Is The Venezuelan Oil Basin Doomed To Become The World’s Largest Stranded Asset

Big oil is being forced to examine its carbon emissions and work towards becoming carbon neutral as part of the global push to decarbonize the economy with oil supermajors are now reevaluating their business strategies due to the risk of peak oil demand.

Many have decided to abandon high-cost, carbon-intensive petroleum projects. This is a serious threat to Venezuela’s economy and the economic recovery of the crisis-torn country. The OPEC member has the largest oil reserves in the world, with around 304 billion barrels. This is enough oil to supply global demand for approximately 8 years. Venezuela has 77% of its petroleum reserves.

This includes extra-heavy crude oil from the Orinoco Belt, which is located in the East Venezuela Basin. This extra-heavy and heavy crude oil is extremely carbon-intensive to extract, refine, and refine.

There is an increasing risk that Venezuela’s huge petroleum reserves will become a costly stranded asset. Although Venezuela’s oil sands may be less viscous than Canadians, it is still difficult to extract them. However, they are too deep to be mined from the surface.

The Orinoco Belt’s heavy crude oil is extracted by horizontal multilateral wells. This technique is called cold heavy oil production (CHOPs). This is when sand is injected into a perforated hole. The resulting channels allow crude oil to flow to the surface, either by itself or via secondary recovery techniques. Oil from the Orinoco Belt has a heavy and sour flavour. It typically has an API gravity of 5-15 degrees.

The sulfur content is between 4% to 6%. It also contains high levels of nitrogen and other contaminants. These characteristics make it extremely difficult and time-consuming to process. After being extracted, the crude oil is mixed with light oil or condensate in order to reduce its viscosity. This makes it easier to transport for sale or refining.

The Petrocedeno operation of national oil company PDVSA (Spanish), takes extra-heavy crude oil with API gravity of 8-9 degrees, from the Junin region in the Orinoco Belt, and turns it into a light sweet crude. The Jose Antonio Anzoategui Industrial Complex has a capacity to handle 180,000 barrels of oil per day.

Extra-heavy oil is mixed with light sweet petroleum varieties or condensate and then processed at the facilities improvement unit to make Zuata Sweet. This light sweet crude oil variety has an API gravity of 32 degrees and very low levels of 0.07% sulfur.

This complex and energy-intensive process is responsible for significant greenhouse gas emissions. Equinor and TotalEnergies decided to stop the Petrocedeno operation and return their shares to PDVSA.

The dilapidated Venezuelan petroleum infrastructure, coupled with a persistent shortage of light crude oil makes it difficult for the Petrocedeno facility to operate at its full capacity. Zuata Sweet was initially introduced to the U.S. refinery market, but strict U.S. sanctions have prevented PDVSA access to global petroleum markets.

The technology used to upgrade the Jose Antonio Anzoategui Complex’s Jose Antonio Anzoategui Complex is complex, fragile, and expensive. Given Venezuela’s economic collapse, near bankruptcy, it is hard to imagine how PDVSA can get the parts needed and finance critical maintenance and refits.

After taking into account Venezuela’s unstable operating conditions, it is clear that foreign energy companies are unlikely to invest in a project that produces extra-heavy, sour crude oil. This will allow them to upgrade the oil into a lighter sweeter variety.

High carbon oil projects are almost impossible to invest in due to the determined drive of most developed countries to decarbonize their global economy and achieve ambitious emission targets to limit global warming to well below 2 degrees Celsius.

Merey, Venezuela’s primary export-grade crude oil, is a very sour and heavy mixture with 2.45% sulfur and an API gravity of 16 degrees. It is particularly popular among Chinese refiners. Merey is made by mixing extra-heavy crude oil from the Orinoco Belt, ranging in 8-10 degrees, with condensate of 42- to 52-degrees or very light crude oil.

Due to a lack of condensate or light oil, Merey production, a vital export blend from Venezuela, is in danger. Due to a sharp drop in domestic hydrocarbon production and tight U.S. sanctions that have cut off OPEC members from condensate supply, this is due to Venezuela’s collapsed petroleum infrastructure. The Carnegie Endowment For International Peace has data that shows Merey is one of the top emitters of greenhouse gasses. However, two other heavy oils from Venezuela, Tia Juana or Hamaca, produce much higher levels.

Venezuela’s dependence upon extra-heavy crude oil production has led to its crumbling oil industry becoming one of the world’s most carbon-intensive oil producers. According to a 2018 Stanford University paper, Venezuela’s greenhouse gas emissions were second only to Algeria. Based on 2015 emissions data, other research showed that Venezuela’s oil industry produced the most greenhouse gases of any country.

Canada, however, was close behind. PDVSA is not able to develop new technologies and methodologies to reduce greenhouse gas emissions, unlike Canada. This is due to a lack of capital access, as well as expertise.

Venezuela is having difficulty obtaining the technology and capital required to rebuild its crumbling oil industry. It is a huge investment. Even an optimistic PDVSA estimates that it will cost $58 billion to bring oil production back to 1998 levels.

However, other experts think it could take up to $200 billion. According to the Spanish blueprint for Venezuela’s reconstruction, Juan Guaido, the U.S.-recognized interim President, it will cost $180 billion to $200 Billion for OPEC members to pump an average of two million barrels per day. Guaido’s economic advisors estimate that it will take 10 to achieve this recovery.

Francisco Monaldi of the Baker Institute, Venezuela expert, stated earlier this month that Venezuela needs to produce between 2.5 million and 3 million barrels of crude oil per day. This will require an investment of approximately $110 billion over a decade.

Western energy majors are the only source of such large amounts of capital and the expertise required to rebuild Venezuela’s severely degraded oil industry. No supermajor privately owned will invest in Venezuela until Washington lifts sanctions, despite Maduro’s appeals to the global oil industry and his reforms that aim at attracting foreign investment.

The events suggest that the Biden administration won’t consider lifting or relaxing sanctions, including those imposed by Trump on the oil industry, until there is regime change, which is extremely unlikely.

Venezuela has a very limited opportunity to profit from its vast oil reserves due to the threat of peak oil consumption and the global push for decarbonization. Already, the western supermajors in energy are hesitant to invest in carbon-intensive projects.

It is only a matter of time before Venezuela’s huge petroleum reserves become a stranded asset. This will be due to derelict infrastructure and massive environmental damage.

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