Oil-Rich Venezuela Looks to Tar Deposits

JOSE, Venezuela — Beneath the plains and winding tributaries of the Orinoco River lie what Venezuela believes is the planet’s largest oil deposit—a tar-soaked basin that could help meet spiraling global energy needs.

It’s known as the “Faja,” or “belt”: a strip three times the area of Kuwait potentially holding 1.2 trillion barrels of extra-heavy oil.

Jet-black, sticky and oozing like molasses, Orinoco oil was long written off as too difficult and costly to produce. Now rising oil prices make it increasingly attractive.

President Hugo Chavez, who hosts a meeting of the Organization of Petroleum Exporting Countries on Thursday, says these unconventional reserves mean Venezuela will become the world’s leading oil source for decades to come.

“Venezuela has the largest oil reserves in the world,” Chavez declared recently, referring to the more than 300 billion barrels of oil he believes is recoverable, mostly from the Orinoco belt.

Saudi Arabia, which pumps more oil than any other nation, claims 260 billion barrels of so-called proven reserves, or roughly 25 percent of the world’s conventional oil, according to the U.S. Department of Energy.

Chavez, who accuses multinationals of looting Venezuela’s oil wealth, has squeezed a greater share of profits from the industry. A new tax on Orinoco operations takes effect this week and the government plans to take majority control of the projects eventually.

But private companies _ largely locked out of the Middle East and many other conventional oil reserves _ have not been scared away.

As light, easy-to-produce sources dry up, the global energy industry is turning to unconventional oils, said Ali Moshiri, head of Chevron Corp.’s Latin American operations.

“There’s a sense of urgency,” he said.

The Massachusetts-based Cambridge Energy Research Associates estimates that unconventional oils will account for nearly a third of world supplies by 2010, up from 22 percent in 2005.

Venezuela’s Orinoco and Canada’s tar sands account for the bulk of heavy oil production at present. Other unconventional sources of oil that are expected to grow include U.S. shale rock, natural gas liquids and potential deposits in very deep waters off Angola and in the Gulf of Mexico.

The asphalt-tinged smell of Orinoco oil hangs in the air at the Jose refinery’s Sincor upgrader plant on Venezuela’s Caribbean coast.

There, state oil company Petroleos de Venezuela SA, or PDVSA, Norway’s Statoil ASA and France’s Total SA take heavy crude _ which has been diluted with a solvent to an opaque, runny fluid so it can be piped in from an Orinoco well 125 miles (201 kilometers) away _ cook it at more than 900 degrees, inject it with steam and process it with hydrogen to strip it of impurities.

It emerges as a clear, amber crude that’s among the world’s most marketable, Sincor officials say. Shipped to the United States and Europe, it’s refined into gasoline, diesel and jet fuel.

The Jose refinery houses three projects in which PDVSA works with BP PLC, Exxon Mobil Corp., ConocoPhillips and Chevron to upgrade crude. All told, they produce 600,000 barrels a day of synthetic crude, about a fifth of Venezuela’s official production.

“Of all the unconventional sources of oil, the one that gets the least attention … but in my opinion is the most economic is the Orinoco,” said Robert Skinner of the Oxford Institute for Energy Studies.

“They’ve demonstrated that they can produce this stuff at very low cost,” he said, expaining that producing a barrel of Venezuelan synthetic crude can cost US$16 (12.50 euros) a barrel, compared to a barrel from Canadian tar sands that can go as high as US$30 (23 euros). Orinoco crude can be produced economically as long as the oil price stays above US$22 (17 euros) a barrel, he said.

Shell Venezuela President Sean Rooney says his company is interested in bringing technology it uses with tar sands in Canada to the Orinoco. Venezuela has agreed to study the possibility.

ConocoPhillips Chief Executive James Mulva said last month that his company also hopes to have a chance to “expand our investments” in extra-heavy crude.

Venezuela, meanwhile, is wooing other companies interested in quantifying and certifying untouched areas of the Orinoco.

Chavez has turned to companies from politically friendly countries: Iran’s Petropars, India’s ONGC, Brazil’s Petrobras, China’s CNPC, Russia’s Gazprom and Lukoil and Spanish-Argentine Repsol YPF.

But Venezuela faces significant hurdles. Much depends on improving the percentage of Orinoco oil that can be extracted.

The recovery rate in the Orinoco is currently as low as 7 percent, though Venezuela is aiming to extract at least 22 percent. Current worldwide average recovery rates are about 35 percent.

Venezuela already boasts the largest proven reserves outside of the Mideast _ that is, some 80 billion barrels that can be recovered at current prices and current technologies. It hopes to quadruple to 315 billion by counting its Orinoco reserves by the end of 2008.

Chevron’s Moshiri says meeting those goals will require 30 new upgrader plants and more than US$200 billion (150 billion euros) of investment.