Venezuela Has a Natural Gas Problem





Sitting on the world’s largest oil reserves, Venezuela is mostly known as a crude producer—and a very troubled one. However, it also has significant gas reserves that it has been unable to develop fully. Venezuela needs gas investments and it needs them now.

Venezuelans are voting for president this Sunday. According to Reuters, the gas supply issue will feature among the key priorities for voters as production declines and people resort to wood-burning stoves.

Venezuela used to pump some 8 billion cu ft of natural gas back in 2016, Reuters reported this week, citing data from consultancy Gas Energy

Latin America. This has now fallen to about 4 billion cu ft, and without a fresh investment injection, the situation is unlikely to change.

The Maduro government is aware of the problem and has been busy trying to find a way to boost natural gas production. This week, the government inked a deal with BP and the National Gas Company of Trinidad and Tobago to develop the Venezuelan portion of an offshore field that it shares with Trinidad and Tobago.

With an estimated 1 trillion cu ft in reserves, the Cocuina-Manakin field could certainly help Venezuela boost its production, and it just might, after the U.S. Treasury Department granted the project an exemption from the energy sanction regime Washington imposed on Caracas years ago. The talks on the project are in their final stages, and the companies involved are hoping they will get the green light before the Sunday elections after BP secured a 20-year license from the authorities

Another project that has the potential to boost Venezuela’s natural gas output is the Dragon field, which is another reservoir that Venezuela shares with Trinidad and Tobago. At the end of last year, the government in Caracas and its peers in Trinidad and Tobago signed a 30-year license for Shell and the National Gas Company of Trinidad and Tobago to develop the field. Dragon contains an estimated 4 trillion cu ft in natural gas reserves.

First production from the Dragon field is expected next year, at a rate of 185 million cu ft daily, to be pumped to Trinidad and Tobago and liquefied. However, this is going to do little for gas supply security for Venezuelans, so the government is looking for more deals with international oil companies. Yet there are problems with that, according to Reuters.

Sanctions are an obvious one, although the possibility of exemptions seems to be there, and it worked for the Dragon and the Cocuina-Manakin fields. Another problem is the outstanding debt that PDVSA owes to some of those companies, which, Reuters suggested, is making them reluctant to return to the country.

However, it does not need to have large international companies developing the country’s largely untapped natural gas reserves, at least according to the Venezuelan opposition. The coalition, to be represented by Edmundo Gonzalez in the upcoming elections, has proposed opening up the energy sector to private companies, including local ones.

“Nobody is going to massively produce gas in Venezuela in these conditions, but where there is immediate interest is in small-scale midstream projects,” Gas Energy Latin America analyst Antero Alvarado told Reuters.

Developing the midstream segment of the industry would go a long way towards boosting production because of the current underdevelopment of a distribution network in Venezuela, as noted by the U.S. Energy Information Administration in a recent report.

Venezuela sits on some 200 trillion cu ft of natural gas. Most of what it produces comes out with the crude that PDVSA and its partners pump out of the ground. And Venezuelans are not the only ones who want some of that gas. Venezuela’s neighbors and even Europe are hoping the country boosts production, adding a potentially major source of gas for global markets.

By Charles Kennedy for Oilprice.com



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