Venezuela’s unsung gas route to recovery

Author Patricia Garip, Editor

Reconstruction efforts for Venezuela will harness the country's abundant gas reserves and market proximity, not just its oil. Foreign oil companies are positioned to tap Venezuelan gas deposits, but most will hold off until political winds shift.

The future recovery of Venezuela is almost always seen through the prism of its 300bn bl of crude reserves. There is no doubt that a new government would need to swiftly harness the oil industry to get the Opec country back on its feet, first with humanitarian aid and then with long-term rebuilding of productive infrastructure and employment. But in the campaign to restore prosperity, Venezuela’s colossal natural gas reserves and access to nearby markets deserve more attention.

As it stands now, the official snapshot of Venezuela’s ambitious gas-export plans is more reminiscent of the routes that its beleaguered people are taking to escape the catastrophe at home. The distressed Opec country can’t meet its own gas needs, let alone install and maintain cross-border pipelines or a liquefaction facility. Yet if Caracas changes political course, Venezuela could activate these existing gas plans as part of a bold reconstruction campaign.

PDVSA export mapSource: PdV

Some big foreign oil companies are positioned to do just that. Leading the pack is Shell, which plans to tap Venezuela’s shallow-water Dragon field in the 14.7 Tcf Mariscal Sucre complex to supply Trinidad and Tobago’s gas-hungry industries. In August the European major signed a preliminary gas sales agreement with PdV and Trinidad’s state-owned gas company NGC. Under the deal, Shell would play a role across the supply chain, helping to develop Dragon, building a 300mn cf/d flowline to its Hibiscus platform off Trinidad and using part of the gas for the underutilized Atlantic liquefaction plant in which it is a top shareholder, along with BP.

Notably, Shell would buy untreated Dragon gas from PdV, which constitutionally owns the reserves, and sell it to NGC after processing. In a parallel agreement, Shell will help PdV to reduce extensive flaring in the eastern Venezuelan state of Monagas.

Shell is no stranger to Venezuelan gas. The company was part of an ill-fated early 1990s consortium that was supposed to develop a liquefaction complex known as Cristobal Colón, a project that fell apart in the run-up to the late President Hugo Chavez’s 1998 election that put Venezuela on the ruinous path it remains on two decades later.

Shell’s new gas deal with the ostracized Venezuelan government is controversial. But the Dragon model must be the envy of Shell’s European peers Repsol and Eni. The two companies’ Cardon 4 joint venture started producing Venezuelan gas from the Perla offshore field in 2015. In spite of 17 Tcf of gas in place, Perla output has halved to less than 300mn cf/d in recent months because PdV, the sole offtaker, is no longer paying for it. Ideally Cardon 4 would be allowed to export some of the gas to bring Perla to its full potential of 1.2bn cf/d, plus associated condensates.

There is no shortage of export options. PdV already owns an empty gas pipeline into Colombia, a deteriorated relic of short-lived bilateral cooperation between Caracas and Bogota. Colombia has since given up on Venezuelan gas supply with a regasification terminal outside Cartagena and another one proposed for its Pacific coast in a few years. With Venezuela saber-rattling on the lengthy border, the pipeline will probably remain idle for years.

More modest export channels are within reach in the Dutch Caribbean. In Aruba, PdV’s subsidiary Citgo – or a steadier replacement – will need gas to revamp a former Valero refinery into a heavy crude upgrader. PdV Gas has already developed a plan to install a 130mn cf/d pipeline from its Tiguadare gas treatment plant in Venezuela to Aruba to operate the planned 209,000 b/d upgrader, with some gas left over to generate power.

Caracas has a separate 200mn cf/d pipeline plan for Curacao, where PdV leases another refinery that also needs gas. But as in Aruba, that will only happen if another company steps into the hole that the Venezuelan firm has left behind.

Other foreign companies sitting on Venezuelan gas reserves would dash to develop them under the right conditions. Chevron operates the 10 Tcf Loran-Manatee field that straddles the Venezuela-Trinidad border. And Russia's Rosneft has dibs on gas fields adjacent to Dragon.

Within Venezuela itself, the future potential to supply gas to oil refineries, petrochemical and fertilizer plants, and the residential and commercial sector will be enormous too. Unlike oil, Venezuelan gas projects are not required by law to have majority state participation, or even any stake at all, as Perla shows.

Then there is the environmental case for gas, a commodity that PdV has historically ignored in favor of oil. Venezuela’s debt to the environment is even greater than its arrears to oil companies and bondholders, but any local awareness of the consequences is swept away by the sheer need for survival.

In the end, the healing of Venezuela will take all of its resources – oil, gas and many of the people who are now living somewhere else.

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