2. AREA SPOTLIGHT
Venezuela: energy and growth
Venezuela was one of the OPEC producers that stepped up oil production, soon after the Gulf war
cofllmenced. It is now seeking to transforrn its oil and gas industry, wlth substantlal investment, some of
whlch must come from overseas. Addltionally, Venezuela has been active in tryins to establlsh greater
co-operation between the produclng and consumlng nations. Ttris detailed survey has been specially
written by Dr. Brian McBeth.
n the last two and a half years, there
has been a complete transformation in
the fortunes 0f Latin America's largest
oil producer. When the new government of Car-
los Andrez took office in 1989, it inherited an
economy thatwas almost bankrupt. The current
account deficit was $S.S bn. and the budget
deficit was 9.5 per cent of gross domestic product.
After one 0f the country's worst-ever recessions, in
1989, when it was gripped by three days of insti-
tutional panic by the forces of law and order,
which left an official, but prob ably understated
death toll of 300 people, the economy has turned
around. It grew by 4.5 per cent in 1990 and 9.2
per cent last year, the highest since 1964. With
higher oil prices, intern ational reserves stand at
$tO bn., double those of 1989, and the current
account surplus for last year is likely to be some
$3 nn. compared with $lOO m. when Pdrez took
over in 1989.
New , economic
package
Much of the success of
the perform aoce of the
country's economy over the
last two and a half years has
been attributed to the new
government's F'ebruary
1989 policies. A number of
radical changes were insti-
tuted, such as the liberalisa-
tion of domestic interest
rates, the introduction of a
floating exchange rate, a
substantial rise in the
domestic gasoline price,
which was one of the lowest
in the world, higher charges
for public services, the low-
ering of protective import
tariff barriers and the provi-
sion of greater incentives to
non-traditional exporters.
The new economic package,
which was more acceptable to international
ftnancial institutions and was endorsed by the
International Monetary Fund, IMF, prompted,
inter aha, the reflow of some of the assets held by
Venezuelans in foreign banks, conservatively
estimated at $39 bn., and a reduction in the
budget deficit. Weaker demand and the lowering
of tariff barriers limited the inflatronary pres-
sures arising from the measures. Finally, it
improved the country's credit-worthiness in
obtaining new loans from the international
frnancial community.
IIre social and political impact of
the new economic measures
The social impact of the February 1989
package was extremely negative , as many 0f its
elements, such as the inerease in gasoline prices,
were socially regressive and hit middle and low
income groups severely. The resulting urban
riots, and the very large death toll, were the
background for an unsettled social and poli tical
climate as the new government sought to find its
feet. Inflation soared to a record 2I per cent, in
March 1989, and organised social groups started
mobilising to gain concessions and exemptions.
The Confederation of Venezuelan Workers, CW,
the largest workers' federation in the country,
and tradition all:y' controlled by Acci6n
Democrdtica, AD, the ruling party, took an
unusually independent stand in opposition to the
package and its call for a general strike on May
18, 1989, won widespread public support. The
government, although standing firm on the
original package, made some concessions, such
as softening the impact of interest rate liberalisa-
tion 0n mortgages, increasing the number of
goods, the prices of which were frozen, and con-
senting to wage rises
above those originally
planned in both the pub-
hc and| fivatesectors.
Venezuela has been
a democracy since 19SS
when the dictator P&ez
Jimdnez was forced to
leave the country. This is
the second time that Cav
los Andr6s P6rez has been
president. He has under-
gone a radical transfor-
mation: no longer is he
the free-spending presi-
dent of his first period in
office between 197 4-79 ,
when oil prices were rela-
tively high and the indus-
try was natiohalised.
Since taking office in
1989, the president has
been anxious to promote
an image of responsibility.
Recognising that very dif-
ferent circumstances
18 PIPEUNE WrrTER 1gg2
Production areas, Lake Maracaibo, State of Zulia

3. dominated his first period in office at the height
of the oil boom, he has been at pains to stress the
magnitude of the country's current economic
problems. Moreover, given the changed ideologi-
cal clim ate in Venezuela today, he is keen to earn
himself a place in the country's history books as
a serious-minded statesman.
The pol itical stability of the country, and
that of its democratic institutions, seems assured
as there is no major disruptive force on the cur-
rent political landscape. Small left-wing parties
have concentr ated their efforts on the all pewa-
sive issue of corruption which, currently, is not
thought to have a destabilising impact on the
major parties. There is n0 right-wing anti-
democratic party 0r movement and, more
importantly, the armed forces are strongly com-
mitted to the existing regime and not interested
in assuming executive power for themselves. But
the grip of the old parties, such as Acci6n
Democrdtica and Copei, is being loosened. The
spate of corruption scandals which surface with
tedious regularity involving the military, €X-
president Lusinchi, and close associates of Pdrez
would indicate a growing dissatisfaction with the
old political system which is perceived to be cor-
rupt. In the last few years AD has lost a number
of state governorships and soon state assemblies
and half the national Congress will be elected
directly and not appointed by the parties, thus
weakening the stranglehold of the two mai n par
ties. This could just possibly lead to a period
when the country becomes ungovernable as the
old political alliances crumble.
In the past it has been argued that as the
presidential elections of 1993 approach, P6,rez
would appoint loyal members of AD to replace
the current, largely independent, economic team.
But this is unlikely as Pdrez would probably not
want to jeopardise his government's hard-won
economic gains for short-term political advan-
tage. If the current reforms are allowed to work
their way through, and there is no larye increase
in opposition, the country's non-oil economy
could reap the benefits for many years to come.
The oil industry
Venezuela is one of the oldest and biggest
oil producing countries and currently ranks sixth
in the world. As long ago 0s 1928 it was the sec-
ond largest exporter of crude oil after the US and
it remained in this position until the mid-1950s.
The Ven ezuelan economy is dominated by
crude oil. In 1990, it was responsible for 81 per
cent of total export earnings and for 83 per cent of
government revenues. It accounted fot 23 per
cent of GNP. Petroleum revenues in l99O
increased to $14.4 bn., compared with $9.9 nn.
the previous year, reflecting larger export volumes
AREA SPOTLIGHT
and higher crude oil and product prices, which
averaged $20.33 per barrel. Venezuelan oil rev-
enues in 1991 could be around $tl bn.
Oil has been known in Vene zuela since
seepages were found 0n the shores of Lake
Maracaibo during the colonial period. The
development of the oil industry up to the end of
197 5 was in the hands of private oil companies
with three of them, Exxon, Shell and Gulf 0i1,
dominating production and refining.
Venezuela was one of the main instigators
behind the ueation of OPEC in l95O and has
always sought to play the role of mediator,
counselling moderation am0ngst its m0re
aggressive partners. Such a role is likely to
continue with Venezuela seeking to show the
benefits of mutual c0-operation with the
world's largest privately owned oil companies.
Nationalisation of the oil industry
0n lst January 1975, the country's oil
industry was nationalised by Carlos Andrds Pdrez
during his first period of office. $ t . t5S bn., based
on the net book value of the assets at December
I975, was paid to the ex-concessionaires.
The nationalisation of the industry
required the creation of a functional structure
that would maintain norm ality within the new
legal scheme. Petr6leos de Venezuela SA, PDVSA,
was designated the parent company of the
national oil industry, responsible for planning,
co-ordin ating and supervising all the activities of
its subsidiaries, which were made up of the 14
former operating companies. PDrSA's oil would
be marketed through the major international oil
companies, thus guaranteeing the company a
stable market share. The new company would
also receive technical assistance, in exploring
and refining, from the former operating compa-
nies, who would be paid al a rate which varied
between 15 and 30 cents per barrel produced.
The original 14 operating companies were inte-
grated in 1977 into four maior companies,
Lagoven (ex-Exxon), Mar ayen (ex-Shell), Men-
even (ex-Gulf) and Coryoven (the remaining
companies).
0n March 1st 1978, PDVSA assumed
responsibility for the country's petrochernical
industry when the government transferred the
ownership of Petroqui mtca de Venezuela SA,
Pequiven, to the state oil comp any.
Although PDVSA is a state enterprise, it is
expected to finance its normal investment pro-
gramme from its own resources. The company
pays royalties and income tax. Income tax levels
are set at 57 .7 per cent and levied on the earnings
from exported crude and products. However , pay-
ments can be offset, by up to two per cent, for new
investment. PDVSA does not en joy any tax
privileges except 0n export sales made by its sub-
sidiaries. Ten per cent of such income is tax
free, being deemed as costs incurred by the com-
panies. The government's fiscal' take, composed
of royalties, income tax and other taxes, amount-
ed to 83 per cent of pre-tax profits in 1990.
Crude oil and gas reserves
In 1990, Venezuela increased its crude
oil reserves to 50. t bn. bbls. compared with 59
bn. bbls. the previous year. Most of the
increase in reserves came from Eastern
Venezuela, Apure state and from Lake Mara-
caibo. Venezuela now holds the largest
reserves in Latin America, with a reserves/pro-
duction ration of 58.5 years, compared with 45
for the overall region, but well below OPEC's
figure of just over 100 years.
PDVSA's increase in proven reserves, from
18.2 bn. barrels in 1975 to 50.1 bn. barrels in
1990, was due primarily to an increase in explo-
ration activify and to the addition of 25 bn. bar-
rels from the Orinoco 0i1 Belt. Before nationali-
sation, only 33 explo ratory wells had been drilled
during the previous five years, compared with 58
wells in 1975. 0nly seven exploration wells were
completed during 1990, the lowest since nation-
alisation, but seismic lines shot increased consid-
erably, however, to 8,)47 kilometres compared
with the previous year's total of 2,000 kilometres,
which was the lowest since nationalisation.
PDVSA's exploration success has been due
mainly to discoveries made in the eastern state of
Monagas at El Furrial, with estimated reserves of
538 mn. barrels and with an upside potential of
1.12 bn. barrels. Another important discovery
was the Ceuta South-Southeast field in Lake
Maracaibo, with estimated recoverable reserves
of 1 bn. barrels, and in the Gmfita field in
Apure, next to the Caflo Lim6n field in Colom-
bia, with estimated recoverable reserves of 500
mn. barrels. Additions from the 0rinoco 0i1 Belt
have augmented the company's reserves. These
discoveries have added between 10 bn. and 12bn.
t9
H oucn,,,effi.,,oililffi' 'i 'i
,i tilii l
': r :::l
(milliinn:
i;biafiels),,,
(.billton,.,..cfi.bic
.ffi6*rcS),, .,.,.
PIPELINE WTNTER 1gg2

4. AREA SPOTLIGHT
barrels of light and medium crude oil
to a reserve base which was dispropor-
tionately biased towards heavier oils.
The finds will have a profound impact
on the country's crude export mix, as
the Mon agas prospects, which current-
ly produce 80,000 barrels a day, (b/d)
of light oil, are expected to reach a
plateau level of 500,000 b/d in 1994,
and the Ceuta field, currently yielding
100,000 b/d, is expected to reach
200,000 b/d in 1993.
Venezuela has the ninth largest
reserves of gas in the world with
proven reserves of 3.43 trn. cubic
metres, implying a reserves/produc-
tion ratio of over 100 years. Current
gas production is betwee n 3.6 and 3.8
million cubic feet per day, of which a
third is sold locally and a third is re-
injected into the reservoirs. A fifth is
used by the oil industry and five per
cent is flared. Maf or switching from
oil to gas is not envisaged until later
this year, after the Nurgas pipeline
from Anz6ategui to the West is com-
pleted. Gas will ultimately replace
about 100,000 b/d of refined products,
mainly light heating oil.
Venezuelan oil production,
including condensates and natural
gas liquids, is currently 2.2 mn. b/d.
PDVSA supplies the domestic market
with approxim ately 351,000 b/d of
petroleum products. This represents
around 16 per cent of total production
and the rest is expoited.
The proportion of light and
medium crudes in Venezuela's
export package declined between
1975 and 1984 with a complementary increase
in the volume of heavy crude exports. PDVSA,
after nationalisation, began to adjust its export
package, seeking to increase its supply of white
products which are traditionally more in
'demand
and offer a higher profit margin. With
this goal in mind, between 1978 and 1987 , the
company upgraded its refineries in Amu ay, Car-
don and EI Palito, t0 reduce the proportion of
residual fuels obtained in the refining process
and to increase the proportion of naphtha,
gasoline and distillates. With greater upgrad-
ing and conversion facilities, the refineries
could use a higher proportion of heavier crudes
which represented the major volume of reserves
in the country. The upgrading of the country's
refineries came to a temporary halt in 1986
because of severe cash flow problems as oil
prices crashed.
20 PIPELINE WTNTER tgg?
.:iG#Hff U;u$il,,:;;*fl fl ,,.$ ...'
p#Oduction:,:::ii: ,,.
,:
, ,:,r
crude oil (000 b/d) l9s6' 1987 1988 1g,8g 1gg0
: ' :::'
ul$ht].::ifuver $iUu. iE I yry;B 535", ,i i ,.: ::i6}8
. 840
Medium (22:139" nrl; f.r,3 5A$, ZOA 774 828
Heary & Extra-Heavy 553 5s9 3lgi T:g5 430
(unde,r 22" API)
Total brude I,G/+j, I,;534, 1,VL,.S 1,741 2,0gg
Gdfid€ns#te
.... tt:
,
'.. ,t$r51' .l88.,.,.'.i ,i6.0 i7
NGIs &;ethane 97 94 98' 1CI8 114
NAfii, E, GAS f,Mfl;,.ilUbi6,mntren) ..
^'"i
:,
Source: Petr6leos de Venezuela S& Mnual Repo*, 1991
uru:ilu
0ffidc,,,dill, ,
,fudffiifuveq..r.6'
#l} ....
Med,itrm,{!,2:iA" API)
Heav)r &,Extia-Hearry
(under 22" AP:[)
Reconstituted
t ! ': I.
l CItil cruoe:' :::'= "::ri ii rr:
Reiined products
,,,4s,. $1.,,,,,,,,, .$.!, 4S
!1088, 1j6,il'* $8 ,,, ;',242
::
uililrlffilp#0 uffi....e bffi.,{:il66 h }
lfis.6 , .lgBE i,98fi....,, .t19.89 1990,
25,4 7gg 31,t 417 351
15,5 in 196 185 34s
:4s!g 4to 457 332 4gr
5.8
949
Htgh sulphur.residual 1S9 13t 227 21i zAT
Totat products 585 4j2, 65$ ,,, 6Sa 65'9
ffioffi..9xpoms ,,,, ,.,1r.#fi,il
.il.fi'fi.$ .: . ..;. .$e t,6I;rA 1,88,I
isduilcei
Ufurcu1.'d;..i,VEil€ruelh,,sn, tuinual
*a#,i.q9ti
..
;,::
Crude oilr,,& producfs,,,,ffiorfs by
, ,,1d#ffi**at* lil;,., t990
US
ced#ral. e###i.ry,. e ub*l*n
Eur0pe
Sou,th kerica
,.v"oilume..' , ,'Yi:
ffinu,,.nm}...,,
1":294 :,68
..:::;::i,
.,::i!::
Z;fiS..1 ti$
.2$.,I .,,., '..1fi.
: l.e
6'5 3,
' "',,,. -
l.'.59,,l ""3
61
] ffief$
IADANir ::t :':::!
:;;.1iiilir;;;1 1
,.ff ,,.....
,,,.l.; Si. ...... '..lI.s{}
luu:*rd+ l,:::putil ildti deiil#Milueiil*..$g"**^=-
Ai#tial ftfiri|*"^I "' "
As a result of PDVSA's exploration
record since 1985, the trend towards
heavy crude exports has been reversed
so that in 1990 exports of light and
medium crudes accounted for 57 per
cent of PDVSA's crude export package.
The US is PDVSA's main market,
accounting for 57 per cent or 1.3 mn.
b/d of total exports in 1990, with Cen-
tral Amerrca and the Caribbean in sec-
ond place with 235,000 b/d, or 13 per
cent, and Europe in third place with
231,000 b/d or 12 per cent. Around 54
per cent of the company's crudes went
to its own subsidiaries.
Orimulsion
Nthough Venezuelan crude oil
production in recent years has shifted
from predominantly heavy to lighter
crudes, the country continues to
make consider able efforts to find
ways of marketing heavy crudes. One
such method is the development of
Orimulsion, as the treated hear1, oil
from the 0rinoco 0i1 Belt is called.
This will be used primarily for elec-
tricity generation. The bitumen is
extracted from the 0rinoco Oil Belt as
a primary emulsion which is then
degasified, dehydrated and desalted
before being turned into 0rimulsion,
which is a mixture of 70 per cent
bitumen and 30 per cent water, with
an emulsifying agent.
PDVSA is developing its large
Orinoco Oil Belt using a new patented
production method. This field, which
covers arr arca of approxim ately
42,000 square kilometres, is consid-
ered one of the most important untapped
reserves of heavy oil in the world. The estim ated
oil in place is around truo trn. barrels. The spe-
cific gravity of the crudes range between 8 and
14 degrees API, and recoverable reserves are esti-
mated at 267 bn. bbls. 0n a thermal basis, this
is equal to about all of South Africa's coal
reserves or North America's entire crude reserves.
According t0 PDVSA, Orimulsion's main
competitor is coal, not heavy fuel oil. For politi-
cal reasons, the Ven ezuelan government have
argued that Orimulsion should not be consid-
ered crude oil because the latter is define d at 14
degrees celsius, so anything that is not liquid at
this temperature cannot be considered as crude
oil. Orimulsion, which flows at a rclatively low
temperature, and burns very well, is more widely
available and conceivably cheaper than coal or
fuel oil.

5. Because of its low price, it could
displace large volumes of fuel oil and
rtlso coal, in power generation. Howev-
er. one potential problem is its perceived
impact on the environment, with some
critics aheady dubbing it the 'dirty fuel',
and the extent of its economic potential
u'ill remain unclear for some years.
evertheless, Orimulsion has been test-
ed in the UK and in Japan and commer-
cial marketing has started at the modest
level of 20,000 b/d. The more opti-
mistic suggestions predict sales of
600,000 b/dby mid decade.
Reftning & marketing
PDVSA owns 12 refineries with an
or,erall processing capacity of 2.6 mn,
b/d. Venezuelan capacify is LI57 mb/d
and I99O out-turn was 917,000 b/d.
AREA SPOTLIGHT
The remainder of capacity is located in the US,
Europe and Dutch Antilles.
One of PDVSA's most important interna-
tional marketing strategies has been its joint
venture pafiicipation in refining and marketing
companies abroad. This ploy accelerated signifi-
cantly after 1986, when oil prices fell below
$10/bbl. and it was difficulr ro place oil.
PDVSA's investments in overseas down-
stream assets were motivated by a desire to secure
and increase market share in both the US and
Europe. Its first downstream venture outside
Venezuela was in 1983 in West Germany when it
entered into a joint venture partnership with Veba
Oil to supply 155,000 b/d. PDVSA also owns a
320,000 b/d refinery at Lake Charles, Louisiana
and a 155,000 b/d refinery at Corpus Christi,
Texas, together with a 153,000 b/d deep conver-
sion refinery rrear Chicago as well as distribution
and marketing facilities in Illinois, Michigan,
Iowa, Ohio and Wisconsin. PDVSA also has a
minority stake in two refineries in Sweden and
one in Belgium. In 1990, through Veba 0il, it
acquired an interest in a 230,000 b/d refinery at
Schwedt, formerly in East Germany, and it also
purchased a 12 million barrel tank farm in the
Bahamas, from Chevron, to increase its market-
ing flexibility in the US.
PDVSA's ambitious ftve-year plan
PDVSA has- a very ambitious investment
programme over the next five years as a result of
which it hopes, inter aha, to increase its crude oil
producti on capacity by 25 per cent. Its $48 bn.
investment programme, spread over five years, is
analysed in the next column..
The plan calls for alarge increase in crude
oil and gas during the 1990s and increased
investments in refining and marketing in the US,
Europe and other areas. A large rise
in exports of natural gas, petrochem-
icals and coal is also planned.
PDVSA expect to contribute a
total of $l+ bn., with the remaining
$t4 bn. coming from joint-venture
projects between the state oil compa-
ny and future partners. PDVSA's
annual investment will be $5.4 bn.
This means that the company,
which currently generates net cash
flow of $2.3 bn, will not be able to
finance its investment programme
from internal sources, especially as
oil prices are expected to remain
static over the next few years. PDVSA
will need to find an annual net capt-
tal requirement of $3 bn. over the
next five years, although most of the
investment is scheduled to take
place towards the end of the quinquennium. If
the investment strategy is maintained, PDVSA is
likely to assume atotaldebt burden of $16.0 bn.,
assuming oil prices remain static up to 1995.
The imp act on future government revenues
of such alarge debt increase by the state oil com-
Investment plan
Sector Capitd,
requirement
($ bn')
Exploration & production L7
Production of crude oil and gas 16.2
Oil refining 10.0
Petrochemicals j.T
Intemational investments 4.5
Orimulsion 2.5
r-NG 2.5
Oil tankers 1.4
Coal 1.9
Domestic market 0.9
Other investment A.7
pany, despite its current low debt gearing of under
five per cent, has not been fully explained by the
oil company and could well lead to a morc acri-
monious relationship between the two parties.
PDVSA has repe atedly called for its tax burden to
be reduced, but this is likely to go unheeded as the
government depends for over 80 per cent of its
revenues from this source. The flexibiliry of the
investment plan though, with the bulk of the cap-
ital requirements in many instances scheduled
towards the end of the five year period, and with
the possibility of postponing some items, will
allow PDVSA to vary its capital requirements if oil
prices do not strengthen during the mid 1990s.
Reftning capaciq & out-turn in Ven ezuela
(ooo b/d)
1986 L}ST lg8S lgSg rgg0
Refining capacity 1,224
0ut-turn 924
Products obtained:
LPG 5
Naphtha/gasolines 306
Kerosene 55
Distillate s 232
Low sulphur residual 7
High sulphur residual 233
Special products 47
1,225 l,2}r
s54 1,002
8g
z9t 309
66 72
ztr 258
7 11
L9l 27A
46 47
1,157 1,157
9ot 9t7
98
329 335
65 74
230 244
37
253 243
46 75
Source: Petr6leos de Venezuela SA, Annual Report, lggl
PDVSA's refineries outside
Yenezuela
Installed PDVSA
capacity share
(ooo b/d) (,/,)
Belgium
Anfwerp/N Nynas Petroleum L5 50
Germany
Scholven/Ruhr Oel GmbH 110 50
Horst/Ruhr Oel GmbH 100 50
Neusradr/Ruhr Oel GmbH 144 IZ.5
LarlsruheAuhr Oel GmbH I4Z t5
Sweden
Nynashamn/AB Nynas
Petroleum
Gothenburg/AB Nynas
Petroleum
US
Lake Charles/CITG0
Petroleum Corp
Corpus ChristirCITGO
Petroleum Corp
Z5 50
50IZ
3ZA 100
165 100
PaulsborolSeaview Oil Co. S4 100
Chicago/The UNo-Ven Co. tsj 50
Netherlands Antilles
Curacao/Refineria Isla SA 310 leased
TOTAI 1,590
Source: Petr6leos de Venezuela SA.
Annual Report, ig g1-'-
-''
PIPEUNE WTNTER rgg2 2t

6. tsl-L.4Rilfid
r-
t--
r.sr-.;q. J rsr.r
e {,ltazo u fl(}'1.1/Rr"
I.COJEDES
C
Oil exports (000 bd)
1 985 1 990
Crude Oil .,,lffi Products
Source: PDVSA and "Oil & Energy Trends"
2500
2000
1 500
1 980 1 981 1982
Source: British Petroleum
Maraeai
Bosciih
..'!r,r..'
-'a
E'
ffiEY: '
, 'Las Merce*s
t-
::
GUAR,ICO
APURE
Gol-
o
E
.9
_o
f
o
c
€
g
206
()
f
Eo
o_
@
(d
(,
(U
f
(U
z
a)
_o
O
O
o
C
o
o
f
E
oI-
o_
o
,-7
11
*-e
*;.
t.
).t
(
.z' '1
/' .,
.
.
!rri'-'-
t'a..
..,-)'f
VENEZUELA
..<: ^.-"2)
,r' .a;^nen
,.r'{-* tt tf o d e,i
t
" Yenezuelu/
a-'1 a
' Amana
Oil and natural gas production
15
Source: Atlas de Venezuela
1 983 1 984 1 985 1 986 1987 1 988 1 989
/

7. ERGY RESOURCES
)DUCTION
=l
Cnaurael?'
Pto. La Cruz
-.--___-{
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!
: unaure
S
. t',d
/.1
SUCRE
o
Ciudad
Bolivar
BOLIVIAR
l''t''F.
't
-'
.l'.J
f,,,) tst,+
lj cneNaoa
I
"
'
72'
I
/''J
.r llt, ll:' '
.-.J
O oilfietds
llfffi Orinoco oil belt
Oil pipelines
O Gasfields
Gas pipelines
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8. PDVSA's exploration effort is directed at
finding light and medium crude, and the country
intends to increase its share of the world's oil mar-
ket by a very aggressive investment programme
over the next five years. PDVSA's aim is for proven
reserves and crude oil producti on capacity to rise
in a concerted effort to gain a bigger market share.
Over the next five years, it expects to add nine bn.
barrels of reserves by a mixture of frontier explo-
ration and revision of reserves from existing fields,
to boost crude oil production capacity from 2.8
mn. b/d to 3.6 mn. b/d. This requires a substan-
tial investment of $1.5 bn. in exploration expendi-
ture and $t5.2 bn. in production facilities. Crude
oil production is expected to show a 25 per cent
increase to 2.8 mn. b/d in 1996, of which only
800,000 b/d will be hearry and extra-heavy crudes.
Most of the exploratory work will be concen-
trated in the eastem states of Anzdategui and Mon-
agas, around Lake Maracaibo, the Andean flank
south of the lake, the Perijd sector of Zulia and
Gudrico state. Over the next five years, exploration
alone is expected to yield five bn, barrels of addi-
tional light and medium crude, while increased
recovery from existing oil fields could yield another
four bn. barrels. PDVSA intends drilling 7,550
wells, carrying out more than 10,000 well repairs
and workovers and adding 120 mn. cubic metres
per day of gas compression.
The goal of increasing oil reserves by 25 per
cent over the next five years is formidable, requir-
AREA SPOTLIGHT
Gas r,njection plant, Lake Maracaibo
ing extensive exploration and production mainte-
nance to keep the wells flowing, even in old fields,
to offset annual depletion of 17 per cent. PDVSA
will be assisted by a number of foreign service
companies in drilling wells and a number of joint
ventures will develop inactive wells. The foreign
companies will operate the wells and be paid a fee
per barrel produced. Friction between PDVSA and
the govemment could also develop over the open-
ing up of new exploratory zones to foreign compa-
nies who would take all the risks. Another con-
tentious subject, awaiting a decision from
Congress, is a proposal for a $l nn joint venture
between PDVSA and Shell, Exxon and Mitsubishi
to develop the Crist6bal Col6n natural gas field, off
the north east coast. A 50 km. pipeline would be
built along with a gas liquefaction plant which
would enable liquid natural gas to be exported
after 1995 4.4 mn. tonnes per annum could be
shipped to the US.
In 1990, PDVSA's domestic refineries generat-
ed a large range of products which included gaso-
line, kerosene, naphthas, distillates, residual fuel oil
and speciallty products. PDVSA's current refining
capacity, at home and overseas, is 2.5 mn. b/d, but
new investment should increase the capacity by
befween 400,000 and 500,000 b/d, of which 200,000
b/d will be in domestic refineries. A new plant in
eastem Venezuela, to process hearry crudes, could be
built at a cost of between $2.5 and $3.0 bn. Another
100,000 b/d could be added atthe Curacao refinery.
Pequiven, the petrochemical company, is
currently in the midst of a major expansion pro-
gramme, with plans to invest $1.6 Un. up to 1995 to
increase production capacify by 10 mn. tonnes to 14
mn. tonnes per annum. These figures include
capacity in wholly owned subsidiaries and joint ven-
ture partnerships. The strategy is to use Venezuela's
large natural gas reserves as raw matenal
The new development plan will produce
compounds such as methyl tertiary-butyl ether,
MTBE, which is used to boost octane in gaso-
line. The demand for such products is growing
rapidly as lead is elimin ated from gasoline in
the US and Europe. PDVSA will face stiff com-
petition, however, from the Middle East and
other oil producers who are following a similar
development path with large increases in petro-
chemical capacity.
Coal production will also rise, which is in
line with PDVSA's long term plan to diversify and
expand its export base. The most import ant coal
deposits in the country arclocated in Zulia in the
Guasare basin, with proven reserves of 353 mil-
lion tonnes, with further identified reserves of two
billion tonnes. Producti on at Guasare, which is
worked jointly with Agip Coal of Italy and Arco
Coal of the US, of 1.5 mn. tonnes, is expected to
increase to 11.5 mn. tonnes of coal in 1995, at a
cost of $t.S bn. Other coal mines which could be
developed by then would add a further 8.5 mn.
tonnes per annum of production.
24 PIPELINE WTNTER tggz

9. When ?DVSA was created it was thought
that it wourd be fiiled to the brim with bureau_
crats and jobs for the boys but this has not hup_
pened' The com pany has been run well and is
efficient, brl it is enteiirg a new era oflrrg;^;;:
jects, necessitating sub stintiarinvestment. More_
,ver, the frien dly relatronship befween ,h, ,rr_pany and the g'vernm ent reached crisis point in
early 199t with a serious confro ntationbetween
.{ndrds Sosa pietri, the president of pDVS
1,, ;n'icelestino Armas, the energy minister. The latter
constrained the company's auton.my to increase
its domestic and internationarindebtedness
and
the acquisition of overseas assets. It arso required
prior notification of senior appointments. pDvsA
demanded that the tax burJen be reduced, to
increase cash flow. After a series of intense meet-'nry,
the g,vernment withdrew its directive inexchange for pDvsA promising to increase its
t'low of inform ation ro rhe *ini"rtry ;:;;,0 .on_
sult over major financial decisions. The core of
the dispure was rhe conrrol of tfrrlrOril; wirh
the government feering that,as the ,wner of the
assets, it had been reft out of cruciar decision_
making.
The future of pDVSA
4REA SPOILIGHT
,v uullturu res)urce
sacred cow be privatise d,, 15 yearc arterit came into
existence?
recently been sord to a c,ns.rtium which incrudes
AT&T' Butwiil the whoresare adoption of frr,
^ur-ket policies by the current government have an
impact on the oir industry?" courd venezuera,s
Conclusion
The yenezuelan
economy will remain
highly dependent on hydrocarbons for the fore-
seeable future. What is of greater,rionrn.,
,ver the next decade is the rore which state oir
c,mpanies, such as pDvsA, wiil prayon the inter_
national scene and whether, given the new phi_
losophy of riberarism, pDvsA wiil eventuaily be
privatised or be forced to compete on equar terms
in its domestic market with oth., oit ,orfanies.
The ambition and scare of pDvSA,s
investment
pr,gramme w,uld suggest that the level of addi
tional foreign capitar needed wi, force both pri-
vate companies and pDVSA
closer together, possi_
bly making the need for a state oil company
redundant.
, There is little doubt that
'DVSA
is one of
uqJ prubruenr wno nationalised such an impr
h'fl:l :,,i::'-'jlfnt
companies, bur it,#:#1ffi3,jlT,ilHiiffi;,l,l*
c,mpany , *,*. *nn" *ffi-,Iffi##fl llj fffi,J:,-L,,Tfflx.fl*h;,jil:,;,,1;l1j;1
[:4':,",1"T'H # iffiffi ','#,il;J:il ito'g pt*, m *.^ *^i ri,^pubric scrurin,
manase rhe counrry,s r,ra'"r.jru*,,r,*l*, #.tl^fl
fl
11:ffi rrfrr lTfl
.lfi:,X?
r,ffiJand suppry energv ro the cfuntry or shourd it act *r,i.r, ,u,r b, ;i#;;n u lirrrnt irprt o
more Iike a private c'rmany, with indjvidual ror.,gn ,up,tur. Furthermore, pDvsA is currentl,
:l,ffi"rru'#ff H'J,:::: :' *q iooilns
1
n*ting 5r per cenr or pequiven
on thi
*,':,,0.r,,#ffi;:'rj,'ff::#ili# caracas stockExci.r*
*" *
one being pursu.a ,ra
^1urr,
,, o ., , ,jil., ,,r,r,11 il? ffi-;T*i ;*i, JijXi;
r,llii,;
course with a g,vemment which is arp.ra.rt ,, ,ii'r.r*i1, So far the general advancementthe oil industry for oyer g0 per ceniof its rev- oi rrrt. oif companies inio nurope and the US
enues. The c,mpany,s proiected r*.f ,f,rirli nrr, ,, ,n. *frrfr, U.., ,rrliJr"ra nrrrrrr, ,,ertness, if it carries through it, iruertr.ripro_ ,orr.rr.r, they were *,iir*., pay a fullSramme' wirl reduce the government's oir iev- price fo, downsiream ,rrrrr'*i,.r, had effec_
f:i,f,:i ?,Tl1f;*,'Ji:T#,;;*:ln ki *t,,,,,r,r,iiJ"'"N0,',r,,, producr
iflil+r:l1l{t;l;,*iH#.1,#itr*tr;,,il: {:;x,}il:i,i.,*H;';',1#:ompanies. Such a move *uia *, nrrnrrrr,r_ #ffiffi:r1lJ,,,;*,i,1ilifffi:Xl[::T
ilr#f
curent economic thtnking
-in
uifo, u iorrign.srare oil c,mpany ro control a
_.,
The resrructurin* 0,,n,
l,l]I.Tcror
srarred ffi ;fll1 ;1ffi,Tf[,lr:,T,#'ilirther timidly in 1990 wirh the privatisation of a alffi.rl, to reconcile tf,. .rrrrri Venezuelanumber of banla and a ceiluiar ri*grr, lri ;#llr.r,,, adoprion of free market rrade
rind momentum in 1gg1 with_Jhe sale of a stake i.rr," *r,, the prohibition of any form of
riasa'rhenationarairrine'r11',1_a;.ffi
ffi,,,,n in rhe domesric oir marker.Cary *,. national telephone company, has rlvie may well welcome such a challenge.
It is unrikery that presiden
t p6rez wourd
even consider privatising the oir industry as this
would cefiainly entail i volte face of historicar
proporti,ns as he wourd go down in history as the
only president who natiinarised suc h uo'i^p,r-
tant industry and then changed his mind. It is
less certain, however, what will happen *irf, sub_
sequent g,vernments as there is rittre doubt that
a type of creep ing backdoor privatisation, is now
talnng place in arcu away from publn rrrrtiry,
such as offshore gas jevelopments,
a.nd in
increasing rec,ve ry rates from ,rirtrg'olf wells
which will be achieved with a sizeable input of
foreign capitar. Furthermore, pDvsA is currentry
lookng atfloating 51 per cent of pequiven
on the
Caracu Stock Exchange.
Brian McBeth is a consurtant, speciarising in ener_
gy and Latin American matters. He hords an ec,-
n,mics degree, with hon,urs, from Bruner Univer-
sity, an M. phir, in Latin American Studies, fr,m
0xford University, and a doctorate. He lived in
Venezuela for 15 months, in 19,6_l , whilst
researching his doctorar thesis. subsequenry, he
became an oir anaryst, working for severar stock_
broking firms. His pubrications include ,Juan
vicente G6mez and the 0ir companies in
venezuera 1g0B-1g35', and 'British 0i, poricy,
1919-1935', He is a contributor to Latin America
in Perspective'.
f,.liffi
rgd number, of try,of tfu rcnezuela,
:::,IijiYll,o.
and.uaifed'6e
r #;6,
|;1,a;it,uajt,
upon reffi ,Foi finrrei'in##i
Iloni;tlg,ase eontm fu'-" An#;i ineffi.'
on (0) 71,4sr 064j, peoffiui*i iitsffi,,
PtPEuilE WTNTER lggz 25