Identifier
Created
Classification
Origin
05CARACAS3594
2005-11-30 16:56:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

OVERVIEW OF PETROAMERICA

Tags:  EPET EINV VE 
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This 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 SECTION 01 OF 03 CARACAS 003594 

SIPDIS

E.O. 12958: DECL: 08/11/2015
TAGS: EPET EINV VE
SUBJECT: OVERVIEW OF PETROAMERICA

REF: A. CARACAS 03560

B. CARACAS 03563

C. CARACAS 02934

D. CARACAS 02596

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 003594

SIPDIS

E.O. 12958: DECL: 08/11/2015
TAGS: EPET EINV VE
SUBJECT: OVERVIEW OF PETROAMERICA

REF: A. CARACAS 03560

B. CARACAS 03563

C. CARACAS 02934

D. CARACAS 02596

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (U) SUMMARY: The Chavez administration's Petroamerica
initiative envisions a Latin American energy integration
model with Venezuela acting as the hub. The initiative is
composed of three components: Petrocaribe (the Caribbean),
Petroandina (Colombia, Bolivia, Ecuador, and Peru),and
Petrosur (Brazil, Argentina and Uruguay). Petrocaribe is the
only prong of the plan that is governed by an agreement that
spells out key terms such as financing, pricing, and the
installation of infrastructure. Petroandina and Petrosur to
date have been characterized by a series of bilateral
agreements that promote integration. Reftel A deals with the
implementation of Petrocaribe to date. This cable will focus
on Petroandina and Petrosur. END SUMMARY


--------------
OVERVIEW OF PETROAMERICA
--------------

2. (U) The Chavez administration's Petroamerica energy
initiative is a proposal for continental energy integration.
It is envisions Venezuela as the hub for Petroamerica's three
sub-regional components : Petrocaribe (14 countries in the
Caribbean),Petroandina (Colombia, Bolivia, Ecuador, and
Peru),and Petrosur (Brazil, Argentina, and Uruguay).


3. (U) As noted in Reftel A, Petrocaribe is governed by the
Petrocaribe Energy Cooperation Agreement that clearly spells
out financing terms and payment methods. In addition, the
GOV has clearly spelled out its plans for upgrading existing
infrastructure and building new infrastructure in the
Caribbean. Neither Petroandina nor Petrosur are governed by
a similar document. As a result, they have been
characterized to date by a series of bilateral agreements
that have been billed by the GOV as efforts to promote
regional integration.

--------------
PETROANDINA
--------------

4. (U) The GOV has made little progress in implementing
Petroandina to date. Of the four "member" countries in
Petroandina, Venezuela has only concluded bilateral
agreements with one: Colombia. On November 24 Colombia and
Venezuela agree to construct a pipeline to transport gas from
Colombia to Venezuela for the Paraguana Refining Complex.

(NOTE: The western portion of Venezuela, which includes Lake
Maracaibo, has suffered gas shortages for years. END NOTE)
Construction is scheduled to begin in the first part of 2006
and to be completed in 24 months at an estimated cost of 230
million USD. In addition, PDVSA is seeking to purchase a 51
percent stake in a refinery in Cartagena for approximately
800 million USD. It also appears that the Government of
Colombia will sell its share in the joint venture fertilizer
and chemical company Monomeros Colombo-Venezolanos to a
Venezuelan state-owned entity.


5. (C) (COMMENT: Although Petroamerica and its component
parts appear to be clearly defined on paper, in reality the
lines can be quite blurry. For example, President Chavez
during his recent meeting with Colombian President Uribe
stated Venezuela was ready to extend the "mechanisms of
Petrocaribe to Colombia as part of the Bolivarian Alternative
for the Americas" (ALBA is the GOV's somewhat nebulous and
largely ignored alternative to the Free Trade Agreement for
the Americas with energy integration through Venezuela as one
of its cornerstones.) Venezuela has also expressed interest
in upgrading the Villa Elisa refinery in Paraguay, but
Paraguay is not a member of either Petroandina or Petrosur.
END COMMENT)
--------------
PETROSUR
--------------

6. (U) Although the GOV has signed a series of bilateral
agreements with Petrosur member states, Petrosur still falls
far behind Petrocaribe in terms of implementation. Argentina
and Venezuela signed a Memorandum of Understanding this month
for the construction of a USD 4 billion, 6,000 kilometer gas
pipeline between the two countries during President
Kirchner's November 21 visit to Venezuela (Reftel B). Energy
Minister Rafael Ramirez stated at the signing ceremony that
the MOU was a significant step in the development of Petrosur
and said both countries agreed to carry out studies to see if
the gas pipeline project could eventually include Uruguay,
Paraguay, and Brazil, as well as Argentina and Venezuela.
PDVSA and the Argentine oil company Energia Argentina
(Enarsa) also signed a contract for the establishment of a
joint venture that will supply five million barrels of gasoil
per year to the Argentine market. The contract is a renewal
of a previous contract. Enarsa and PDVSA are also supposed
to open a string of service stations in Argentina. PDVSA has
also signed a letter of intent to begin negotiations with the
Argentine firm Rhasa for its purchase. Among Rhasa's assets
are a refinery, a terminal in the port of Aguas Profundas, 63
service stations in Argentina, and a transport fleet.


7. (U) The GOV and the Uruguayan government have signed a
letter of intent to evaluate PDVSA's participation in the
Uruguayan energy sector. Under the agreement, a feasibility
study will be carried out on the expansion and upgrading of
the La Teja refinery. The refinery currently has a daily
capacity of 50,000 barrels of light crude. The study will
examine whether the capacity of the refinery can be doubled.
The additional capacity would be devoted to the refining of
heavy and extra-heavy Venezuelan crude. Energy Minister
Ramirez has publicly said that the amplification of PDVSA's
operations in Uruguay and Argentina are "the key to
consolidating the energy integration of the South".


8. (U) PDVSA and Petrobras have also agreed to begin studies
on the construction of a refinery in Pernambuco, Brazil with
a capacity of 200,000 barrels per day. The refinery is
expected to cost 2.5 billion dollars with costs being split
equally between PDVSA and Petrobras. It is expected to be on
line by 2011. Venezuela and Brazil are also studying the
construction of a gas pipeline that would run from Ciudad
Bolivar in Venezuela to the city of Manaos in Brazil.

--------------
COMMENT
--------------

9. (C) On paper it would appear that the GOV is making
progress on making its Bolivarian dream of regional energy
integration a reality. However, closer examination reveals
that actual implementation of the GOV's grand design for
continent-wide energy integration with Venezuela as the hub
is at this point little more than a pipe dream. As laid out
in Reftel C, the GOV and PDVSA still face a myriad of
operational problems that threaten production levels. These
operational difficulties are compounded by the GOV's practice
of squeezing PDVSA for funds for President Chavez's social
development agenda in anticipation of the presidential
elections in December 2006. In addition, as noted in Reftel
A, there are also questions about PDVSA's ability to adhere
to shipping schedules. Finally, as was the case in PDVSA's
latest strategic plan (Reftel D),the numbers that the GOV
and PDVSA bandy about for Petroamerica frequently conflict.
For example, PDVSA claims that it has budgeted approximately
2.2 billion USD for Petroamerica related refinery projects.
However, the sum of the individual projects differs markedly
from this amount. PDVSA's figures for individual projects
can often range widely. For instance, the price tag for the
Pernambuco refinery is listed as 2.5 billion USD in some
PDVSA documents and 3 billion USD in others.


10. (C) As noted in Reftel A, we fully expect the GOV to
continue talking about the various components of Petroamerica
for propaganda purposes as well as to advance its
politically-driven trade and regional integration agendas.
It remains to be seen how many of the projects actually get
off the ground. As critics have noted here in Venezuela, the
gas pipeline to Argentina does not make sense commercially
due to the sheer distance involved as well as the fact that
there are potential suppliers far closer to Argentina. It is
not clear how economically viable the pipeline to Brazil is
but critics have noted it raises significant environmental
issues. In order to build a pipeline to Brazil, the builders
would have to construct a pipeline and roads over a
significant distance through virgin jungle. In addition to
the environmental destruction produced by the pipeline and
roads, the development that would inevitably result would
also cause environmental destruction. We believe that the
majority of the projects under Petroamerica that do see the
light of day will do so because the GOV's partners in the
project have a sound, economic reason for pursuing the
project rather than a political motivation for increased
energy integration in Latin America, which is what is
motivating Chavez. Post welcomes comments and reporting from
posts in Petroamerica member states.
Whitaker