Petroleos de Venezuela is hosting the Third Heavy Crude Congress on the island of Margarita from 3-5 November.
Barring an appearance by President Hugo Chavez, the chief master of ceremonies is Energy Minister/Pdvsa president Rafael Ramirez.
The Heavy Crude Congress was moved to Margarita from Puerto La Cruz-Barcelona because daily power outages in that urban center in Anzoategui would have disrupted the event.
Foreign oil companies are keen on developing oil and gas projects in Venezuela – if only the Chavez regime and Ramirez’s Pdvsa would stop relentlessly blocking all possibilities of progress.
Ramirez was upbeat at the inauguration of the Heavy Crude Congress in Porlamar on 3 November. But an aura of “dead man walking” hangs over Ramirez these days.
Ramirez has served Chavez as energy minister and president of Pdvsa since mid-2002.
But he doesn’t have hardly anything to show on his curriculum vitae in terms of anay major completed infrastructure to produce and refine crude oil, extract natural gas to supply local consumption and export LNG, and increased capacity to generate and transmit electricity nationally.
That’s right; practically nothing at all to show for the tens of billions of dollars Pdvsa has burned since 2003 after Chavez purged some 20,000 veteran oilmen and women from the company.
It took Ramirez less than seven years to preside over the destruction of Pdvsa and the national power industry. Someday, perhaps in a penal court, Ramirez will say he only followed the orders of President Chavez.
Way back in mid-2006 at an international oil conference in Maracaibo, Ramirez said in a speech that all the decisions about oil, gas and power were made only, and exclusively, by President Chavez.
But Ramirez certainly can talk a good game, and he was on a roll in Porlamar on 3 November.
Venezuela’s crude oil production capacity will rise to 4.25 million b/d in 2015 and 6.86 million b/d in 2021, Ramirez announced during inaugural remarks to several hundred attendees.
Almost all of the new crude production capacity which Pdvsa plans to commission over the coming 22 years will be developed in the Orinoco oil belt, added Ramirez.
Ramirez said the Orinoco oil belt “will be the oil region that will supply the barrels in the future and will help us achieve the production goal of 6,662,000 b/d of crude production by 2021.”
Orinoco extra-heavy crude production currently averages 532,000 b/d, he said (down from over 610,000 b/d before Chavez stole the upgraders in May 2007).
The joint ventures Pdvsa is structuring with strategic foreign partners will increase the Orinoco oil belt’s extra-heavy crude production capacity by 1,324,000 b/d over the coming seven years to 1,856,000 b/d by end-2015, Ramirez said.
A further 2,810,000 b/d of extra-heavy crude production capacity will be developed in the oil belt between 2016 and 2021, he added.
The attendees applauded politely, encouragingly. Many are hopeful that President Chavez and Pdvsa are finally improving some of the terms and conditions for companies interested in bidding on seven production blocks Pdvsa is offering in the oil belt’s Carabobo section.
But Ramirez’s numbers merit a closer look.
Ramirez announced that Pdvsa plans to increase the oil belt’s extra-heavy crude production capacity by 4,134,000 b/d over the coming 12 years, for an annualized increase in production capacity of 344,500 b/d each year from 2010 to 2021.
Ramirez didn’t say anything about new upgraders.
But for purposes of discussion, let’s use the Pdvsa’s (and Ramirez’s) public statements about the Carabobo bidding process as a guideline: Pdvsa wants to develop between 1.2 million b/d and 1.4 million b/d of production capacity in the Carabobo section. Pdvsa also wants to build at least three new upgraders with a combined processing capacity of 600,000 b/d of 32-42 API syncrude. In effect, roughly one-half of Pdvsa’s planned Carabobo production would be processed into syncrude by upgraders.
So let’s assume that Pdvsa expects to create joint ventures to develop 2 million b/d of new upgrader processing capacity over the coming 12 years, or 10 new upgraders with capacities of 200,000 b/d each.
What would all this huge growth in extra-heavy crude production and upgrader capacity cost Venezuela?
Even veteran oil experts (which Caracas Gringo is not) have a difficult time answering this question with any accuracy.
Ramirez/Pdvsa toss out numbers with reckless indifference to the truth, and costs depend on the nature of the project – whether it’s only upstream production, or only downstream upgrading, or an integrated production/upgrader project.
Ramirez indicated in September that an integrated production/upgrader joint venture in the Carabobo or Junin sections would cost at least $25 billion. But given Ramirez’s fondness for bloated promises and fudged numbers, real integrated project costs easily could work out to $30 billion or higher.
So we have 2 million b/d of new integrated extra-heavy crude production/upgrader capacity at a cost of $25 billion per 200,000 b/d project, or $250 billion worth of integrated Orinoco joint ventures.
Additionally, per Ramirez, we have another 2.1 million b/d of new extra-heavy crude production capacity which, lacking associated upgraders, presumably would be blended with light crudes to yield a Merey 16 heavy crude.
Is there sufficient light crude production capacity in Venezuela to assure that up to 2 million b/d of extra-heavy crude with an 8.5 API can be mixed into a Merey 16 blend?
Let’s assume for discussion that each 200,000 b/d project requires at least $10 billion of investment, or $100 billion overall.
This off-the-cuff arithmetic based on Ramirez’s public statements on 3 November at the Margarita Heavy Crude Congress, and over the past six months or so, works out to at least $350 billion of total capital investment in the Orinoco oil belt over the coming 12 years, or $29.1 billion per year.
Pdvsa’s share of this investment, based on its 60% controlling ownership rule, works out to at least $210 billion, or $17.5 billion annually over the 12 years from 2010 through end-2021.
But Pdvsa’s investment budget for 2009 is only $15 billion, and planned investments in 2010 are $16 billion, according to Ramirez.
Moreover, Pdvsa currently is cash-tight and borrowing like mad.
Ramirez said on 3 November in Porlamar that Pdvsa is considering another $3 billion bond issue before end-2009 to pay down over $4.5 billion in past-due debts to oil services companies and other contractors
Ramirez said the possibility of another bond issue is being discussed with the Finance Ministry.
Pdvsa placed over $3.26 billion of Petrobono 2014, 2015 and 2016 bonds on 28 October.
But the issue only succeeded because the National Assembly hastily reformed the Central Bank Law to authorize the Central Bank to buy government debt for the first time in the bank’s history.
Less than a week after these bonds were placed, they are trading at only 55% of face value in secondary debt markets, indicating that international investors are souring on Venezuelan debt.
Pdvsa’s debt totaled over $23 billion as of 31 October 2009, compared with $15 billion on 31 December 2008.
Another $3 billion bond issue would raise Pdvsa’s debt to over $26 billion by end-2009, for a one-year increase of $11 billion or over 73.3%.
But a Barclays Capital report dated 30 October 2009 predicts, based on talks the report’s authors had with Chavez regime finance officials, that the Chavez regime and Pdvsa likely will borrow another $22 billion in 2010 – just as Pdvsa is supposed to be accelerating all of these ambitious Orinoco joint ventures.
Ramirez has been talking, talking, talking for seven years – and his only real “achievement” has been to preside over Pdvsa’s destruction.
But Ramirez’s BS reportedly has worn thin on Chavez.
Change may be in the offing at Pdvsa, not that it will make any difference because – as a reader points out sagely in a comment to an earlier post on Pdvsa – Chavez simply will replace one thug with another thug.