Energy Ministry Launches Natural Gas Concessions in Gulf of Venezuela

Los Tacques, April 4, 2005—Venezuela’s energy ministry launched a bidding process for off-shore natural-gas blocks off the Caribbean coast of Venezuela’s Northern state of Falcón on Monday. The Rafael Urdaneta project encompasses 29 blocks of no more than 1,000 km2, divided between the Gulf of Venezuela off the Paraguaná peninsula, and the North-East Caribbean coast of Falcón, and is estimated to hold 26 trillion cubic feet (tcf) of natural gas. In the initial phase of the project, the energy ministry is offering 6 blocks.

The immediate goal of the project is to produce natural gas for Venezuela’s domestic market, which has a current deficit of 1.5 million cubic feet per day.  According to the National Gas Plan, however, the Ministry of Energy and Petroleum (MEP) hopes to export significant amounts of natural gas in the future.

The five red blocks are the first to be auctioned. The area is located on Venezuela’s Northwestern coast, off of the Paraguana peninsula.

Participating in the inauguration were 37 private companies from the United States, Great Britain, Russia, China, Japan, France, Brazil, Argentina, Spain, Holand, Norway, Algeria, Iran, Italy, Canada, and Venezuela.  The project will provide licenses for companies to spend a maximum of 24 months doing initial exploration in an attempt to ascertain whether or not the 6 blocks being offered in phase 1 will be commercially viable.  Successful finds can be exploited by companies for 25-years.

According to Venezuelan law, private companies exploiting natural gas concessions can own a 100% stake in both upstream (exploration and production), and downstream (sale and distribution) projects, as opposed to oil concessions, where private companies can only own a maximum 49% stake in upstream projects (and 100% in downstream).  According to MEP, however, once a block’s commercial potential has been established, the State’s interest—through Pdvsa—can be up to 35%.

Venezuela’s proven natural gas reserves are 8th highest in the world, and second largest in the Western hemisphere (after the US), at 150 tcf.  If MEP’s estimated further 196 tcf are included, Venezuela’s reserves could be as high as 346 tcf.

Venezuela’s reserves far exceed the 2nd and 3rd largest proven reserves in the region found in Mexico (62.2tcf) and Argentina (24tcf).  These two countries are currently the region’s biggest natural gas producers and exporters.

The bulk of the 29 blocks to be eventually explored in the Urdaneta project are located in the Gulf of Venezuela, between Venezuela’s Paraguaná Peninsula and Colombia’s La Goajira Peninsula.  The maritime border in the Gulf has been hotly disputed between the two countries in the past, with Venezuelan and Colombian navies staring each other down in 1987 when hostilities nearly broke out.  It is not clear whether the blocks in the Gulf will be affected by the dispute.

Venezuelan-Colombian relations have improved markedly since early 2005, and a potential gas pipeline running through Colombia could provide future Venezuelan gas exports access to Asia.  According to reports of the agreement, which is still under negotiation, the Colombian pipeline will run from Colombia to Venezuela for the first 7 years, and in the opposite direction thereafter.

According to the Energy Information Association (EIA) of the US Department of Energy, Venezuela produced approximately 1.1 trillion cubic feet (tcf) of natural gas in 2002, all of which was consumed locally.  MEP statistics state that 71% of Venezuela’s production of natural gas was used in the petroleum industry, and 29% for domestic residential and commercial consumption.

Minister of Energy and Oil and PdVSA President Rafael Ramirez Credit: Jonah Gindin

In his presentation on Monday, Ramirez said he hoped the Rafael Urdaneta project would significantly raise domestic production of natural gas, which in turn would raise Pdvsa’s oil refining capacity.  Refineries use natural gas to increase pressure in oil wells to ease extraction of oil.  The Paraguaná refining complex—the largest oil refinery in the world—is currently producing approximately 200,000 bpd below its 956,000 bpd capacity, according to MEP figures.  The Paraguaná complex represents 71% of Venezuela’s domestic refining capacity, and 33% of its global refining capacity.

Venezuela has the largest proven oil reserves outside the Middle East (78 billion barrels, not including extra-heavy crude and bitumen).  Of the estimated 2.25 million barrels per day exported by Venezuela, 60% of those are destined for the United States.  In attempts to diversify its reliance on oil production, which accounts for 80% of export revenues, Venezuela is developing the production of natural gas in the Rafael Urdaneta project, and another off-shore region known as the Deltana Platform.