Venezuelan State Oil Company’s Growing Presence in Latin America

State oil company Petróleos de Venezuela S.A. (PDVSA) has a finger in all these pies. In turn, it has opened the region’s largest oil reserve, the Orinoco Belt, to joint exploitation with other Latin American state-owned oil firms.

PDVSA is spearheading regional energy integration and assisting many of Venezuela’s neighbours, compensated for by the high price of its crude exports, which have averaged 96 dollars a barrel this year, while extraction costs amount to just six or seven dollars a barrel.

For nearly 30 years, PDVSA has cooperated with weaker neighbours and partnered firms in "sister" countries, but the extent, amount and frequency of these practices have multiplied in the last five years. Venezuelan President Hugo Chávez, who has been in office for ten years, has accelerated the pace of dozens of regional projects.

"Energy projects like those we are undertaking with Nicaragua, Brazil, Argentina or Ecuador show that the region has ceased to look to the North and is looking instead to the South," said Chávez when a PDVSA-Petroecuador joint venture began to drill in the Orinoco Belt.

Critics outside and, above all, inside Venezuela claim that the president, instead of pursuing profitable, sustainable business deals, is seeking to advance his political project, which he calls "21st century socialism."

BRAZILIAN PRAGMATISM

In the 1990s, Brazil was importing up to 100,000 barrels per day (bpd) of crude from Venezuela, but now the regional giant produces enough of its own oil to be practically self-sufficient.

A 1995 plan to jointly build a heavy oil refinery in Pernambuco to process 200,000 bpd and supply the north and northeast of Brazil, requiring an investment of four billion dollars, remained a dead letter until Petrobras, Brazil’s state oil company, broke ground on the project last year. PDVSA came in as a minority partner earlier this year.

Juicy carrots have been held out to Brazilian industrialists in the form of as yet insubstantial proposals, such as building 40 tankers for the Venezuelan oil fleet at a projected cost of two billion dollars.

"We are putting on the table the opportunity to create joint ventures in Venezuela to manufacture equipment for our oil industry," Eduardo Quinteros, the head of PDVSA’s industrial division, recently told IPS.

PDVSA buys goods and services worth about 22 billion dollars a year for its equipment and project needs, and in 2007 it imported capital goods worth 10 billion dollars.

Some of its projects have fallen by the wayside. The most prominent of these is the "Great Southern Gas Pipeline" that was to transport natural gas from deposits in the Caribbean off northeastern Venezuela to Argentina and Uruguay, running across Brazil, to supply large parts of that country.

BOOSTING REFINING CAPACITY

In Ecuador, a refinery with the capacity to process 300,000 bpd is to be built at El Aromo on the Pacific coast, at a cost of over six billion dollars, with a view to supplying fast-growing markets in Asia.

A joint venture between Petroecuador and PDVSA in which the Venezuelan company is the minority share-holder, with 49 percent, has been set up for this purpose. Studies got under way this year, and the refinery is expected to be operational in five years’ time.

Refining crude, although less profitable than other sectors of the oil industry, is highly attractive to developing countries because it ensures fuel availability, and because of its multiplier effect on businesses and jobs, the technology transfer involved, and the opportunity to add value to a commodity.

PDVSA has also enlarged and updated the refinery at Cienfuegos in Cuba, which has a capacity of 65,000 bpd, and the refinery in Jamaica, which can process 36,000 bpd.

Studies are afoot to build another in Nicaragua, with a capacity of 150,000 bpd, and one of 10,000 bpd in the small island nation of Dominica. In addition, talks have been held on the possible purchase by PDVSA of the Dominican Republic’s refinery, or the building of a new one.

"The concept is to supply oil, refine it in the Caribbean, jointly sell the products, and to include as many compensatory mechanisms as possible in the trade," Venezuelan Energy Minister and head of PDVSA, Rafael Ramírez, said recently.

PAYMENT IN KIND

Providing oil to Caribbean countries is the hallmark of Venezuela’s South-South cooperation policy and is carried out via its Petrocaribe project, which PDVSA administers. Twenty countries in Central America and the Caribbean receive a total of some 200,000 bpd of crude and other products — half of which go to Cuba — under preferential terms of payment.

Only half the oil bill must be settled in cash, as long as oil prices remain at or above 100 dollars a barrel (if they fall, a larger proportion of the invoice has to be paid for upfront). The remainder is financed as a soft loan, payable over 25 years.

PDVSA has also built storage facilities in beneficiary countries, pays for the cost of oil transport, and accepts goods and even services in part payment. At the same time, it has created a fund with a fraction of the price of a barrel of oil, while this remains above 100 dollars, for the production and distribution of food and fertilisers.

FURTHER SOUTH

In Argentina, Paraguay and Uruguay, meanwhile, PDVSA has been applying much the same recipe as in the Caribbean.

The Venezuelan company has pledged to supply up to 23,500 bpd to Paraguay, which can pay for it with livestock products or soybeans, and in the past has sent shipments of oil to Uruguay in exchange for prefabricated houses and heifers.

Argentina makes down payments of only 20 percent on PDVSA’s fuel shipments, and monthly payments on the other 80 percent. PDVSA is also involved in plans to enlarge refineries in Paraguay and Uruguay.

In August the Venezuelan company agreed to build a new refinery in Argentina, in partnership with Enarsa, a state oil company created by former Argentine President Néstor Kirchner (2003-2007). The refinery is projected to have a processing capacity of 100,000 bpd and to require an investment of some 1.2 billion dollars.

An earlier partnership between Enarsa and PDVSA, created in 2005 to own a network of up to 600 petrol stations in Argentina, ended up with only two service stations, and Enarsa backed out of the venture this year.

Once again, the disappointment is the Caribbean-Rio de la Plata mega-pipeline, which was to be 8,000 kilometres long and cost some 25 billion dollars, but evaporated into thin air upon scrutiny of the economic, environmental, financial, logistical and even political risks.

OPEN TO (NEARLY) ALL COMERS

PDVSA has formed joint ventures with European, U.S. and Asian corporations to explore reserves of natural gas unassociated with crude oil in northeastern Venezuela, in the sea opposite the mouth of the Orinoco river, and in the southeastern Caribbean, from Trinidad to the Netherlands Antilles.

Venezuela has invited not only international oil companies, but also state-owned oil firms belonging to the other member countries of the Organisation of Petroleum Exporting Countries (OPEC), and to Latin American countries, to join it in exploring and exploiting reserves in the Orinoco Belt.

According to government estimates, the Orinoco Belt in southeastern Venezuela contains 230 billion barrels of recoverable crude, most of it heavy and extra-heavy oils.

Thus companies that are novices in the international arena, such as Petroecuador, or that have no experience in oil production, like the Uruguayan firm ANCAP, or are lacking in equipment or oil assets, like Argentina’s Enarsa, have joined forces with PDVSA to explore for vast quantities of crude deep under the Orinoco plains.

PDVSA’s plan is that by the time these crude reserves are certified, and oil extraction and sales begin, the currently weak or small Latin American national oil companies will have grown into partners capable of taking on the most attractive segments of the oil business, and possess concessions to reserves that will be an asset in their dealings with third parties.

LOOKING FOR MORE

Like other oil companies, PDVSA is engaged in exploring for offshore crude and gas in Cuban territorial waters in the Gulf of Mexico, and in Bolivia’s northern province of Pando and southern province of Tarija.

In Bolivia, PDVSA and the state oil company YPFB formed a joint venture, Petroandina, in which YPFB controls 60 percent and PDVSA has a 40 percent share.

Petroecuador has signed agreements with the Chilean state oil company, ENAP, and with PDVSA, to explore for natural gas in the Gulf of Guayaquil, off the southwestern coast of Ecuador.

Business is less brisk with countries whose governments lack political affinity with Caracas, such as Colombia, Mexico and Peru, which are governed by rightwing and centre-right administrations.

Nevertheless, PDVSA participated in laying a gas pipeline across the northern part of the Colombia-Venezuela border, to transport gas from Punta Ballenas in Colombia’s Caribbean waters to Venezuelan oil production facilities on the shores of Lake Maracaibo.

In the first half of 2008, Latin America and the Caribbean (including the Isla refinery on the island of Curaçao, operated by PDVSA) received 689,000 bpd of Venezuelan oil, equivalent to 31 percent of the country’s petroleum exports, and 11 percent more than the amount delivered in the same period last year, according to official PDVSA reports.