Venezuela's oil reserves rank second in size

[ChangoLoa]

Iraq said on Monday that its proven oil reserves increased significantly to 143.1 billion barrels. This estimate places Iraq as the holder of the world's third largest crude oil reserves, behind Saudi Arabia and Venezuela.

Iraq's Oil Minister Hussain Al-Shahristani said that the estimate of his country petroleum reserves has increased to 143.1 billion barrels, about 24 percent higher than the data provided by the Organization of the Petroleum Exporting Countries (OPEC), which estimated Iraq's reserves at 115 billion barrels.

According to OPEC's data provided in 2009, Saudi Arabia has the largest proven reserves (264.5 billion barrels), ahead of Venezuela (211.1 billion, according to OPEC and 251 billion barrels according to the Venezuelan government's estimates in August 2010). Iran ranked third with 137 billion barrels.

http://english.eluniversal.com/2010/10/04/en_eco_art_venezuelas-oil-rese_04A4561651.shtml

http://www.opec.org/opec_web/en/data_graphs/330.htm
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Still 100-200 bn barrels to come...

[bherrera]

1. Venezuela's Reserves means very litte

If they can not be produced. I understand most of this oil is found in the form of an asphalt like material which can not be marketed, and requires conversion to synthetic oil. The process is very expensive. This is the reason why Venezuela has signed agreements with foreign multinationals, which are now frozen because the government is not giving these multinationals the profit levels and security of investment they need. And it is evident the Venezuelans don't have the money or the ability to produce the oil of this type in large quantities.

[ChangoLoa]

4. Not that little, I believe

The Chavez administration has failed in increasing the production until now but these reserves stay as a very clear potential for the future.

I know this extra-heavy oil is full of sulfur and almost presents itself like asphalt. It's around 8° API, right? But the process of extraction and upgrading is not so freaking expensive. A 10-15 $ cost of production per barrel sure is a lot more than non-faja oil (4-6 $) but it's still a lot less than the actual price of the barrel.

The structural investment for increasing the capacity is currently estimated at 40,000-50,000 $ per additional barrel so, if we want to rise our production to 5 mill. barrels /day, we need 80-100 bn $ of investment. If we scale it in 10 years, we're talking about a yearly investment of 3% of the GDP. One should also take in count the fact that investment in the oil sector has a very interesting multiplier effect in Venezuela's economy (PDVSA's numbers in the 90's were around 1.5x).

We do need a considerable amount of FDI and the problem is, as you say, the institutional framework... which means that theoretically and physically the expansion is feasible.

[bherrera]

5. I think you need to invest more

According to the peak oil websites, oil production declines at a certain rate. If Venezuela produces 2,5 million barrels per day, then it should invest more than the incremental rate to compensate for this decline. Therefor the investment can increase to US $150 billion (US system). If the investment is $15 billion per year, then it is evident the country can not afford this, because the GDP is not the proper number to use, this has to be the cash flow and money you guys can borrow.

But today Venezuela is considered a very high risk for loans, and this is shown by the high bond interest rates. And it is very clear the cash flow is not sufficient. Theoretically this expansion is possible. But I am an engineer, and I don't see how a small country with a population which lacks the proper education can do this without a heavy import of foreign labor. Conclusion is the 5 million goal is not feasible.

But, this is not so important. It appears that, when things are this way, then increasing production is not feasible at all. Not even increasing to 3 million. This is because they lack the system to allow investment.

[ChangoLoa]

6. I mean additional investment

The GDP is a good indicator of the real size of the effort that would be necessary. Certainly, the country can't afford the investment by itself. As I was saying, it's extremely important to highlight the necessity for an institutional framework compatible with the attraction of FDI (foreign direct investment) in the oil sector. FDI are no debt and 3% of the GDP in FDI is a relatively small amount for an economy. We definitely could attract that money for the expansion if the oil market doesn't collapse.

I strongly disagree with you about the human capital in Venezuela and, especially, in the oil sector. Venezuela has been acquiring expertise for the last 8 decades in that field. We wouldn't be dependent on foreign labor with a production of 5 MBPD. In the present, we have a lot more technicians and administrative personnel than we can effectively employ in our economy. They're under-employed and looking for jobs abroad.

To develop a new industrial sector ex-nihilo with foreign technologies... not feasible.
To expand our oil production from 3 MBPD* to 5... feasible if we play a smarter game with the foreign companies.


* I don't think the country is producing the 2.5 MBPD you're mentioning. Where do you take these numbers? Have you looked in the budget at the oil fiscal revenues? Remember internal consumption amounts for about 600,000 BPD and the oil we give to Cuba and to Petrocaribe. How's your calculation?

[bherrera]

8. Some comments

I will start backwards. I researched this and the budget utilizes a lower oil price than the actual oil price. But the truth is the oil production is lower than the production in the budget. Thus the two figures multiplied, give the same answer. They don't like to say the truth, that production is down. They are not producing the 3 million you mention.

The GDP is not a good indicator because the oil investments require cash flow - and the cash flow is not available. A man selling carrots in a small town contributes to GDP, but he does not have the means to invest in an oil project.

The quality of the technical personnel in Venezuela is very low. How do I know this? Because their oil production is lower than they say it is. This tells me they are unable to produce an incremental amount from a lower base. Finally, if they lost all those Venezuelans who left the country, then those guys are gone. I am an engineer, and it's not that easy to get something started with lower quality people and with young people who have lacked the proper training. And it is clear in Venezuela there is a serious generation gap, the experienced people left, and they hired new guys who were not mentored properly. How do I know this? Because the government plans are not met, and they continue to fail. And this tells me even the guys at the top are promoted too far. And when an organization is full of new guys, from the top to the bottom, then it is an organization which learns poorly, and it can not work very well.

Thus Venezuela finds itself in a typical case of brain drain, which impacted other nations in the past. Uganda comes to mind. Thus one can say Venezuela is an Uganda case for Latin America.

[ChangoLoa]

9. Some explanations about the Venezuelan budget

You should never take in count the budget ex-ante. The projected budget has ALWAYS used a lower oil price than the effective price. It's not a reference, it's a convention of conservative projection in Venezuela. You should always check the final fiscal result after the 2 or 3 revisions that are usually made during the fiscal year. That budget will give ex-post you the EXACT average oil price during the year and, therefore, the EXACT oil fiscal revenues. It's an easy task to calculate the production from there.

The Venezuelan balance of payments is pretty clear. We do get $ for around 2,3-2,4 MBPD of exports. If you check OPEC numbers, you will see that we were producing around 3 MBPD before the quotas were applied in 2009. Where do you get your numbers from?

You're not getting the idea of putting the GDP as an indicator of the absorption capacity of the economy for FDI. Once again, 5-10 bn $ of yearly foreign investment in the oil sector (75 bn $ of value added/ year) for an economy of 315 bn $ yearly production is a totally feasible goal with an adequate institutional framework. The cash flow is not available but the foreign companies have money to invest and we would easily get credits from the financial system to develop oil projects IF the institutional guarantees are there.

[bherrera]

11. The numbers are from the OPEC website, the Appendix

They have reported less than 2, 5 million barrels per day for a long time. The foreign companies will not invest with the current regime in place. This is clear because they do not invest now. I googled the reports, and there are reports of signing of contracts, but then there is no report of anything happening, not even in the oil related blogs and magazines.

The government cash flow is indeed mistated, they are not receiving the cash they should, because production is lower. And this is why they are always seeking loans, they don't pay their bills, are always scavenging for properties to nationalize. This is a system which is consuming itself, like a cancer. And it does so at the same time the exchange rate helps bleed it to death. They are hopeless.

[ChangoLoa]

12. I saw this

http://www.opec.org/opec_web/static_files_project/media/downloads/data_graphs/ProductionLevels.pdf

http://www.jodidb.org/WDS/TableViewer/tableView.aspx?ReportId=2409

[bherrera]

15. It is terminology

The OPEC page lists allocation, not actual production or exports. The OPEC appendix uses their chosen data source, not allocations. The other site, I don't know. But I have more tendency to believe the International Energy Agency or OPEC, and those say production from Venezuela is lower. I think it is a confusing topic. The Venezuelans do not help because they keep the information secret, and only release one number which is not supported by other information, according to what I read. I also read their economic problems are caused by this lower production, which in the official budget is compensated using a lower price than realized. They also have a lot more expenses, but some of this money may be taken due to corruption, but I'm not sure.

I think one clear topic is that we see them emphasizing all the oil in the field, but they can not discuss anything real about anything being built. They do not discuss real refineries, or pipelines, or fields they drill. This is very key to the puzzle.

[Peace Patriot]

2. A later study by the USGS says Venezuela's recoverable oil reserves twice Saudi Arabia's

Venezuela Holds One of the Largest Oil Accumulations

1/22/2010

An estimated 513 billion barrels of technically recoverable heavy oil are in Venezuela’s Orinoco Oil Belt.

This area contains one of the world's largest recoverable oil accumulations, and this assessment is the first to identify how much is technically recoverable (producible using currently available technology and industry practices).

Worldwide consumption of petroleum was 85.4 million barrels per day in 2008. The three largest consuming countries were United States with 19.5 million barrels per day, China with 7.9 million barrels per day, and Japan with 4.8 million barrels per day.

“Knowing the potential for extractable resources from this tremendous oil accumulation, and others like it, is critical to our understanding of the global petroleum potential and informing policy and decision makers,” said USGS Energy Resources Program Coordinator Brenda Pierce. “Accumulations like this one were previously very difficult to produce, but advances in technology and new understandings in geology allow us to assess how much is now technically recoverable."

“Heavy oil is a type of oil that is very thick and therefore does not flow very easily,” said USGS scientist Christopher Schenk. “As a result, specialized production and refining processes are needed to generate petroleum products, but it is still oil and can generate many of the same products as other types of oil.”

This is the largest accumulation ever assessed by the USGS. The estimated petroleum resources in the Orinoco Oil Belt range from 380 to 652 billion barrels of oil (at a 95 and 5 percent chance of occurrence, respectively). The Orinoco Oil Belt is located in the East Venezuela Basin Province.

The USGS conducted this assessment as part of a program directed at estimating the technically recoverable oil and gas resources of priority petroleum basins worldwide. To learn more about this assessment, read the fact sheet, "An Estimate of Recoverable Heavy Oil Resources of the Orinoco Oil Belt, Venezuela" (LINK) and visit the USGS Energy Resources Program web site (LINK).

http://www.usgs.gov/newsroom/article.asp?ID=2386
(links at the site)
(my emphasis)

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USGS: Venezuela Oil Field Dwarfs Saudi Arabia Reserves
http://www.israelnationalnews.com/News/news.aspx/135661

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Biggest oil deals under Chavez signed
http://tvnz.co.nz/business-news/biggest-oil-deals-under-chavez-signed-3361668

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Venezuela Signs $40 Billion in Oil Deals with India, Japan, Spain, U.S.
http://venezuelanalysis.com/news/5355

[bherrera]

3. But according to reports, these oil deals are not moving forward

The Chavez government signs a lot of agreements, but nothing happens.

Read this from late 2009

http://www.rigzone.com/news/article.asp?a_id=83616

I used Google to find something about this Russian consortium mentioned again April 2010

http://english.aljazeera.net/news/americas/2010/04/2010434259293204.html

in May 2010, it was reported the oil industry was not investing enough

http://moneymorning.com/2009/05/13/venezuela-oil/

Using google, I can't find anything in English or Spanish about this Russian consortium or the other companies doing anything in Venezuela. This is a good piece of information which tells the government signs agreements, which are not finalized. They are like the famous protocols they used to sign in the Soviet Union, which meant nothing.

[subsuelo]

7. maybe Chavez and Venezuelans really don't care if any deals move forward

Perhaps what is more important is the "Western Imperialists Not Welcome" sign tacked on their front door.

And who can blame them for that?

[ChangoLoa]

10. How are social programs funded? nt

[subsuelo]

13. Google it. nt

[ChangoLoa]

14. No... "Sub-silly it"

:silly:

[bherrera]

16. They sign agreements with "Western Imperialists"

This is a very interesting subject, i use Google to find this information, and it is easy to find:

This shows Chevron, the multinational with so many legal problems in Ecuador, has been welcomed in Venezuela, and is receiving awards of very large oil properties.

"Merida, February 12th, 2010 (Venezuelanalysis.com) – In the largest oil investment decision since Venezuelan president Hugo Chavez was elected, the government announced on Wednesday that private companies from Japan, India, Malaysia, Spain, the United States, and Venezuela, making up two consortiums, won the bid to explore and exploit the Carabobo block of Venezuela’s Orinoco oil belt.

After reminding listeners that before his government, the petroleum industry had been in private hands without benefiting his people Chavez stressed, “We’ve formed joint companies as the law demands, and PDVSA has majority stocks and control of at least 60% in all these companies...”

The bidding process began on 30 October last year, and PDVSA president Rafael Ramirez said that 21 international companies had participated and offered various amounts for the three blocks of the Carabobo section"

http://venezuelanalysis.com/news/5134

I was curious about this topic discussed in this report from venezuelanalysis, and I found this:

"In October 2008, Venezuela launched the Carabobo bid round, the first held under President Chavez. The round included the extra-heavy oil reserves in the Orinoco Belt that are in the process of certification and specifically focused upon three projects covering seven blocks in the Carabobo area. PdVSA would take a majority stake in each project, which would include integrated upstream and upgrading facilities. Each project would require a total investment of about $20 billion. According to government estimates, the blocks could contain at least 12.5 billion barrels of recoverable reserves, and the three projects could eventually produce a combined 1.2 million bbl/d of crude oil. In February 2010, the Venezuelan government announced the results of the bid round. A consortium headed by Repsol YPF had secured Carabobo 1, while a consortium led by Chevron had secured Carabobo 3. The second project, Carabobo 2, went unawarded. "

This is from the site

http://www.eia.doe.gov/cabs/venezuela/oil.html

There is a difference between these two reports. They agree the company Chevron is in Venezuela trying to do business. Therefore your comment that Venezuela doesn't want "western imperialists" is wrong. Or maybe you consider Chevron to be a good western imperialist? The two reports also have a difference in the date this request for bids started. The Venezuelanalysis says in late 2009, and the EIA says October 2008. I think the EIA is more likely to be right. The difference, my guess, is inefficiency in making this work, which is so common in the way the Venezuelans do things. They are slow, and they do not accomplish things, and this is what is happening to their oil production.