Light crude deficit erodes PdV?s Orinoco ambitions

OREANDA-NEWS. July 21, 2016. The decline of Venezuelan state-owned PdV's light crude production since 2011 has outpaced its capacity to bring new Orinoco extra-heavy crude output on stream, the company's just-issued 2015 annual operations report shows.

PdV's inability to check falling production of legacy light grades such as 32°API Mesa implies a growing reliance on light crude imports to blend with Orinoco crude for the production of exportable Merey 16 targeted at the Asia-Pacific market, primarily China.

PdV's revised core investment plan, also issued quietly last week, maintains a goal of reaching 6mn b/d of crude production by end-2019, with two-thirds of the total coming from the Orinoco oil belt. Argus estimates current crude production is around 2mn b/d.

PdV currently imports over 50,000 b/d of light crude to process Orinoco extra-heavy crude into Merey 16 that the company expects will be its primary export grade by 2020 in terms of volume, the energy ministry said. But lacking sufficient light crude output capacity of its own, PdV by 2019 could import "well over 1mn b/d of light crude" to achieve its ambitious production target, a trend that would significantly erode projected revenue.

Over the past year, PdV has largely shifted its Orinoco development strategy toward blending in lieu of upgrading into synthetic light grades, because of the hefty capital cost and logistical complications associated with the upgrading process. PdV currently runs four existing upgraders dating back to the 1990s and which were subsequently nationalized. In recent years, insufficient maintenance and sporadic power supply have sparked frequent breakdowns at the upgraders, now run as an integrated complex and located in the industrial city of Jose on the coast.

PdV has laid out a \\$260bn investment plan focused on the Orinoco oil belt for the 2016-20 period, with a significant portion of the funds assigned to PdV?s foreign partners. Up to now, the partners that include Chevron, Spain?s Repsol and Italy?s Eni have proved reluctant to make significant outlays, partly because PdV has not been able to foot its share of investments in capital-intensive integrated projects.

The incremental cost of importing increasing volumes of light crude to blend with Orinoco crude undermines the project economics, officials associated with the Caracas-based foreign oil industry association (AVHI) and the Maracaibo-based oil services industry chamber (CPV) say.

According to data in PdV?s new operations report, light crude production fell by 203,000 b/d or over 35pc over the past five years, to 374,000 b/d at end-2015 from 577,000 b/d on 1 January 2011. Medium-quality crude output fell by a steeper 235,000 b/d over the same five-year period, to 682,000 b/d in 2015 from 917,000 b/d in 2011, notwithstanding a small uptick in 2014-15.

In contrast, PdV's officially reported heavy/extra-heavy crude production climbed by only 158,000 b/d from 1.439mn b/d on 1 January 2011 to 1.597mn b/d at end-2015. PdV says it uses standard API criteria for the quality designations.

Overall crude production, including condensates but not NGLs, declined by 229,000 b/d since 2011, to 2.746mn b/d at end-2015 from 2.975mn b/d at the start of 2011, the company's 2015 operational report indicates.

Production of NGLs slipped to 117,000 b/d last year from 138,000 b/d in 2011.

The decline in Venezuela?s crude production has accelerated this year. Energy minister and PdV chief executive Eulogio Del Pino earlier this month blamed weak oil prices and a drought-induced power supply crisis for the company's upstream operational problems in 2015 and a further 120,000 b/d crude production drop in first-half 2016.

But officials in PdV?s traditional eastern and western divisions in Anzoategui and Zulia states tell Argus that oil price trends are only one factor in the apparent stagnation of PdV's Orinoco-centered upstream investment plan first announced in August 2005 by late President Hugo Chavez.

"Other factors include 10 years of insufficient investment by PdV, unpaid debts accumulated with services companies and partners, cumbersome bureaucracies at the energy ministry and PdV that hinder progress, lack of critical support infrastructure from wells to terminals, and a legal and regulatory framework that doesn't appeal to foreign oil companies," the western division official said.

Del Pino pledged earlier this month that PdV would boost upstream production by up to 200,000 b/d before end-2016, but the western division official says such a production increase is "impossible given the company's current economic problems."