Venezuela
and the United States:
A
Four-Pillar Strategy for Energy Security
Ambassador
of Venezuela to the United States of America
Business
Council for International Understanding
Petroleum
Club of Houston
Houston, Texas – July 24, 2001
It is an honor to be here in Houston, among such a distinguished gathering of some of the most important energy providers of this great nation. There are a great many bonds between the companies you represent and Venezuela. My country now wants to strengthen these bonds and those with the United States, understanding that the U.S. is preparing a long-term strategy for energy security. As the Bush Administration’s National Energy Policy document declares, “America in the year 2001 faces the most serious energy shortage since the oil embargoes of the 1970s.”
We must not be distracted by the short-term price changes in natural gas and gasoline at the pump. As President Bush and Secretary of Energy Abraham have stated it, this is a long-term problem, and it must be solved by both near-term and long-term solutions.
Venezuela is better prepared than ever to help meet America’s energy needs. Venezuela has been and is a dedicated, secure, and reliable oil provider to the US for more than 80 years, including such times as World War II, the Suez Canal crisis, the oil crisis of the 1970’s, and the open conflicts that have occurred in the Middle East. Venezuela has never participated in politically motivated interruptions of oil supplies to world markets.
Currently, Venezuela sends directly to the US 57% of all its oil and oil products exports. As you may know, we have the largest proven oil reserves outside of the Middle East, 77.7 billion barrels of oil at the close of 2000 – and that doesn’t include the 1.2 trillion barrels of bitumen and heavy and extra-heavy crude oil from the Orinoco Oil Belt, which we are now starting to exploit through joint ventures with some of our friends here. The crude production capacity at last year’s end, including the joint ventures of the Orinoco Belt, was 3.9 million barrels per day. We now want to go beyond oil, and include other forms of energy, especially natural gas, of which we have 147 trillion cubic feet of reserves. That is 30% of the gas reserves in the Western Hemisphere. Added to that, we are third in the world in terms of refining capacity. Moreover, our geographical location is a true advantage in terms of the American national energy security.
Now we must answer the question on how to help America meet its energy needs. The answer must be in harmony with the Bush Plan’s principles: it should be a long-term comprehensive strategy; it must also meet the goal of increasing your nation’s energy security. This depends on obtaining sufficient energy supplies, diversification of the energy mix, new exploration and production technologies, and the opening of areas for exploration and development. It must be done in an efficient and environmentally sustainable manner. For Venezuela, this must also be done within the scope of our legal framework and the bounds of the agreements that we have freely entered.
On June 2, here in Texas at the CITGO refinery in Corpus Christi, Venezuelan President Hugo Chávez stated that Venezuela would look into four different ways to contribute to the solution of the American energy crisis:
1) Increasing crude oil production capacity. It was said here not long ago, during the 32nd Offshore Technology Conference, that the Venezuelan oil industry intends to raise crude production capacity. Venezuelan and international participants are expected to add a substantial increase in private sector capacity.
We expect that a portion of the increased capacity will be produced, while the rest remains as "spare" capacity. Much of the new production will go to the United States. Meanwhile, the spare capacity will be a safeguard for the United States and other energy consuming nations against extreme price increases. And let me assure you, Venezuela does not want extreme price increases..
Venezuela proposed the OPEC price band of $22-$28 per barrel, so that oil prices will be fair and reasonable for both producers and consumers. OPEC members recognize that healthy oil prices are not just beneficial to OPEC nations; they are vital for the long-term future of the oil industry. Oil is a capital-intensive industry that requires a constant flow of massive amounts of money not just to maintain and expand production at existing fields, but also to explore for, develop and produce new fields.
And in the case of Venezuela, we will require substantial investments in exploration, production and crude upgrading that during the 2001-2006 period will be on the order of 26.5 billion dollars.
2) Increasing refining capacity, both here in the US, and in Venezuela. President Chávez announced in Corpus Christi that we would be investing 260 million dollars in Citgo’s Lake Charles refinery, in order to increase its refining capacity by 100 thousand barrels per day. But we are also interested in expanding our refining capacity at home.
The key to this expansion is the Orinoco Oil Belt. Upgraded oil started to flow from Cerro Negro joint venture at the end of 1999 and this project will soon be inaugurated. With this year’s official unveiling of the Petrozuata upgrading facility, the synthetic crude era officially took off in Venezuela. The recent approval of financing for the Hamaca / Ameriven project injected 1.1 billion dollars to an investment grade project. Together with Sincor, these are the four strategic projects approved by the Venezuelan Congress during the 1990s for the development of the Orinoco Belt through the use of integrated extraction and upgrading projects. When all four begin operations, they will produce a combined total of 622 thousand barrels per day of upgraded crude. Some partners in the joint ventures have already expressed their interest in expanding synthetic oil production capacity.
The synthetic crudes that are and will be coming out of the Orinoco Belt’s joint ventures are very light and have a low sulfur content. This means light, clean products that could be manufactured in Venezuela. Thus, the US could receive more refined oil products from Venezuela.
Realizing our aims in the Orinoco Belt will require further investments. It must be said that a large amount of the already-planned refinery investments in Venezuela, 2.6 billion dollars, will be employed to optimize our current assets in Venezuela and assure compliance with environmental regulations and product quality requirements.
3) Opening the natural gas market. In a recent LNG (liquefied natural gas) conference, it was reported that North America had ample gas reserves, as much as 1300 trillion cubic feet of probable and possible reserves in “frontier” regions, and more than twice as much from non-conventional sources that will require advanced, economical technologies. However, the cost of developing and bringing this frontier gas to market was likely to be more expensive than imported LNG from the Atlantic Basin.
Venezuela is well on its way to become a player in this market. We have a new Gas Law that allows for foreign investment in gas exploration and production. We have already had a very successful bidding process, where six gas fields where auctioned, and the new law allows further bidding processes. This new “apertura” is required, in order to increase our reserves of free gas, as much of the current Venezuelan gas reserves are tied to oil production.
Most important for the United States, sometime soon we will have selected a Liquefied Natural Gas project that has the United States as its main market target. We believe it is important that American energy companies, large and small, be present in the expanding natural gas future of Venezuela.
4) Finally, providing a new alternative fuel to US power markets. From our abundant reserves of natural bitumen in the Orinoco Belt, Venezuela has developed a patented fuel called Orimulsión. This fuel is designed for use in boilers for electric power generation. Currently, the customers for this fuel are mainly power generating companies in Italy, China, Canada, Japan, Germany, Denmark, Finland, Lithuania and Barbados. These companies are experiencing an expansion in demand, as is most of the power generating industry worldwide, which has been estimated to grow at a rate of 4.2% per year. This presents opportunities for growth on an international scale.
In the US, Orimulsión suffered a setback while trying to get a foothold in Florida. Nonetheless, we still think there is a match between Orimulsión and the need to diversify the American energy mix. Congress mandated a study of this fuel to the EPA; it should be out sometime soon. A large amount of research and development has been done on this new fuel, and we believe that this will be reflected in the EPA report. We hope this will lead to better prospects for this new fuel in the US.
Orimulsión production is one of the areas in energy where production is open to third parties, so this is another opportunity for investment in Venezuela. Planned growth is based on commercial associations under various business schemes with third-party participation. The new projects are currently intended for markets in Europe, Asia and Canada.
In order to explore these four ways of helping the US meet its energy needs, President Chávez has ordered the creation of the Venezuelan Energy Task Force, composed by a high level set of representatives from the Ministry of Energy and Mines, Petróleos de Venezuela, the Venezuelan Embassy, and including Pdvsa’s arm in the US, Citgo. This Energy Task Force or ETF will be contacting the Administration, members of Congress, US energy companies such as those you represent, and think tanks, in order to get input and feedback relative to the four ways being explored.
Other efforts are under way. We have seen in the National Energy Policy document the interest of the US in the completion of the Bilateral Investment Treaty between both our countries. I have to say that Venezuela is also very interested in bringing that effort to fruition. There is a negotiating team in place, and we will have technical meetings with our American counterparts during the first week of August.
We are also interested in the integration of the Americas, and we believe that energy development is a fine means to that end. The Western Hemisphere, through its hydrocarbon resource base, skills and technologies, offers a perfect energy complement of supply and demand. This Hemispheric balance encourages energy integration. The countries in this half of the world can count upon the necessary resources to satisfy most of their energy requirements, if they work as a whole, in an integrated, complementary manner.
Venezuela’s national strategy also aims to strengthen the international competitiveness of our country’s private oil and energy-related companies, as well to increase access for cooperation and association with US companies in the energy sector. Success in this strategy will help us diversify the country’s economy and build national private capital that will lead to social and economic development. Venezuela wants to promote maximum private capital involvement in the comprehensive development of the gas business, petrochemicals, refining, Orimulsión and coal.
Through this important part of the Venezuelan energy mix (gas, chemicals and petrochemicals, Orimulsión and coal), we will strive to promote national capital formation, to make possible the creation of private companies that consolidate the country’s economic growth and Venezuela’s strategic position in the world. There are initiatives aimed at promoting greater competitiveness, financing, new associations, strengthening small and medium-size companies, with special attention to the application of existing public policy mechanisms.
We are looking forward to having large and small companies coming from abroad and entering into joint ventures and associations with our own private energy sector in order to exploit the opportunities presented in the fields open to private investment.
Finally, you should know that a new Hydrocarbons Law is being developed as we speak. We will soon have a draft that will be openly discussed, in order to have a modern framework for this important sector of the Venezuelan economy. Together with the Gaseous Hydrocarbons Law, a new law for investment protection, and several other new laws, we are now counting on a new set of rules, a legal framework, that will guide our economic activity and that will generate the needed confidence to make companies from the US and other parts of the world want to invest in Venezuela.
Let me summarize my remarks: Venezuela wants to work with the United States in order to help avert a serious U.S. energy crisis. We understand that this must done mainly through market forces, accompanied by compatible policies. Accordingly, Venezuela is focusing four ways in which to contribute: oil production capacity, refining capacity, natural gas production, and the resources of the Orinoco Oil Belt.
We have created the Energy Task Force to guide these efforts, and we are making progress in developing a better legal framework to provide security for foreign investments. We welcome these investments because we know they can translate into national capital formation, a stepping-stone to Venezuela’s economic growth and development.
The ETF is open to your feedback, and we’ll gladly listen to your comments.
Venezuela has been and is a partner to the US in terms of energy cooperation; and it is our desire that this energy cooperation may be strengthened more and more in the years to come.
(Embassy
of Venezuela, Fermin Lares, Press Counselor, 202/342-2214)