuela’s oil law, a fraught and politically explosive detour that, again we don’t have time for.

Here, a little detour into Venezuela’s hydrocarbons legal and fiscal frameworks becomes inevitable.

It’s not just a good idea, it’s the law

The key thing to understand is that existing law treats oil and gas differently. The oil law requires the State (through PDVSA) to keep a minimum stake of 50% and attracts higher government take (i.e., the proportion of the free cash flow that the State collects through taxes of all sorts).  The gas law, in contrast, gives the State the option to participate (not the obligation) and is more competitive tax wise than the oil law.

 
There is zero chance it can afford its share of the enormous investments it would take to raise light crude production significantly given the fiscal terms on offer.

This distinction is especially relevant now, because the State is virtually broke. There is zero chance it can afford its share of the enormous investments it would take to raise light crude production significantly given the fiscal terms on offer. The stock of capital available for this kind of investment is limited at current prices, and the oil majors face much more fiscally attractive opportunities elsewhere, from Brazil and Mexico to Colombia, the USA and Canada.  

One fascinating footnote to this debate is that the gas law (in Art. 45) allows you to apply its more advantageous terms to oilfields that are deemed sub-commercial under the oil law.

The final piece of the puzzle is a fact few Venezuelans know and whose strategic relevance even fewer understand: Venezuela holds the 8th largest gas reserves in the world and the biggest in South America and the Caribbean.  Granted, most of Venezuela’s gas reserves are of associated gas, that is, is gas that is associated with oil. Associated gas is produced alongside oil as it comes out of the ground, so for legal and fiscal purposes it comes under the oil law.

But not all our gas is associated. We also have substantial reserves of free gas, mostly lying untouched under the sea off of Zulia, Sucre and Delta Amacuro states.  For example, the Mariscal Sucre project (composed of the Rio Caribe, Mejillones, Patao and Dragon fields) and the Loran field are close to the border with Trinidad, and the Perla field is close to the border with Colombia. (Perla, by the way, is the only offshore gas discovery currently production, thanks to the efforts of the private initiative of Italy’s Eni and Spain’s Repsol, each holding 50%).

 
Each one of Venezuela’s discovered free gas fields has reserves equivalent to the all of Trinidad & Tobago, the largest gas producer in the neighborhood.

We tend to overlook these Free Gas fields, because the enormous ocean of oil under the Faja draws away all of our attention. But they’re not small: each of these discovered free gas fields has reserves equivalent to all of Trinidad & Tobago, the largest gas producer in the neighborhood. If Venezuela’s free gas was in any other country, it would be a national obsession.

And here is where it all comes together: some of these free gas fields contain substantial reserves of natural-gas condensate – liquid hydrocarbons that come out together with the gas. Sometimes known as ultra light crudes, natural-gas condensate comes in at 40° to 50° API. They’re the ideal diluents to enable production of extra heavy oil from the Faja.

Condensate Squares the Circle

So let’s look at this all again. We have:

  1. Huge reserves of extra heavy crude we can’t exploit without extra light crude to mix it with,  
  2. Substantial reserves of gas and associated condensate we’re just mostly ignoring at the moment, and;
  3. A legal framework that would allow you to mobilize large international and national private investments for gas and condensate without even needing to change the existing laws.

The answer, in other words, is staring us in the face: Venezuela needs to fast track development of offshore gas fields (for example, by exporting the gas for liquefaction in Trinidad & Tobago rather than building costly LNG plants of our own) rich in condensate, such as Rio Caribe, as well as of marginal light oil fields under the gas law’s article 45.

 
We could do this now, tomorrow, without changing any laws, if we had the political will to let the private sector play the leading key role.

We could do this now, tomorrow, without changing any laws, if we had the political will to let the private sector play the leading key role. That’s not as improbable as it sounds – Perla shows that even Chávez was willing to allow this to happen in the gas industry when the government doesn’t have the money to participate.

Going big into gas and condensate wouldn’t just clear the diluent bottleneck: it would put money into the Venezuelan State from the start, in the form of taxes (34% of corporate income tax rate) and royalties (20% of produced hydrocarbons).  And by increasing gas production Venezuela could also feed its gas fired power generation plants to help reduce the prevalent power shortages and substitute the diesel that is burnt for power generation rather than exported, also increasing export revenues.  Instead of the Faja’s endless thirst for diluent sucking up scarce dollars by diverting them to light crude imports, it could be generating an excedent, both in terms of electric energy, taxes and even gas exports to our neighbours!

Because Venezuela is in such dire straits right now, this post focused on the short-term. But there are excellent long-term reasons to focus on natural gas as well: that’s how you strategically position Venezuela for the unstoppable energy transition brought on by climate change and technology. I’ll write more about that in some other post —I’m obsessed with this subject, in case you hadn’t noticed— but for now, let’s be clear: the case for a gas-and-condensate-focused strategy is enormously compelling not just in the long term, but in the mid and short-term as well.

61 COMMENTS

  1. Here is my really short-term answer…..do you or anyone you know who has $ X billion dollars to invest in this actually trust the government?

      • You and F-Rod seem to have an extraordinary belief in the good intentions of the current government. I invite you to invest every last penny you have in this and take your chances without running afoul of any Foreign Corrupt Practices laws in Canada or the USA

        • Look, you may not like the fact that foreign oil companies have a demonstrated willingness and ability to finance and operate a free gas project in Venezuela under the current legal framework and government. The fact that you don’t like it doesn’t make it not true somehow.

          • To me the problem with natural gas would be the infrastructure required to transport it. It is a lot easier to convince an IOC to invest in the development of an offshore field than to ask them to invest in the transportation network to move that gas (mostly pipeline systems). As far as I know Venezuela does not have that type of infrastructure already in place (I could be wrong about this). Do you know how Repsol/Eni export the gas they produce? My assumption would be that they send it to T&T.

          • To add more meat to your reply, Quico. ENI and Repsol did not only develop the Cardon IV (Perla) project but they did it in record time or as they put it “(…) developed in 5 years only, an industry-leading time to market”. Record time in one of more politically and economically unstable countries in the world. If oil companies get fair and progressive terms, project will be developed. No matter where they are located.

      • ENI and Repsol have been in the gulf for yeeeeears. Where is the gas? And at today’s prices? And to “sell” to pdvsa? Are you kidding?

          • Francisco the business is not in the gas which Pdvsa is taking anyway (for domestic use) but in the condensates , both those which are produced naturally and those that result from the processing of certain gas components , I hear that their relationship with Pdvsa has not always been a honeymoon , but one fraught with constant problems. Their find was exceptional in size and quality so that they had a greater incentive to stick it out , but not all gas fields are as rich or sizeable . La Perla is really a gem like few others. !! Still the point made in the piece is worthy of commment.

      • you may be right but I will put my money and place my bets with the likes of ExxonMobil, JHI Associates and NexenCNOOC next door in Guyana!

    • Bingo!
      Getting this gas out of the ground and in to the pipes that move Faja requires equipment, technical skills, and management. These require investment of real money, not crates of worthless Bolivars.

      So where does that money come from?

      Good luck trying to get anyone to trust the current government with their money. VZ will have to pay cash on the barrel-head for everything. So no loans.

      Same for equipment. No sane company would risk moving equipment to VZ where is could be ceased at the whim of Maduro. VZ will have to buy it outright beforehand.

      And even if VZ managed to buy the equipment needed and pre-pay the technical skills needed. How are they going to manage it without Maduro lackeys getting their paws in there and messing it all up?

      Good luck. You have one tough row-to-ho there.

    • You raise a key point: the investment climate required to make this a reality. I suspect the answer is that it depends.

      Let me give you an example. Most companies would rightly pass from an investment opportunity in Venezuela today. However if the private investor developing a gas field close to the border with Trinidad or Colombia is allowed to export the gas directly from the platform (it is shallow water) to the gas infrastructure of the neighboring country then it could be attractive. The neighbor pays for the gas in hard currency abroad and the operator is happily operating offshore Venezuela – isolated from the mainland issues. As for the condensate, it is common for the platform to have some storage capacity and an export buoy to offload liquids that would be transported to shore for dilution with extra heavy oil (rather than importing the light crude – that was the point of the article). The private investor would sell the condensate to the extra heavy oil joint ventures de fact operated by the international partners in them. This scenario requires political will to allow for the gas exports.

      However if no company is willing to invest today as you rightly point out as a very real possibility, then this idea is available for the next administration that will be in charge for rebuilding the country. And it will need all the help it can to succeed at it.

  2. We should start by making the ruined mejoradoras work. They are working just like the refineries. The Paria project was called Cristobal Colon since the early 90s. I think It would be cheaper and easier to build more meoradoras. Producing natural gas in the gulf is not cheap, there is more money in oil. We have plenty of gas in Anaco.

    • Let me remind the point of the piece: what can we do relatively easily on the oil industry side of things to release dollars to import food instead of oil? one possible answer is in the piece.

      The piece was not meant to answer how do we maximize extra heavy oil production. I suspect the answer to that question is that you throw all you have at it, i.e. new upgraders, expansion of existing upgrading and development of light crudes to dilute. This is very similar to what Canada has done with synbit and dilbit. The only issue with new upgraders is that it takes time and tons of capital to build, so for that one the investment climate needs to be much more stable and fiscal terms attractive & competitive.

      Regarding Anaco, yes, there is plenty of gas there, mostly associated though. That does not mean you produce diluents. The associated gas is another opportunity worth thinking about for power generation and gas re injection purposes.

  3. Hmm. One question – not a critic, I know too little of that level of legal negotiation to be able to do that – but… how do you make that to work to ensure that the plant exploiting those resources actually gives you the condensate for use in PDVSA’s production? I mean, if it is just hey, this is open to foreign investment so come and do it here we end up in the same place, as in “who is going to have the $ to pay those guys for the condensate?”. May be cheaper than importing from elsewhere, but still… any ideas how that would be framed up to get some kind of better deal?

    Although that is almost starting to sound like some Fondo Chino complicated barter agreement ….

    • Fair question. Let me clarify. The offshore gas fields I mentioned in the piece are discovered already. That means that several wells have penetrated the reservoirs and we have certainty of the type of hydrocarbons that are under ground. That is why this solution is a relatively quick one to produce liquids that we know are there and minimize light crude imports so those dollars can be devoted to basic things such as food and medicines.

  4. Thats one bright light in an otherwise somber outlook for the Venezuelan Oil Industry , at least the condensate part , less sure about the gas part which will probably be used to produce cheap subsidized electricity and for domestic gas use at give away prices. Of course that will allow the export of refinery fuels now destined for use in the generation of electricity, freeing up volumes for export which can bring in dollars now being wasted in something that doesnt make any money .

    There is a lot of natural gas offshore Venezuela, some of it close to the coast , the Perla Field is one of the richest , specially because of the condensate which the gas contains , not sure the others are as rich in condensate………..of course those gas fields being offshore means that they are very costly to develop. Also requiring international oil companies to provide money and expertise which Pdvsa now is lacking . The regime hasnt always treated Repsol and Eni all that well in their long struggle to develop the Perla field , Gas prices arent all that great, so the attraction of international investors wont be that easy unless there is real trust that the governement will treat them fairly…..!!

    Pdvsa is carrying out projects to bring gas to shore from some offshore fields in Eastern Venezuela except they ve run out of money , the Chinese have promised to take over the projects so they can be completed , of course on terms which a more financially independent Pdvsa would never have accepted……., but beggars cant be choosers ……!!

    • Thanks for your feedback.

      The Venezuelan offshore is pretty much untouched as you point. The yet to fin potential of gas and condensates is huge, both on the Gulf of Venezuela and Plataforma Deltana – both basins iedally located to export gas to Colombia and Trinidad respectively. However the few fields already discovered mentioned in the piece are well known and are either waiting to be developed or still in early phases of development as in the the case of Perla.

      Regarding the development costs I think it is important to highlight that the discovered fields mentioned in the piece have 3 characteristics that make them cost competitive: (1) they are in shallow waters of less than 200m (compare that to 2000m in Brazil or Gulf of Mexico), (2) they are material, each holding multiple Tcf of reserves which allows for economies of scale and (3) they are relatively close to shore, few tens of Km (rather than 100 or 200Km like in Brazil of Gulf of Mexico) reducing operational costs. The lack of offshore capability and capital of the Venezuela State clearly requires private/ foreign participation at least to kick start the Venezuelan offshore industry.

  5. To Quico’s point, any business that stands to profit will invest, no matter where, but the problem has been trying to repatriate the dough. Or perhaps this doesn’t matter in the case of gas, because you don’t sell something, rather you extract a product and export that. Question – how does ENI and Repsol actually do business in Venezuela? Whatever they are doing might be a model for other companies to get in while the getting is good. It seems hard to believe that cash money wold not be involved somewhere along the line because minus that, there’s no way for authorities to rake off any loot. I think the stories about corruption while true are usually overstated, but a corruption free gaz operation going on in Venezuela sounds like a fairy tale. So what, exactly, is the business model of the ENI and Repsol, and can it be used to lure other investors?

      • That is an alternative, to sell the condensate in the international market and generate some extra dollars for the country in the process.

    • So I do not know how Eni and Repsol manage the Perla finances but let me give you an example to effectively repatriate the dough.

      If the private investor developing a gas field close to the border with Trinidad or Colombia is allowed to export the gas directly from the platform (it is shallow water) to the gas infrastructure of the neighboring country then it could be attractive. The neighbor pays for the gas in hard currency abroad and the operator is happily operating offshore Venezuela – isolated from the mainland issues. As for the condensate, it is common for the platform to have some storage capacity and an export buoy to offload liquids that would be transported to shore for dilution with extra heavy oil (rather than importing the light crude – that was the point of the article). The private investor would sell the condensate to the extra heavy oil joint ventures de fact operated by the international partners in them. This scenario requires political will to allow for the gas exports of course.

  6. Thanks. Sounds like a lot of common sense to me.

    Hope your ideas can be implemented post-regime in the very near future.

  7. This doesn’t change anything, but PDVSA has already spent at least $3 billion on the Dragon field. They had originally planned eight wells, but when one was finished, the semisubmersible Aban Pearl capsized and sank right on top. On another well, the drillship was struck by a ferry that was being towed from Trinidad to the Dominican Republic, which damaged the well beyond repair. Other wells had problems and might even be dry. The four “best”wells were then selected for an “Accelerated Production Scheme” (Esquema de Producción Accelerada), involving a floating production vessel. They’re also laying a 36″ pipeline to shore, to Guiria, where they’re also building an onshore gas plant. Before the pipe could be laid, it had to be taken to Trinidad for concrete coating, for more millions of $$. All this activity started in late 2007, but what’s to show for it? Absolutely nothing.

    • All your statements are true and factual.

      The difference is that in the piece what I suggest is that the development of those offshore gas fields is handed to private investors as it is allowed by the law. I suspect that the private investor would be far more effective in delivering production than the Venezuelan State. If that is achieved then the point of the piece does make sense, substitute light crude imports for condensate production and release some of those dollars to import more basic things.

      Let me say it differently, the piece is a subtle way to propose energy policy in a way that is very much in sync with the critical reality our country faces today.

  8. Excellent write-up. I was sure I’d find lots of technical errors, but your grasp of the relative qualities of Venezuelan crude and the difficulties of transporting and processing them was spot-on.

    I don’t know how gas being produced offshore is currently being processed and transported, but I do know that at least some of the light crudes the country has been purchasing abroad have been received and offloaded at the refinery in Curacao for blending with heavy Venezuelan crude. Would it not be possible for stabelized condensates to be loaded directly into cargo ships for transport to Curacao?

    Finally, there’s a lot of gas being flared in the Furrial gas-lift project. I assume most of the condensates are being captured and reblended versus flared, but, who knows.

    • Many thanks for your feedback.

      The only gas produced offshore is Perla and the condensates (ca. 12mbd) are processed onshore in Paraguana.

      I can envision a private investor developing a gas field close to the border with Trinidad or Colombia is allowed to export the gas directly from the platform (it is shallow water) to the gas infrastructure of the neighboring country then it could be attractive. The neighbor pays for the gas in hard currency abroad and the operator is happily operating offshore Venezuela – isolated from the mainland issues. As for the condensate, it is common for the platform to have some storage capacity and an export buoy to offload liquids that would be transported to shore for dilution with extra heavy oil (rather than importing the light crude – that was the point of the article). The private investor would sell the condensate to the extra heavy oil joint ventures de fact operated by the international partners in them. This scenario requires political will to allow for the gas exports.

      Finally, my understanding is that a lot of Furrial associated gas is being flared (so there is potential to capture and reinject or utilize the gas) and the condensates are blended in to the crude oil flow. But no body really knows for sure.

    • The point of the piece was to propose a way to reduce crude imports for dilution of extra heavy oil and release dollars to import food and medicines.

      Regarding where the money is I dont think the answer is that simple. The upgraders can be very profitable but require a huge investment. Dilution on the other hand does not require much investment but has higher operational costs and possibly lower profit margins. So it is a trade off. I suspect the solution is similar to what Canada did, to maximize production you build upgraders and also import or develop light crudes or condensates to dilute the extra heavy oil.

  9. The opening sentence: “I want to convince you that the way out of Venezuela’s current economic impasse transits straight through a Natural Gas field” did not work for me.
    Natural gas cannot solve the current economic impasse. At best, it will be a contributing ingredient of a more balanced Venezuelan economy in the medium to long term, say 10 years down the road. The truth is that the volumes of condensates of offshore gas so far evaluated are not of the sufficient magnitude to be a game changer for Venezuela. As the author says correctly, natural gas reserves in Venezuela are largely associated with oil deposits. In many light oil reservoirs gas is the driving mechanism that keeps the oil being produced. Unless the gas is re-injected the ability to produce more oil is greatly reduced. This is a severe limiting factor in the increase of use for associated gas. On the other hand, large volumes of gas are being burned by this inefficient PDVSA, there is a lot of waste. This is why the current deficit of gas in Venezuela is enormous. Condensate, the cream off the top, so to speak, is a minority byproduct of many of the gas driven oil reservoirs, very valuable but a minority component.
    The article is welcome since the subject is rarely written about.

    • Thanks for your feedback. My intention was not to say that all problems are solved with this but certainly is one element that can help in the solution. Let me say it differently, the piece is a subtle way to propose energy policy in a way that is very much in sync with the critical reality our country faces today.

      The Venezuelan offshore gas resource base is very un explored and the yet to find potential of gas and liquids is material. So we would need to kick off an exploration licensing round to figure out what we have out there. In the mean time there are big fields lying un touched such as Mariscal Sucre and Loran.

      It is also true as you point out that there is plenty of associated gas being wasted, that is an issue that requires attention and resolution.

    • Thanks for your feedback. Unfortunately I tend to agree with you despite the encouraging signals of Perla and the recent warming of Trinidadian – Venezuelan relations possibly opening a door to Venezuelan gas exports and therefore hard currency generation.

      The biggest issue I see today is that without the political will to let the private sector play a key role then the capital and capability will not be there to make it happen.

  10. I read it assuming the author checked the feasibility of using gas for mixing with heavy oil. Is this right scientifically speaking or just a hypothetical idea? I know it can be done with other types of crude oil.

    • It is doable. Let me give you another example. In Canada where there is plenty of extra heavy oil as well condensates have been developed and imported for dilution purposes.

  11. rbnq, gas does not mix well with heavy oil. The author is talking about using “condensate” which is a hydrocarbon liquid that drops out of the gas as it’s brought to the surface.

    By lowering pressure and temperature on a gas-condensate system as the fuids are brought to the surface, liquids are collected. Those liquids can range anywhere from a few barrles per million cubic feet of gas produced up to 300-350 barrels of condensate in very rich, near-critical gas-condesate systems. These liquids have an API gravity roughly ranging from the high 30’s to the high 40’s and as such make an excellent diluent when blended with heavier oils.

  12. You can’t mix dry gas with heavy oil, becasue you’ll precipitate out the asphaltenes, which will clog up the pores in the rocks. During production dry gas and heavy cruce are deadly. The dry gas precipitates out the sphaltenes in the pipeline, clogging it up with this putty-like substance. Entonces hay que parar el oleoducto, y meterle un cochino para sacar toda esta vain#.

    • To be clear, I was not suggesting to inject gas into the heavy oil. I was talking about diluting extra heavy oil with condensate.

  13. Perla has 120 million bbls of recoverable condesate at about 10 bbls cond/MMCF. The Northern monagas overthrust belt has 2-3 billon bbls of recoverable condensate in the Carito and Santa Barbara fields. There are about 40-50 million bbls of recoverable bbls of condensate from Cristobal Colon basically from 1 field.

    The Anaco fields used to have a lot of condensate but this has been produced and is ready to be blown down. to produce the gas that was re-injected for pressure maintainance.

    There are no pipelines from Perla or Cristobal Colon to the faja. So, we are talking about ~3 billion bbls of condensate to use as diluent for 50-100 billion bbls of recoverable extra heavy crude. It normally takes 1 bble of condensate to dilute 1-2 bbls of extra-heavy faja crude. So we come up way short, unless the condensate is flashed and recycled.

    I’m not clear who gets the Perla condensate in this contract, or does PDVSA have to buy it?

    Northern Monagas is a different story. The wells are 13-17,000 feet deep, and gas has to be injected at ~9000 psi for ptessure mantainance in order to get a recovery factors of 30-40%. If pressure is not maintained, you get 7-10% recovery, and leave the rest in the ground. Williams Brothers, who ran the gas injection in northern Monagas were realeased many years ago, so it is not clear if there is any pressure maintainance in the condensate fields.

    Venezuela has always been a heavy oil country. It would have been prudent to use the light oil and condensate to use as a diluent or the heavy and extra-heavy production. However, becasue of the price premim placed on this product, it has always been sold on the market, rather than used as diluent. I imagine that becasue of recent PDVSA cash flow issues, there is even more incentive to sell the light oil and condensate on the market today than 30 years ago.

    • Excellent comments and context, thanks!

      The issue is that with the decline of conventional crude production we are running out of diluents for the extra heavy oil production that is not upgraded at Jose. That is why we end importing light crude to dilute the extra heavy oil. This is the drama in the current situation of food and medicine scarcity, that we import oil at the expense of food and medicines when we know we are sitting on reserves of light crudes and condensates that if developed would realease those dollars to import the basic goods for society.

  14. INTEVEP had developed a method to transport heavy and extra heavy oil which was called Orimulsion. This product was ultimately marketed as a boiler fuel, and was sold to various pilot projects around the world, including Canada, Florida and India.
    The concept was to mix Faja extraheavy crude with 30% water and a surfacant to create an emulsion. The viscocity of this emulsion was much lower than that of the extraheavy crude, and allowed it to be transported by pipeline and shipped by tankers to it’s destination.
    Unfortunately, Bitor, the company in charge of Orimulsion was shut down at the turn of the century and this technology has been lost or forgotten at PDVSA.
    This technoly is probalby more cost effective than using condensate as a diluent to transport the estraheavy oil of the Faja, because you can sell and transport the Faja extraheavy oil and at the same time sell the condensate and light oil for a premium on the market.

    • Excellent context and comments, thanks. I agree that it is a shame Orimulsion was forgotten. I think it would be another way to monetize the extra heavy oil.

  15. Orimulsion is a totally different proposition. It is a mixture, as Juan Bimba says, of heavy oil, water and a surfactant and emulsifier but it went to the market as such, as a competitor to coal. Unfortunately, it was killed by the regime.
    The situation of the Orinoco heavy oil blended with lighter oil is something else.The blend produces a medium gravity oil that can be marketed as such. If the diesel or light oil were removed down the road we would be left with the original very heavy oil a product you cannot market. The blend IS the product.
    The very heavy oil could be refined nd made marketable in the Mejoradores but, as we all know, there have been no mejoradores built during these 17 years of chavismo and the ones built before Chavez ara in poor state of maintenance.

  16. Orimulsion as Dr Coronel says while initially developed as a means for the transportation of extra heavy faja crude later developed into a Product which could be used to burn in Power Plants, in replacement of much more polluting coal . The price was much lower than the price of conventional crude but it did allow extra heavy crude a commercial use/destination in the power generation business which oil (in the form of refined fuel oil) had lost in the power generation industry thus enlarging the market options for the disposal of Venezuelas huge crude reserves before technology transformed oil into a marginal business. It was an strategic move but not necessarily one that brought in much money.

    After 2002 the new red Pdvsa had trouble meeting Opec quotas , so to save face they needed to count as part of the countrys production the extra heavy faja crude that was being converted into Orimulsion and which Opec had agreed not to count as part of Venezuelas quota. Ultimately this lead to the cessation of all orimulsion production activities .

    When this decision was taken by Pdvsa sometime in 2003/2004, the effect was to increase the volume of extra heavy oil which the country had to blend with its own light oils in order to market , and some people inside Pdvsa pointed out that in a few years time Venezuelas production of light medium crudes would not be enough to allow the extra heavy crude production to be marketed via its blending with lighter crudes. Pdvsa board then tried to backtrack on its decision to cease orimulsion production but order came from above to stick with the previous decision.

    During the early years of the new regime the international partners in the faja projects again and again tried to have the govt allow them to increase their production of extra heavy faja crude and improve the upgrading capacity of the existing upgraders but the regime always blocked any such initiatives.

    Transporting the extra heavy crude from the production fields to the coast where the upgraders were sited was no problem because these crudes where mixed with diluents to transport them to the upgraders and then retrieved from the blend at the coast to be sent back to the production fields to be reused for a another round of transportation in a never ending cycle , loss of diluent volume using this method was minimal ( maybe less than 1% per year).

    The associated gas from the Anaco fields has in time become much less abundant , to restore its production wells would have to be drilled much deeper which would cost a lot of money which of course Pdvsa doesnt have . The volume of gas which was needed to keep the very rich light crude production from Monagas northern fields going was not injected for a long period leading not only to a fall in production but also to clogging of large portions of the reservoir making them unexploitable , thus lowering the volume which over its life time it could produce .

    • Thanks for your feedback. Yes, that is a risk but I hope that under a new administration things could be better.

  17. Amazing Piece. I would love to read more about it. I confess I do not know anything about natural gas and condensates, so if you could write a post explaining better for those of us who know nothing about it it would be great. This and so many other pieces show how much potential Venezuela is wasting thanks to government. Projects like this could become into a huge advantage to the country and its totally being wasted. Such a shame.

  18. Despite all what you report here is technically correct, would like to give you a short and personal point of view why it does not matter how much condensate oil we produce; the current catastrophic situation will not change. We have a government that does not care about how desperate people are, they only care about how much money they can steal. The problem it is not that the dollars are being used to buy condensate oil and in consequence there is less money for the food. The more money PDVSA makes the more the will steal. They do not care about people, we are suffering because of our careless government not because of the economic impasse.

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