Venezuela: Energy in Figures 2013 Venezuela: Energy in figures 2013 Oil and gas sector 1 Venezuela: Energy in Figures 2013 2 Venezuela: Energy in Figures 2013 Index Oil figures 2013 5 Oil Industry and Local Content Regulations in Venezuela 6 01 Average Oil Prices 9 Exploration and Production 10 Oil Reserves 2013 10 Production in 2013 11 sector PDVSA Production, consumption and oil reserves in Venezuela, 1980-2013 15 Labor Force 16 Investment 17 Production by type of scheme 19 Projects with third parties 21 refining 29 Subsidies 31 Commercialization 33 Fiscal Policy and the Oil Sector 36 PDVSA’s Investment Plan: Siembra Petrolera 40 Oil and gas aspects of Plan de la Patria Law 41 Amounts and investment scheme 42 Gas figures 2013 42 02 Exploration and production 43 Reserves 43 Gas PDVSA: Reserves, production and consumption 45 Transport and distribution 47 sector Domestic gas 47 Invesment 48 Gas prices 55 PDVSA’s performance 56 compared with other Latin-American State controlled companies Production per employee 56 Profits 57 Leverage 57 Performance and autonomy 58 2012 – 2035 PROYECTIONS 59 Oil Sector 60 03 Gas Sector 63 3 Venezuela: Energy in Figures 2013 OIL SECTOR 4 Venezuela: Energy in Figures 2013 Oil Figures 2013 • Conventional oil reserves (light and medium): • Global refining capacity of Petróleos 40.054 billion barrels. de Venezuela, SA (PDVSA): • Heavy and extra-heavy crude reserves: 2.8 million barrels per day. 258.299 billion barrels. • Internal consumption: • Production: 703 thousand barrels a day (tbd)2. 2.899 million barrels a day on average1. OIL OUTLOOK 2013 RESERVES PRODUCTION CONSUMPTION (BILLIONS OF BARRELS) (BILLIONS OF BARRELS) (BILLIONS OF BARRELS) WORLD 1687,9 86,8 91331 NORTH & SOUTH AMERICA 559 24,1 30,066 CONVENTIONAL 40,054 CRUDES HEAVY & EXTRA- VENEZUELA HEAVY WEIGHT 258,299 2,6-2,899 703-777 CRUDES TOTAL 298,353 AS % OF TOTAL AS % OF TOTAL AS % OF TOTAL RESERVES PRODUCTION CONSUMPTION VENEZUELA / NORTH & SOUTH AMERICA 53% 10,8%-12,02% 2,3% - 2,58% VENEZUELA / WORLD 18% 2,99% - 3,4% 0,77% - 0,85% AS % OF CONVENTIONAL RESERVES 1 International sources reported VENEZUELA / NORTH & SOUTH AMERICA 30% a production of 2.6 million barrels per day. VENEZUELA / WORLD 3% 2 According to the International Energy Agency (IEA) domestic consumption now stands at 777 Source: Informe de Gestión Anual de PDVSA (2013), OPEC, BP Statistical Review of World Energy 2013 and own calculations. thousand barrels per day. 5 Venezuela: Energy in Figures 2013 OIL INDUSTRY AND LOCAL CONTENT REGULATIONS IN VENEZUELA To achieve a transition from a natural resource the necessity to create its own channels of owner to an actor inside the oil business, commercialization and to link Venezuelan person- Venezuela had to put in place a diversity of poli- nel with hydrocarbon marketing, with the goal to cies that promoted national participation in the develop criteria on the price at which oil was sold. oil sector without hindering incentives for in- At that moment, the idea to create a State- vestments. Throughout its history, Venezuela’s owned oil company was born. That company government has implemented key policies with would take advantage of all the fields with different levels of success; what follows is a small oil potential that had not been granted to summary of the measures that had more impact. foreign firms. That idea fell apart doing the 1950s, At the beginning of the XX Century, capital, la- when the government granted new concessions. bor and oil production technologies belonged to foreign firms that operated in Venezuelan However, during that decade took place a land and the major source of income the State personnel substitution process where foreign received came from the figure of royalties. The employees gave way to Venezuelans to work “Reventón” of the Barrozos-2 well that showed in the oil industry. This process was carried the country’s petroleum potential, generated out either by foreign corporations’ own initia- interest to invest from several international oil tives – as in the case of the Royal Dutch Shell, companies. In order to channel investment that faced the cost of moving human capital efforts, they developed high level technical between its headquarters – as well as by new studies, and production plans. On the other hand, regulations, such as the Architecture and En- the Venezuelan State moved to acquire more gineering Practice Law. These initiatives re- regulation skills and designed mechanisms duced the proportion of foreign personnel in the that took advantage of this external investment oil sector from 13.3 % in 1952 to 2.2 % in 1975. potential. When, at the end of the 1950s, the new demo- cratic government took power, interest for The introduction of the 1943’s Ley de Hidrocar- the creation of a national petroleum company buros unified the fiscal regime for all the existing grew again. In 1960, the Venezuelan Petro- and new concessions to foreign oil companies. leum Corporation (CVP) was created. It was This regime increased the State’s participation a vertically integrated company that looked, on oil revenues and established new require- among its objectives, to strengthen the links ments of oil refined inside the country by the between national personnel and the industry. concessioners. These requirements led to the However, the CVP was less profitable than its construction of oil refineries that processed foreign competition. Some of the possible causes over 250 thousand barrels a day (tbd) in 1950. for its low profitability were: low initial capital, During the 1940’s, particularly during the difficulties to attract talented employees (with government of the Revolutionary Jun- wages 40 % lower than in the foreign compa- ta (1945-1948), the State emphasized on nies), the quality of oil fields that were assigned 6 Venezuela: Energy in Figures 2013 to it, price obstacles set by the International option that eased the pathway for new tech- oil companies and the lack of a clear training nologies while keeping traditional markets for strategy. Afterwards, those reasons shaped the Venezuelan products. On the other hand, they were way the nationalization was planned, in response considered as a kind of compensation towards the to critics that were not sure that the CVP would be old concessionaries affected by the nationalization. able to assume all the operations in the oil sector. Additionally, Technological Cooperation Agree- Looking to maintain stable cash flows and to ments were created with the goal of develop- prevent operation interruptions, the Venezuelan ing joint research, working under collaborative State created Petróleos de Venezuela, Sociedad standards and oriented on the study for the Anónima (PDVSA) as a holding company for enhancement of heavy and extra heavy crude all the enterprises that operated the country’s oil, horizontal and deep water perforations, gas oil industry, including the CVP and the foreign and wells engineering among other subjects that concessionaries. Therefore, a progressive trans- were directly linked with PDVSA’s operations. fer of operations and projects was established, During that period, several regulations were counting with cooperation from the parent com- put in place in order to increase the number of panies of the concessionaries within a range of as- Venezuelan professionals hired and to raise the pects that covered operations, technical services, share of nationally-manufactured goods inside special projects and human resources and training. the industry. The most important were the N° At the moment of the nationalization in 1976, 1234 decree in 1981 and the “Compra Venezolano” a significant technological breach (i.e. 37 % in decree. At the same time, the State granted the refining area) between the foreign and na- incentives for the development of technologies tional industries shaped the way the transfer that produced Venezuelan value and limited the took place: technological links with the foreign level of dependence on foreign products. companies for at least 70 % of the industry, Additionally, it set evaluation mecha- according to studies by INVEPET (now INTEVEP). nisms for national suppliers to the in- This institution also stressed on the need to dustry, achieving significant progress. create a data processing and services center With the implementation of the Apertura Pe- that supported exploration and production trolera during the 1990s, new operative agree- activities that would be able to adapt ments were established for the reactivation secondary recovery techniques to Venezuelan of several production fields; strategic partner- conditions while also developing technologi- ships were created to raise production in the cal advancements for heavy-crude production complex Orinoco Oil Belt and several contracts during the first years of the nationalized industry. for off-shore gas exploitation were signed. In order to achieve those goals, Technical Regarding other related areas such as the Association Agreements -- Convenios de Aso- nationally patented Orimulsion technology, ciación Estratégica in Spanish – were estab- the national petrochemical industry and the lished. They later evolved into the exploration of services sector the Apertura also managed to bring the Orinoco’s Oil Belt and of offshore reserves, significant foreign investment and partnerships. a modification of refining canons and to the in- The participation of national private equity troduction of better practices for international was expected and promoted in order to marketing. These agreements were seen as an accomplish integration gains in the ser- 7 Venezuela: Energy in Figures 2013 vices sector. For that reason, all the con- of local production in the country’s oil indus- tracts formally included conditions that pri- try went from 58.7 % in 1999 to 21.6 % in 2010. oritized locally produced goods and services. According to PDVSA’s official 2008 plans, its However, expansion from the oil industry to the goals were to increase the share of national Venezuelan productive sector was limited by local content from 39 % to 70 % in a 5 year certain constrains like lack of financing, over- period.