Venezuela’s Burning Through Gas and Cash

Venezuela’s natural gas flaring problem is one small part of a larger problem the OPEC member country has monetizing its massive natural gas reserves both onshore and offshore.

A lack of infrastructure is arguably state-owned Petróleos de Venezuela’s (PDVSA) biggest headwind, which ties into others from financial to human capital.

Around 80% of Venezuela’s gas production is associated with the production of crude oil, and the country is expected to flare an average 2.1 Bcf/d in 2023, according to Gas Energy Latin America, down from 2.6 Bcf/d in 2022.

As a result, the Caribbean country is on track this year to lose around 53% of its gas production through flaring. Importantly, the flaring figure includes venting and leakages—which includes methane—but is in essence predominantly related to flaring. When the 2023 data is compiled with data from 2020-2022, Venezuela’s four-year average flaring rate is around 61%, according to data from Gas Energy.

Venezuela’s flaring problem in its most basic form has negative financial, economic, environmental and health impacts—in no particular order of importance.

Financially for PDVSA and economically for Venezuela, the flaring problem represents a massive lost opportunity to capture gas for use in the domestic market. Maybe more importantly, it’s a lost chance to export and monetize the gas internationally.

But Venezuela’s flaring problem hits deeper on the environmental and health side of the equation.

Natural gas contains different compounds, but the largest is methane, which is released during venting and when leakages occur. And methane rightfully has a bad rap as a greenhouse gas (GHG) as it’s 25 times more potent than CO₂ in trapping heat in the atmosphere, according to the EPA.

Flaring produces CO₂, carbon monoxide, sulfur dioxide, nitrogen oxides and other compounds, which are still bad for the environment but less harmful than methane over the near-term, according to the U.S. Energy Information Administration (EIA).

Environmentally, it’s a mess not only for Venezuela because GHGs don’t tend to respect borders. And in terms of health issues, the flaring problem is just as worrying or more so. Local communities across Venezuela are impacted daily by the country’s flaring problem, which are not just limited to the release of GHGs but also the constant light and noise that is associated with flaring.

Venezuela’s flaring problem could be resolved, but that would require massive investments from a cash-strapped PDVSA. International oil companies (IOCs) could step in but many continue to keep a distance from Venezuela owing to U.S. sanctions imposed in 2019. Prior to that, IOCs had to contend with asset expropriations as well as economic and political uncertainties, of which many of the latter two still exist today.

Venezuela has a population of some 29 million, according to Worldometer. As a result, the country’s domestic gas market is relatively small compared to the country’s estimated proved natural gas reserves of 221 Tcf, the world’s seventh largest, according to BP’s Statistical Review of Energy.

While Venezuela’s domestic market could arguably be the first to benefit from reducing flaring activities, the country’s gas pipeline infrastructure is still lacking. Many households and small businesses remain disconnected from Venezuela’s gas grid and rely heavily on LPG.

Gas Energy estimates that only 7% of Venezuelan consumers have direct residential gas access. This compares to around 70% in neighboring Colombia.

Direct gas hook-ups would also help to reduce further GHG emissions caused by citizens who have to revert to cooking with coal or wood when LPG containers are not available due to logistical distribution issues or an inability to procure them financially.

Venezuela’s flaring problem, if resolved, could also help to boost the supply of CNG and help displace the need and use of internal combustion vehicles, although that has an associated conversion cost. In Venezuela, CNG is basically free, considering that its users usually offer foodstuffs with service station attendants who fill up their compressors. So, the increased availability of CNG would reduce pressures on PDVSA to produce more gasoline and diesel, which at times are not easy to find, especially in interior regions outside the capital city of Caracas.

The biggest economic impact to come from the resolution of Venezuela’s flaring problem relates to potential exports to neighboring Trinidad and Tobago, or beyond to Europe and Asia. That option requires IOCs willing to take a bet on a Venezuela sanctioned by Washington as part of an errant chess move thought to bring about a quick regime change, but has instead led to the departure of more than 7 million Venezuelans. Look no further than the U.S.-Mexico border to see negative impacts from U.S. sanctions on Venezuela.

Venezuela’s flaring problem is just that. Capturing that gas could go a long way toward solving a number of problems, but moving from problem recognition to problem solving in theory and then in practice is another story.