With its liquefied natural gas (LNG) plant delayed again and more foreign investment needed to introduce new technology to boost its Orinoco Heavy Oil Belt development, Venezuela is having to move slower on some of its larger developments.

In its latest move, Petroleos de Venezuela (PDVSA) signed a memorandum of understanding (MOU) with Russia on Oct. 7 under which Russia would lend Venezuela $4 billion for defense spending in exchange for access to both heavy crude oil onshore and natural gas fields offshore. Gazprom and Rosneft signed the MOU.

The MOU covers the possible creation of a joint venture to develop the Robalo gas field in the Gulf of Venezuela, according to Gazprom. PDVSA will supply the Russian company with proposals on the terms and conditions as well as geological information on the field. The MOU also covers negotiations on the project scheme, shareholding structure and other aspects related to the Robalo field development.

Rosneft will develop the Carabobo 2 Block in the Orinoco Belt as a minority partner with PDVSA. The Carabobo is the eastern most of four regions in the Orinoco. The other regions from east to west are Ayacucho, Junin and Boyaca.

Russian companies are also involved in the Junin 6 Block. PDVSA owns 60% and the remaining 40% is owned by a consortium of Rosneft, Surgutneftegaz, TNK-BP Holdings, Lukoil Holdings and Gazprom Neft. The block is scheduled to begin production in May 2012 at a rate of 50,000 barrels per day (b/d) from 34 wells. PDVSA estimates the field could produce up to 450,000 b/d.

The emphasis on natural gas development is focused on domestic needs. Currently, Venezuela imports about 200 million cubic feet per day (MMcf/d) from Colombia.

The same domestic demand for gas led to the cancellation at the end of September of the Mariscal Sucre LNG project that would have used gas either from the fields north of the Paria Peninsula or offshore in the Plataforma Deltana area south of Trinidad.

PDVSA said the LNG technology costs too much and the gas is needed for the domestic market. Venezuela has been talking about an LNG facility since the 1960s and is no closer to building a facility even with the huge gas reserves offshore eastern Venezuela.

The fields north of Paria contain an estimated 15 trillion cubic feet (Tcf). There are even more reserves in the Platforma Deltana area. Repsol and ENI have said the Cardon 4 offshore block in the latter area contains at least 15 Tcf.

Chevron is scheduled to begin gas production from its Plataforma Deltana block in 2013. The license calls for the company to deliver the gas to an LNG plant. The company said it had not been notified of any changes in the license.

Chevron is one of the anomalies in the Venezuelan oil industry – the only U.S. major oil company operating in the country. Not only is it involved in the offshore natural gas development, the company also has a heavy oil project in the Orinoco.

Venezuela is pinning its expectations for increased oil production on the Orinoco. The government would like to increase the output by 2.0 million b/d by 2020.

The Orinoco Belt could hold as much as 1.0 trillion barrels of heavy crude. However, developing the resource will be expensive. The crude is around 8° to 9° API gravity. Most refiners are unwilling to use such heavy crude. However, upgrading facilities in Venezuela can improve the crude to between 16° and 32° API.

Most of the crude is produced using diluents to thin the oil rather than heat. In order to boost production, gas-fired steam may be needed, which will increase demand for natural gas.

EIA estimated that the country produced around 2.36 million b/d of oil in 2010. Crude oil represented 2.09 million b/d of this total, with condensates, natural gas liquids (NGLs) accounting for the remaining production.

Venezuela contains billions of barrels in extra-heavy crude oil and bitumen deposits, most of which are situated in the Orinoco Belt in central Venezuela. According to a study released by the U.S. Geological Survey, the mean estimate of recoverable oil resources from the Orinoco Belt is 513 billion barrels of crude oil.

PDVSA began its Magna Reserva project in 2005 that divided the Orinoco Belt into 27 blocks and quantified the reserves in place. This initiative resulted in the upgrading of Venezuelan reserve estimates by more than 100 billion barrels, according to EIA.

Industry estimates place operating projects’ production levels at less than 500,000 b/d. Venezuela plans to further develop the Orinoco Belt in the coming years will require considerable technical and financial support.

In 2009, Venezuela signed bilateral agreements for the development of four major blocks in the Junin area. The following year, the country awarded two more major development licenses in the Carabobo region, EIA noted.

However, the political uncertainty in Venezuela has curtailed foreign investment in the country. Russia, China and Vietnam are some of the most recent countries showing an interest.

As the EIA noted, “given recent regulatory and operational problems, considerable uncertainty surrounds the future of Orinoco production.”

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