In gas-rich Venezuela, next president faces problem of producing it

While it sits atop the world's eighth-largest natural gas reserves and the biggest in Latin America, Venezuela's output fell to 4 Bft³d this year from almost 8 Bft³d in 2016, data from consultancy Gas Energy Latin America showed.

A production revival would not only ensure more reliable domestic supply, but potentially ease shortages in neighboring countries and bring much-needed hard-currency revenue.

The gas problem is a key issue as a presidential election approaches on July 28. Whoever wins faces the daunting task of securing investment in the OPEC member's gas industry.

President Nicolas Maduro's administration has doubled down on offering gas projects to foreign companies since last year, but longstanding unpaid debts to many of the companies, U.S. sanctions and the enormous investments required have limited progress.

The main opposition coalition, represented by Edmundo Gonzalez in the voting, has proposed radically expanding the private sector's role, while restructuring the country's $150-B debt, something analysts say would take years.

"Nobody is going to massively produce gas in Venezuela in these conditions, but there is immediate interest is small-scale midstream projects," said Antero Alvarado, managing partner of Gas Energy Latin America, referring to pipelines and systems to better capture and distribute gas.

Venezuela's problems have hampered development, leading to frequent scarcity of the fuel essential for cooking, generating power and feeding petrochemical plants and factories.

The gas for many homes arrives in cylinders whose distribution is controlled by government-supported groups. That subsidized propane is among the most expensive fuels PDVSA's refineries produce. Sometimes, the state-owned company even resorts to importing that gas.

Neighbors from Colombia to Brazil and many European nations, hopeful that Venezuela's production could eventually ease their own gas shortfalls, have pressured the Biden administration to grant gas projects exemptions from sanctions, company executives and government officials have said.

Flaring the gas away. Venezuela's almost 200 Tft³ of proven gas reserves are mostly untapped.

"Venezuela's natural gas production has historically been limited in comparison to its potential," the U.S. Energy Information Administration (EIA) said in a February report, attributing the situation to a poor investment climate, lack of infrastructure and inability to develop projects.

Some 80% of Venezuela's gas output is associated with crude production. In the last five years, unprocessed gas flared into the atmosphere during oil production has surpassed volumes sold commercially, turning the country into one of the world's largest natural gas flarers, according to the EIA.

Maduro's socialist government has held inconclusive talks with European companies including Repsol, Eni and Shell, about a capital-intensive project to recapture up to 1.5 Tft³ of flared gas for the domestic market and exports.

Offshore, large gas exploration and production projects remain mostly stalled, especially the massive 12-Tft³ Mariscal Sucre. Only one of its four fields is in active negotiation between the government and energy firms Shell and Trinidad and Tobago's NGC for a joint development that could see first output late next year.

Helped by a flexible law that requires less red tape for gas projects than for oil projects, Venezuela's government has begun internal talks to offer a second field, Rio Caribe, for foreign investment, according to sources familiar with the plan.

"We are open to foreign companies coming to Venezuela," Oil Minister Pedro Tellechea told reporters in June, referring to energy projects as Washington recently resumed issuing licenses for specific developments in Venezuela. But many gas producers in Venezuela no longer have the means to ramp up production unless PDVSA first repays debts, company executives said.

Another way. In what would be a policy U-turn, the opposition wants to reopen the energy industry to foreign investment through privatization while limiting PDVSA's role and restructuring debts, including paying some creditors with oil.

The strategy would break with two decades of nationalization that has concentrated almost all production, transportation, processing and sales in the state's hands, creating a long chain of debts among state-owned companies.

"The country will need more electricity, hence, more gas," Alvarado said. "If a privatization in the power sector happens, there will be economic incentives to produce gas for domestic sales, while larger offshore projects could focus on exports even through LNG (liquefied natural gas)."

 

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