Identifier
Created
Classification
Origin
04CARACAS2739
2004-08-30 14:42:00
CONFIDENTIAL
Embassy Caracas
Cable title:
VENEZUELA: EXTRA HEAVY CRUDE-BEST CHANCE FOR
how-toThis record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L CARACAS 002739
SIPDIS
NSC FOR TSHANNON AND CBARTON
ENERGY FOR DPUMPHREY AND ALOCKWOOD
E.O. 12958: DECL: 08/12/2014
TAGS: EPET VE
SUBJECT: VENEZUELA: EXTRA HEAVY CRUDE-BEST CHANCE FOR
IMMEDIATE GROWTH
REF: CARACAS 2594
Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b)
and (d)
------
SUMMARY
-------
C O N F I D E N T I A L CARACAS 002739
SIPDIS
NSC FOR TSHANNON AND CBARTON
ENERGY FOR DPUMPHREY AND ALOCKWOOD
E.O. 12958: DECL: 08/12/2014
TAGS: EPET VE
SUBJECT: VENEZUELA: EXTRA HEAVY CRUDE-BEST CHANCE FOR
IMMEDIATE GROWTH
REF: CARACAS 2594
Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b)
and (d)
--------------
SUMMARY
--------------
1. (C) The prospects for additional Venezuelan oil
production in the short term come from the four projects that
produce synthetic crude from Venezuela's abundant resources
of extra heavy crude. We calculate that Venezuela's syncrude
production could increase to as much as 634,000 b/d by the
end of 2004. Interest in new projects is building and some
local industry observers believe we may see up to $10-12
billion in new projects signed in Venezuela in the next year,
primarily representing new investments in extra heavy crude
extraction. International oil companies are exploring new
economic models to accommodate the higher royalty rate
demanded by the GOV. End Summary.
2. (U) The most important developments affecting Venezuelan
production levels in the short term are likely to occur in
the four "Strategic Association" projects that convert the
extra heavy crude of Venezuela's Orinoco heavy oil belt to
lighter, sweeter synthetic crude, or syncrude. In 2003, we
calculate that these projects produced about 415,000 b/d of
syncrude.
--------------
HAMACA
--------------
3. (C) As reported reftel, the upgrader of the Hamaca project
(ChevronTexaco/ConocoPhillips/PDVSA),the fourth and last of
the Strategic Associations is due to come on line in
September. ChevronTexaco President for Latin America
Upstream Ali Moshiri confirmed to econoff August 16 that the
mechanical completion of the facility occurred on August 12.
He also said there will be crude moving through the upgrader
on September 1. While it will take some time for the
facility to reach full production levels, by the end of 2004
the Hamaca project should increase its current field
production of extra heavy crude from 120,000 b/d to 190,000
b/d for a syncrude yield of 180,000 b/d.
--------------
CERRO NEGRO
--------------
4. (C) ExxonMobil de Venezuela President Mark Ward informed
econoff in a July 22 conversation that he was hopeful that
ExxonMobil would soon receive approval from the GOV to
proceed with debottlenecking the Cerro Negro
(ExxonMobil/PDVSA) project upgrader. This process, if
started in early 2005 as Ward hopes, would yield a 20 percent
increase in the through-put of the upgrader by the first
quarter of 2006. Currently, the Cerro Negro field produces
120,000 b/d of extra heavy crude for 110,000 b/d of syncrude,
so the debottlenecking would allow an increase of field
production to approximately 145,000 b/d for a yield of
132,000 b/d of syncrude.
--------------
PETROZUATA
--------------
5. (C) In addition, ConocoPhillips announced to the press
early this month that Petrozuata (ConocoPhillips/PDVSA) had
processed nearly 150,000 b/d of extra heavy crude into
approximately 140,000 b/d of syncrude in July. "The new
level was achieved through operational and technological
improvements which gave the Petrozuata upgrader a new
sustainable plateau of 140,000 b/d," said the statement.
ExxonMobil's Mark Ward, however, asserted to econoff that
Petrozuata had "pulled a fast one," and expanded its
production capacity without GOV approval. According to Ward,
Petrozuata's production level should nominally be at 130,000
but is actually at 160,000 b/d.
6. (C) Ward told econoff that Petrozuata is now arguing with
the GOV over the royalty rate to be paid on the additional
extra heavy crude that would support the project's expanded
production capacity. (Note: The royalty for the Petrozuata
project - as with all the Strategic Associations - is
currently one percent. This royalty holiday lasts for nine
years or until the project has re-couped some multiple of its
investment. The GOV is now pushing for at least a 20 percent
royalty for any additional production from these projects.
End Note) While ConocoPhillips has not confirmed Ward's
comments, careful comments by a ConocoPhillips Government
Relations officer in an August 12 conversation with econoff
might seem to confirm his allegations. She said the
Petrozuata upgrader had produced 150,000 b/d of syncrude in
July but that this had simply been "a one-off," to test the
maximum through-put of the facility. She added that
Petrozuata's planned syncrude production level is still
124,000 b/d and that PDVSA is keeping them to that plan.
This could indicate, however, that Petrozuata could
ultimately increase its sustained production to
140,000-150,000 b/d of syncrude.
--------------
SINCOR
--------------
7. (C) Finally, Sincor, the Total/Statoil/PDVSA project, will
shut in production in October for 48 days to conduct a major
turnaround. The planned overhaul will reportedly increase
the current 180,000 b/d syncrude capacity of the upgrader by
14,000 b/d. Thus, according to our calculations, Venezuela's
syncrude capacity could grow to some 634,000 b/d by the end
of 2004 with the possibility of a further small increase in
early 2006 by ExxonMobil's Cerro Negro.
8. (SBU) In an interesting side note, a senior Schlumberger
executive commented to econoff on August 12 that the first of
the Strategic Association projects is now starting to fight
decline in field production. He agreed that the fields are
experiencing gas problems earlier than had been expected and
added that one field has now started to have a problem with
water encroachment, that will over time, he asserted, affect
them all.
--------------
MORE EXTRA HEAVY CRUDE PRODUCTION
--------------
9. (C) As reported reftel, there has also been at least one
proposal to the GOV for additional field production of extra
heavy crude. ChevronTexaco Vice President for Latin American
Upstream Ali Moshiri told econoff August 6 that he had
proposed to the GOV that the Hamaca project expand its field
production to provide PDVSA with an additional 100,000 b/d of
extra heavy crude. In a subsequent converation on August 16,
Moshiri said the GOV has "philosophically" accepted the
proposal but that an agreement must still be structured. He
said there has been no decision about whether the additional
crude would be sold as part of the Hamaca project or
separately. He confirmed it would likely be sold by PDVSA as
Merey (a medium crude oil blend). When econoff asked Moshiri
if the other three Strategic Association projects might make
similar proposals to the GOV, he responded that, to his
knowledge, only the Hamaca field has the extra capacity to
produce over upgrader capacity.
--------------
MORE SYNCRUDE PROJECTS ON THE WAY?
--------------
10. (C) While the companies in the existing projects are
engaged in discussions with the GOV on debottlenecking or
otherwise expanding their syncrude production, proposals for
bigger projects that would take the syncrude farther up the
value chain to finished products have been made to the GOV.
ChevronTexaco's Ali Moshiri announced August 6 that the
company had made a $6 billion proposal to the GOV for a new
project. According to his announcement, the project would
include exploration and production, a new pipeline and an
upgrader to produce 200,000-400,000 b/d of high-quality
syncrude and products. Shell de Venezuela President Moreno
has now stated publicly that his company has also proposed a
similar project to produce syncrude and products. The Vice
Minister of Energy for Hydrocarbons acknowledged to econoff
that Total has made a similar proposal.
--------------
NEW ECONOMIC MODEL?
--------------
11. (C) In an August 19 conversation with Moshiri, he
confirmed that the ChevronTexaco proposal envisions multiple
companies along the project value chain. Under this model,
PDVSA would hold 51 percent of the upstream portion of the
project while ChevronTexaco would control the downstream
assets. Moshiri clearly believes that the economics of such
a structure could work despite the 2001 Hydrocarbons Law
requirement that PDVSA have 51 percent or more ownership in
any upstream development. Moshiri dismissed any concern
about whether PDVSA could finance its 51 percent. Moshiri
added that ChevronTexaco's project proposal includes the use
of its steam flood technology for enhanced crude recovery.
(Note: The four Strategic Association projects currently
recover 7-10 percent of the extra heavy crude. While Moshiri
first said he did not know what the recovery rate might
increase to with the use of the ChevronTexaco technology, he
then said perhaps 40-50 percent. Increasing the extra heavy
crude recovery rate is an important goal for the GOV.)
12. (C) Finally, econoff raised with Moshiri the possibility
of a new licensing round for blocks in the Orinoco heavy oil
belt. Moshiri responded that these projects are too big and
complicated to auction and that he would urge the GOV not to
do so. Instead, he anticipated that the GOV would proceed
with a selective process to drive the projects towards the
majors in partnership with PDVSA and certain Venezuelan
companies.
--------------
COMMENT
--------------
13. (C) With the August 15 referendum having settled
Venezuela's future for at least the next two years (they
hope),ChevronTexaco's Moshiri and other oil industry
representatives want to get down to business with the GOV.
Some local industry observers believe we may see up to $10-12
billion in new projects signed in Venezuela in the next year,
primarily representing new investments in extra heavy crude
projects.
McFarland
NNNN
2004CARACA02739 - CONFIDENTIAL
SIPDIS
NSC FOR TSHANNON AND CBARTON
ENERGY FOR DPUMPHREY AND ALOCKWOOD
E.O. 12958: DECL: 08/12/2014
TAGS: EPET VE
SUBJECT: VENEZUELA: EXTRA HEAVY CRUDE-BEST CHANCE FOR
IMMEDIATE GROWTH
REF: CARACAS 2594
Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b)
and (d)
--------------
SUMMARY
--------------
1. (C) The prospects for additional Venezuelan oil
production in the short term come from the four projects that
produce synthetic crude from Venezuela's abundant resources
of extra heavy crude. We calculate that Venezuela's syncrude
production could increase to as much as 634,000 b/d by the
end of 2004. Interest in new projects is building and some
local industry observers believe we may see up to $10-12
billion in new projects signed in Venezuela in the next year,
primarily representing new investments in extra heavy crude
extraction. International oil companies are exploring new
economic models to accommodate the higher royalty rate
demanded by the GOV. End Summary.
2. (U) The most important developments affecting Venezuelan
production levels in the short term are likely to occur in
the four "Strategic Association" projects that convert the
extra heavy crude of Venezuela's Orinoco heavy oil belt to
lighter, sweeter synthetic crude, or syncrude. In 2003, we
calculate that these projects produced about 415,000 b/d of
syncrude.
--------------
HAMACA
--------------
3. (C) As reported reftel, the upgrader of the Hamaca project
(ChevronTexaco/ConocoPhillips/PDVSA),the fourth and last of
the Strategic Associations is due to come on line in
September. ChevronTexaco President for Latin America
Upstream Ali Moshiri confirmed to econoff August 16 that the
mechanical completion of the facility occurred on August 12.
He also said there will be crude moving through the upgrader
on September 1. While it will take some time for the
facility to reach full production levels, by the end of 2004
the Hamaca project should increase its current field
production of extra heavy crude from 120,000 b/d to 190,000
b/d for a syncrude yield of 180,000 b/d.
--------------
CERRO NEGRO
--------------
4. (C) ExxonMobil de Venezuela President Mark Ward informed
econoff in a July 22 conversation that he was hopeful that
ExxonMobil would soon receive approval from the GOV to
proceed with debottlenecking the Cerro Negro
(ExxonMobil/PDVSA) project upgrader. This process, if
started in early 2005 as Ward hopes, would yield a 20 percent
increase in the through-put of the upgrader by the first
quarter of 2006. Currently, the Cerro Negro field produces
120,000 b/d of extra heavy crude for 110,000 b/d of syncrude,
so the debottlenecking would allow an increase of field
production to approximately 145,000 b/d for a yield of
132,000 b/d of syncrude.
--------------
PETROZUATA
--------------
5. (C) In addition, ConocoPhillips announced to the press
early this month that Petrozuata (ConocoPhillips/PDVSA) had
processed nearly 150,000 b/d of extra heavy crude into
approximately 140,000 b/d of syncrude in July. "The new
level was achieved through operational and technological
improvements which gave the Petrozuata upgrader a new
sustainable plateau of 140,000 b/d," said the statement.
ExxonMobil's Mark Ward, however, asserted to econoff that
Petrozuata had "pulled a fast one," and expanded its
production capacity without GOV approval. According to Ward,
Petrozuata's production level should nominally be at 130,000
but is actually at 160,000 b/d.
6. (C) Ward told econoff that Petrozuata is now arguing with
the GOV over the royalty rate to be paid on the additional
extra heavy crude that would support the project's expanded
production capacity. (Note: The royalty for the Petrozuata
project - as with all the Strategic Associations - is
currently one percent. This royalty holiday lasts for nine
years or until the project has re-couped some multiple of its
investment. The GOV is now pushing for at least a 20 percent
royalty for any additional production from these projects.
End Note) While ConocoPhillips has not confirmed Ward's
comments, careful comments by a ConocoPhillips Government
Relations officer in an August 12 conversation with econoff
might seem to confirm his allegations. She said the
Petrozuata upgrader had produced 150,000 b/d of syncrude in
July but that this had simply been "a one-off," to test the
maximum through-put of the facility. She added that
Petrozuata's planned syncrude production level is still
124,000 b/d and that PDVSA is keeping them to that plan.
This could indicate, however, that Petrozuata could
ultimately increase its sustained production to
140,000-150,000 b/d of syncrude.
--------------
SINCOR
--------------
7. (C) Finally, Sincor, the Total/Statoil/PDVSA project, will
shut in production in October for 48 days to conduct a major
turnaround. The planned overhaul will reportedly increase
the current 180,000 b/d syncrude capacity of the upgrader by
14,000 b/d. Thus, according to our calculations, Venezuela's
syncrude capacity could grow to some 634,000 b/d by the end
of 2004 with the possibility of a further small increase in
early 2006 by ExxonMobil's Cerro Negro.
8. (SBU) In an interesting side note, a senior Schlumberger
executive commented to econoff on August 12 that the first of
the Strategic Association projects is now starting to fight
decline in field production. He agreed that the fields are
experiencing gas problems earlier than had been expected and
added that one field has now started to have a problem with
water encroachment, that will over time, he asserted, affect
them all.
--------------
MORE EXTRA HEAVY CRUDE PRODUCTION
--------------
9. (C) As reported reftel, there has also been at least one
proposal to the GOV for additional field production of extra
heavy crude. ChevronTexaco Vice President for Latin American
Upstream Ali Moshiri told econoff August 6 that he had
proposed to the GOV that the Hamaca project expand its field
production to provide PDVSA with an additional 100,000 b/d of
extra heavy crude. In a subsequent converation on August 16,
Moshiri said the GOV has "philosophically" accepted the
proposal but that an agreement must still be structured. He
said there has been no decision about whether the additional
crude would be sold as part of the Hamaca project or
separately. He confirmed it would likely be sold by PDVSA as
Merey (a medium crude oil blend). When econoff asked Moshiri
if the other three Strategic Association projects might make
similar proposals to the GOV, he responded that, to his
knowledge, only the Hamaca field has the extra capacity to
produce over upgrader capacity.
--------------
MORE SYNCRUDE PROJECTS ON THE WAY?
--------------
10. (C) While the companies in the existing projects are
engaged in discussions with the GOV on debottlenecking or
otherwise expanding their syncrude production, proposals for
bigger projects that would take the syncrude farther up the
value chain to finished products have been made to the GOV.
ChevronTexaco's Ali Moshiri announced August 6 that the
company had made a $6 billion proposal to the GOV for a new
project. According to his announcement, the project would
include exploration and production, a new pipeline and an
upgrader to produce 200,000-400,000 b/d of high-quality
syncrude and products. Shell de Venezuela President Moreno
has now stated publicly that his company has also proposed a
similar project to produce syncrude and products. The Vice
Minister of Energy for Hydrocarbons acknowledged to econoff
that Total has made a similar proposal.
--------------
NEW ECONOMIC MODEL?
--------------
11. (C) In an August 19 conversation with Moshiri, he
confirmed that the ChevronTexaco proposal envisions multiple
companies along the project value chain. Under this model,
PDVSA would hold 51 percent of the upstream portion of the
project while ChevronTexaco would control the downstream
assets. Moshiri clearly believes that the economics of such
a structure could work despite the 2001 Hydrocarbons Law
requirement that PDVSA have 51 percent or more ownership in
any upstream development. Moshiri dismissed any concern
about whether PDVSA could finance its 51 percent. Moshiri
added that ChevronTexaco's project proposal includes the use
of its steam flood technology for enhanced crude recovery.
(Note: The four Strategic Association projects currently
recover 7-10 percent of the extra heavy crude. While Moshiri
first said he did not know what the recovery rate might
increase to with the use of the ChevronTexaco technology, he
then said perhaps 40-50 percent. Increasing the extra heavy
crude recovery rate is an important goal for the GOV.)
12. (C) Finally, econoff raised with Moshiri the possibility
of a new licensing round for blocks in the Orinoco heavy oil
belt. Moshiri responded that these projects are too big and
complicated to auction and that he would urge the GOV not to
do so. Instead, he anticipated that the GOV would proceed
with a selective process to drive the projects towards the
majors in partnership with PDVSA and certain Venezuelan
companies.
--------------
COMMENT
--------------
13. (C) With the August 15 referendum having settled
Venezuela's future for at least the next two years (they
hope),ChevronTexaco's Moshiri and other oil industry
representatives want to get down to business with the GOV.
Some local industry observers believe we may see up to $10-12
billion in new projects signed in Venezuela in the next year,
primarily representing new investments in extra heavy crude
projects.
McFarland
NNNN
2004CARACA02739 - CONFIDENTIAL