Venezuelan Natural Gas Market: a Proposal for its Growing
VENEZUELAN NATURAL GAS MARKET: A PROPOSAL FOR ITS GROWING Marco Gonzalez D.
1
1. Simon Bolívar University Keywords: 1. Natural Gas; 2. Venezuela; 3. Prices and Tariff; 4. Organic Law of Gaseous Hydrocarbons; 5. Market. 1
Introduction The proven gas reserves of Venezuela were recorded at 181.9 trillions of cubic feet (TCF) by the end of 2007 [1], the eighth largest reserves of the world, equivalent to 2.9% of the world gas reserves and the largest in Central and South America, equivalent to 66.7% of the gas reserves located there. Venezuela produced in 2006 only 2.6 TCF, of which the oil industry consumed 71.1% of Venezuela’s natural gas production, with the largest share of that consumption for injection to enhanced oil recovery (1,1 TCF equivalent to 60,0% of that consumption) [2]. At the same time, approximately 91% of Venezuela’s gas reserves are associated to crude [3], causing that the gas industry in Venezuela depends of the cycles of oil business. For a long time, when the gas/oil ratio (GOR) in a particular reservoir was too high, the decision of the operator was to change to another reservoir or to close the oil well, due to: 1) there was not infrastructure to handle gas volume produced, 2) natural gas could not be flared or vented and 3) producing natural gas was not business. In 1971, as a consequence of the Law that Reserve to the State the Natural Gas Industry [4], the gas industry in Venezuela was nationalised. In that date, in Venezuela was legal the oil concessions regime for the hydrocarbons industry, being considered this movement with gas industry one of the firsts steps in order to nationalise the oil industry, as certainly happened in 1976 [5]. By this law, the gas industry is exerted by the Executive Power (Presidency of the Republic), being the operation exerted by CVP (Venezuelan Petroleum Corporation, by its abbreviations in Spanish), which was a national oil company created in 1960 for obtaining direct participation of Venezuelan State in the oil activities. The oil concessionaires were forces to give all natural gas production to Venezuelan State, following instructions of the Presidency of Venezuela. During 1996 and 1997, CVP was joined to some nationalised companies, creating CORPOVEN, company in charge of downstream stage of gas industry, until 1996, date when the company PDVSA Gas was created. The Organic Law of Gaseous Hydrocarbons (LOHG, by its abbreviations in Spanish), which opened all stages of the natural gas chain value to private investment, was ruled in 1999, via the Gazette Nº 36793 [6]. The aim of the law includes the development of non-associated natural gas resources; the development of systems for the recollection, storage, utilisation, industrialisation, transport and distribution of both nonassociated gas and associated gas. Furthermore, this Law indicates that priority of natural gas business is the development of Venezuela, by the intensive and efficient utilisation and industrialisation of this resource; however, the law allow eventual development of export market for gas produced [6]. The LOHG also prioritise the participation of national private companies in the gas business but it is not prohibiting the participation of international companies. This law guaranties that stages of the natural gas chain in a particular region will not be executed for the same company. With those figures and the Law of Gas of 1999, a resource as abundant as natural gas in Venezuela must be able to express itself in full, with a mature natural gas internal market and turning to Venezuela in a natural gas exporter country, but the reality is different. 2
Objective The aim of this work is to propose a new structure for natural gas market in Venezuela, based on the existent legislation, generating the growth of the gas demand in the internal market and allowing the exporting of gas. Also, this paper considers the past and present realities of the natural gas industry in Venezuela, and its different economical, legal, political and social characteristics. 3
Methods In order to make a proposal identified with the characteristics of Venezuela, first it were defined the status of Venezuelan Natural Gas Market and how other industries associated to national oil company of Venezuela (PDVSA) have been developed and how has been the experiences related to other commodities in Venezuela. Then, information about the market structure of natural gas in some countries in the world, such as Argentina, Mexico, Peru, USA and Spain were compiled and analyzed, establishing a comparison with the situation in the natural gas market of Venezuela. All this information was evaluated in order to produce a proposal for the natural gas market structure that allow the growth of Venezuelan Natural Gas Market.
4
Venezuelan Natural Gas Market
a. Background In 1971, the Law of Gas established a structure of natural gas market regulated by the Venezuelan State; since 1976, once the oil industry in Venezuela was nationalised, the gas industry took the form showed in Figure 1. In that figure, it can be noted that Venezuelan companies Lagoven, Maraven, Corpoven and Meneven were the only gas producer; Corpoven was in charge of gas transportation stage and the gas distribution was shared between various companies with different stakeholders composition: state-owned (Corpoven), municipal-owned (Sagas in Maracaibo) and private (Domegas in Caracas and Tigasco in Anzoategui). This structure is similar to traditional structure of the US Gas Industry before 1985, when it was introduced a new structure based in Open Access to Pipeline Transportation [7].
Producers: Lagoven, Meneven, Corpoven & Maraven
Transportation: Corpoven
Local Distribution Companies: Corpoven, Domegas, Sagas, Tigasco
End Users: Industrial, Power, Iron & Steel, Residential
Gas Transportation Gas Sales Figure 1. Structure of Venezuela Natural Gas Market, 1971 – 1999 (Own making using [5] and [7]) The structure of natural gas industry in Venezuela according to the Organic Law of Gaseous Hydrocarbons (LOHG) [6], shall be vertically separated into the following stages: production, transportation and distribution, and establishes an open access to pipeline transportation and the possibility of participation of private companies in all the stages of natural gas value chain in Venezuela. In spite of this law, the actual structure of gas market in Venezuela has not changed so much, due to almost all these stages are in the hands of filial companies of PDVSA. Actually the industry of the gas is integrated vertically, with some exceptions. In the Figure 2, the real structure of gas market at this moment is showed. For this circumstance, natural gas development strategies depend of the strategies that PDVSA develops for its main product: oil. Also, it can be noted that there have not had many changes in the structure. Producers: PDVSA E&P, Ypergas, Copa Macoya, Barrancas
Transportation: PDVSA Gas
Local Distribution Companies: Pdvsa Gas Comunal, Domegas, Sagas, Tigasco
End Users: Industrial, Power, Iron & Steel, Residential
Gas Transportation Gas Sales Figure 2. Structure of Venezuela Natural Gas Market, after 1999 ((Own making using [5] and [7])
b. Supply In Venezuela, the available gas production has been on the rise from 5275 millions of standard cubic feet (MMSCFD) in 1996 up to 7110 MMSCFD in 2006 [2]. In figure 3, behaviour of the uses of gas in Venezuela since 1996 is shown, where it can be seen that gas produced is mainly dedicated for two applications: injected (3035 MMSCFD in 2006), associated to the increase of the oil production, and sold for the internal market (2054 MMSCFD in 2006). In figure 4, share of each application of the Produced Gas Available for the years 1996 and 2006 is shown, where volume dedicated to oil operations accounted for 71% of the total available, whilst the gas sold for the internal market reached 29%. In the last 4 years recorded (2003 – 2006), in average, the injection of gas has received 43% of the gas production, whereas the domestic market has received 27% [2]. All these figures highlight the priority given to the oil production in the decisions on the produced gas.
Figure 3. Applications for Gas Production in Venezuela. [2]
Year 2006
Year 1996
Internal Market 34%
Injected 28%
Thrown 8% Fuel 19%
Transformed & Losses 11%
Internal Market 29% Fuel 14% Transformed & Losses 7%
Injected 43% Thrown 7%
Figure 4. Share of Applications of Gas Production in Venezuela – Years 1996 and 2006 [2] Gas production in Venezuela is concentrated in Eastern Basin, largest producer region, composed by Anaco Area, Oficina Area and North of Monagas Area. The Maracaibo Basin, located at western part, was for long time the largest gas producer, but at this moment a lot of its reservoirs are almost depleted. The lack of gas in western side of Venezuela is so critical that since 2008, imports from Colombia, through the TransCaribbean pipeline Puerto Ballena – Bajo Grande, has provided an important share of gas supply for these consumers; the gas volume currently being imported from Colombia reaches 300 MMSCFD [8]. Pdvsa, the Venezuelan state-owned company, produces most of the volume of gas earmarked for the market, through companies it controls entirely or through mixed companies as the majority stockholder. There are only a few exceptions, among them are Campo Yucal – Placer Norte, operated by Ypergas, a consortium of national and foreign companies led by Total, the Barrancas Block, operated by Repsol YPF and Quiriquire Deep, operated by a consortium led by Repsol YPF. Additionally, there are three blocks from the Plataforma Deltana belong to International Oil Companies: Block 2 - Chevron, Block 3 - Chevron and ConocoPhillips and Block 4 – StatoilHydro; and the others Gas Licenses granted in 2001, which are not yet producing gas on a commercial basis. The gas supply in Venezuela is conditioned by several factors: 1) associated gas, which depends on the fluctuations of the oil business; 2) geographic, since the production of gas available for the domestic market is concentrated in the eastern region, whereas in the western region there is a gas shortage, 3) control of one supplier, PDVSA, and 4) probably, the price of gas at wellhead for producers is not good enough, in order to incentive them for the exploration of existing licensees and new exploration blocks c. Demand Since 1984, the Venezuelan energy matrix has been dominated by natural gas and oil, alternately, leaving hydroelectricity in the third place, with significant percentages always on the rise, and coal relegated as energy source by hardly showing up on the reports. The highest gas share in the matrix was in 1996, when it reached 46.2% compared to oil (32.8%) and hydroelectricity (21.0%) [2]. However, the figures for
2006, show that oil is controlling the Venezuelan energy matrix with 37.5%, whilst the presence of gas decreased to 35.9% and hydroelectricity has reached a historic peak of 26.6% (See Figure 3).
Figure 3. Venezuela´s Energy Matrix – Years 1996 and 2006 [2] The gas demand is associated to the group of consumers of the domestic market, since all gas produced in Venezuela is allocated to this market; nonetheless, projects associated to the Plataforma Deltana have been proposed, which include the exporting of gas, via pipeline, liquefied or compressed natural gas. According to figures from the PODE [2], in the period 1996 – 2006, the gas demand in the domestic market of Venezuela has shown an irregular behaviour, varying from an average of 2780 MMSCFD between 1996 and 1998, up to 2590 MMSCFD between 1999 and 2003, with a minimum of 2343 MMSCFD in 2003; from that year onwards, the tendency of the consumption is that of growth, reaching in 2006 a volume of almost 3000 MMSCFD (see Figure 4).
Figure 4. Natural Gas Demand in Venezuela [2] The Venezuelan domestic market is made up by the oil, industrial (iron and steel, cement), electric, petrochemical and residential sectors. In figure 5, the share by sectors of the gas demand in Venezuela for the years 1996 and 2006 can be seen. There it can see that in ten years, the share has not varied greatly, setting the Oil Industry as the main gas consumer with an average of 33% in the last 11 years, followed by the use of gas for power generation (20%), Iron and Steel (16%) and Petrochemical (14%). It shows that the consumption in the residential sector is 3%. For 2009 the inclusion of a new sector is expected, the vehicles sector, in which natural gas acts as a substitute of gasoline as vehicle fuel. The gas demand in Venezuela is conditioned by several factors: 1) the existence of distribution networks, especially applied to the domestic and commercial sector, since it does not depend on the consumer requiring the gas, but on them being located in a zone where there are distribution networks; and 2) cultural, since it depends on safety beliefs related to the use of gas as a primary energy, before electricity. The price factor in Venezuela has not been a dominant factor, due to the predominance of the availability
and cultural factors. However, in a scenario of higher gas tariffs for end users as this work proposes, probably the Price variable will be more important in the future, mainly for industrial sector.
Figure 5. Share of Natural Gas Demand in Venezuela [2]
d. Transportation In the middle of the supply and demand is the transport stage, made up by the companies that coordinate the gas volumes produced with the gas volumes required by the consumers. In Venezuela, this stage is controlled by PDVSA, the state-owned company that with its branches PDVSA Gas and PDVSA E&P, owns 4003 Km of gas transportation pipelines of a total of 4030 Km [2]. Moreover, the most recent gas transmission systems projects in Venezuela have been developed or are being developed by PDVSA Gas, i.e. Central-Western Interconnection (ICO), Barbacoa - Margarita Gas Pipeline and Eastern Gas System (SINORGAS), because it seems it has not been attractive for other companies to develop mentioned projects. Likewise, the cities gasification project has been developed by PDVSA Gas Comunal. e. Prices and Tariffs The article Nº 12 of Organic Law of Gaseous Hydrocarbons establishes that the tariffs to be applied to low volume end users shall be the sum of Price of gas at hub centre, transportation Fee and distribution Fee, where the price of gas at hub shall be established using Principle of Fairness and the MENPET and Ministry of Light and Trade will established the transportation and distribution fees via Gazette. The price variable in Venezuelan market is seen by many as the one hindering this sector from developing its full potential, due to gas price is regulated to low value by Official Gazette. In the evolution that natural gas prices have had in average, it can see a sustained growth from 0.5 US$ / MMBTU in 1998 up to around 1.0 US$ / MMBTU in 2006 [2] (see Figure 6).
Figure 6. Natural Gas Prices Comparison [1], [2]
This growth tendency is prone to stagnate, given the fact that in February 2006 prices to be charged for gas at the hub centres and for transportation service were fixed as per the Official Gazette of the Bolivarian Republic of Venezuela Nº 38.386 [9]. The fees set forth in mentioned gazette varies according the geographical location of the end users, by 2008, from 0.37 US$/ MMBTU in eastern part of Venezuela, close the main sources of gas (Anzoategui and Monagas States), to 1.09 US$/ MMBTU in western part of Venezuela (Lara and Yaracuy States), far from the gas fields. The behaviour of the average gas prices in international markets, more specifically in the European Union and Japan, is shown in figure 6. There it can see that average gas price in Venezuela is approximately 5 times lower than average fee in other two regions. Actually, price of gas in Venezuela are in Bolivar currency (BsF) converted to US$ using the official exchange rate (2.15 BsF / US$), which it has been fixed for 4 years; if the exchange rate considers the inflation in that period, the difference between Venezuelan gas price and the other two regions would be 11 times. The prices of natural gas in Venezuela regulated by presidential decrees to low tariffs, makes difficult the growth of natural gas market, due to the lack of incentives to explore regions searching new gas fields or to install new gas infrastructure, such as: gas pipelines, gas distribution system, etc. 5
Proposal This work proposes a new structure for natural gas market in Venezuela based on the Organic Law of Gaseous Hydrocarbons enacted in 1999 [6], which allows 1) the participation of private investors in all stages, 2) recognizes the separation between companies that execute the different activities, 3) gas prices and tariffs for service according to economical variables and 4) open access to pipeline transportation systems.
From the analysis presented until now, it is clear that the key points for the growing of natural gas market in Venezuela are the gas prices that it will receive the producer at wellhead and the gas tariffs to the end user for the service. Based on it, this work proposes a strategic plan, framed in the Organic Law of Gaseous Hydrocarbons enacted in 1999, composing by various actions, which should be applied by the Ministry of Energy and Oil. 1. Reactivating the Gas Licensees conceded under the Organic Law of Gaseous Hydrocarbons, establishing attractive price at wellhead for gas producers, according the Principle of Fairness indicated in the law. 2. Dividing the country in gas user regions and sub-regions, according its geographical location. This work offers the following partition: a. Western region: Zulia state b. Central - Western region: Falcon and Lara states c.
Andean region: Tachira, Merida and Trujillo states
d. South – Western region: Barinas, Portuguesa and Apure states e. Central region: Aragua, Carabobo and Cojedes states f.
Great Caracas region: Capital District, and Vargas and Miranda states
g. Guayana redion: Bolivar state h. Eastern region: Anzoategui, Monagas and Sucre states In each region or sub-region, the winner of the Licensees as Local Distribution Company will develop as many gas distribution systems as it is needed. 3. Bidding the construction of gas pipeline to transport the gas from gas hub to gas regions. The existing pipelines could continue belonging to PDVSA or could be sharing it with other interested companies. The transportation pipelines will be open – access, as it is established by the Organic Law of Gaseous Hydrocarbons. The analysis of gas market of some countries as USA [7], points out that when open access are introduced to the gas industry, the customer is benefited and the demand of natural gas is increased. 4. Bidding Licensee of distribution systems for the gas regions and sub-regions, giving service fees according to gas infrastructure needed for the development of each region or sub-region. Each winner of licensee will obtain the exclusivity to develop the gas distribution system in each sub-
region or region, and its performance will be controlled by the national gas regulatory entity, ENAGAS, by its abbreviations in Spanish. 5. Planning the operation of gas systems, basing on the concept of Gas Hubs, in order to centralise the supply of gas to the regions and sub-regions; these hubs will be interconnecting through the existing pipelines or the construction of new transportation facilities. This work offers the following locations for gas hubs: a. Anaco Hub: The Anaco Principal Station (EPA), located at Anaco, Anzoategui state, is in fact a gas hub, because it receives the gas produced by PDVSA in Anaco Area and it is the starting point of two big gas pipeline systems: Anaco – Barquisimeto – Rio Seco Pipeline, which transports gas to the central, central – western and western part of Venezuela; and Anaco – Puerto Ordaz, which transports gas to Guayana region. b. Zulia Hub: This hub, located in Ulé, Zulia state, handles almost all the gas produced in the Maracaibo Basin c.
CIGMA Hub. The complex named CIGMA, will be an industrial complex, which will handle all the production from Gran Mariscal Sucre and Plataforma Deltana Offshore Projects.
d. Paraguana Hub: This hub, to be located in Punto Fijo, Falcon State, would handle all the gas production from Rafael Urdaneta Offshore Project, which is in exploration phase at this moment. e. San Carlos Hub: This hub, to be located close to San Carlos, Cojedes State, would handle all the gas production from the Gas Licensees located in the Central part of Venezuela, which is in exploration phase at this moment. 6. The companies that obtain the Distribution Licensee for each region or sub-region will promote the gas utilisation as substitute of oil and coal. When hydroelectricity be available, the MENPET will define the energy policy for each case, allowing the substitution of hydro when it is beneficial for the country 7. The producers can be sell gas directly to local distribution company or end users 8. The Ministry of Energy and Oil and ENAGAS should be evaluate the creation of a financial market in Venezuela, allowing the creation of Trading Companies or Marketers, which will give more flexibility to offer and demand of natural gas. 9. In the future the Ministry of Energy and Oil should consider the reactivation of more oil fields with high Gas/Oil ratio, in order to supply the volume of gas needed for the growth of natural gas market in Venezuela. 6
Conclusions and Perspectives In this work, a change of existing structure of natural gas market in Venezuela based on Organic Law of Gaseous Hydrocarbons is proposed. At the beginning, the proposal includes the reactivation of Gas Licensees and the division of Venezuela in eight regions to be attended by independent gas distribution companies, which would allow supplying natural gas to the majority of Venezuelan people, increasing the share of natural gas in the energy matrix. PDVSA would continue with the responsibility of the Exploration and Production and Transmission activities. Also, the proposal includes the construction of new infrastructure for the interconnection between sources of gas. A resource as abundant as natural gas in Venezuela has not yet been able to express itself in full; many reasons for this could be found, however, it is better to look ahead to the future and to make the most of this energy resource, hence energy policies which favour the use of natural gas, as well as pricing policies that allow to strengthen the sector without undermining the gas share in the national energy context. It is the time of gas, which is why we should all do our best to attain success in this business that even though associated to oil, must be developed with decisions independent from its situation in the global context. References [1] BP Statistical Review of World Energy (2008). British Petroleum, London. United Kingdom [2] PODE Oil and Other Statistical Data (2006). Ministry of the People’s Power for Energy and Oil. Caracas, Venezuela [3] PDVSA Gas (2009). WEB Page: www.pdvsa.com/index.php?tpl=interface.sp/design /readmenuprinc.tpl.html&newsidobj_id=394& newsid_temas=95. Consulted in April 2009
[4] Gazette Nº 29594 Law that Reserve to the State the Natural Gas Industry (1971). National Congress of Republic of Venezuela (Official Gazette of the Republic of Venezuela Nº 29594 dated 26 of August, 1971). Caracas, Venezuela [5] PDVSA (1986). 1976 – 1985 / Diez Años de la Industria Petrolera Nacional. Serie Décimo Aniversario. [6] Gazette Nº 36793.Organic Law of Gaseous Hydrocarbons (1999). Presidency of the Bolivarian Republic of Venezuela (Official Gazette of the Bolivarian Republic of Venezuela Nº 36793 dated 2 of Septembert, 1999). Caracas, Venezuela [7] Juris, Andrej (1998), Development of Natural Gas and Pipeline Capacity Markets in the United States [8] Latamgas (2009). “COLOMBIA: Increases gas shipments to Venezuela (300MMpcd) in view of the market crash”. Gas Magazine Latin America, Caracas, Venezuela. [9] Gazette Nº 38386 (2006). Joint Ruling Ministry of Light Industries and Trade N° DM/139 and Ministry of Energy and Oil DM/019, by which the transportation fees for the domestic market from the Hub Centres, as well as the distribution fees of methane gas for the existing industrial and residential networks are established. (Official Gazette of the Bolivarian Republic of Venezuela Nº 38.386 dated 23 of February, 2006). Caracas, Venezuela
1
1. Simon Bolívar University Keywords: 1. Natural Gas; 2. Venezuela; 3. Prices and Tariff; 4. Organic Law of Gaseous Hydrocarbons; 5. Market. 1
Introduction The proven gas reserves of Venezuela were recorded at 181.9 trillions of cubic feet (TCF) by the end of 2007 [1], the eighth largest reserves of the world, equivalent to 2.9% of the world gas reserves and the largest in Central and South America, equivalent to 66.7% of the gas reserves located there. Venezuela produced in 2006 only 2.6 TCF, of which the oil industry consumed 71.1% of Venezuela’s natural gas production, with the largest share of that consumption for injection to enhanced oil recovery (1,1 TCF equivalent to 60,0% of that consumption) [2]. At the same time, approximately 91% of Venezuela’s gas reserves are associated to crude [3], causing that the gas industry in Venezuela depends of the cycles of oil business. For a long time, when the gas/oil ratio (GOR) in a particular reservoir was too high, the decision of the operator was to change to another reservoir or to close the oil well, due to: 1) there was not infrastructure to handle gas volume produced, 2) natural gas could not be flared or vented and 3) producing natural gas was not business. In 1971, as a consequence of the Law that Reserve to the State the Natural Gas Industry [4], the gas industry in Venezuela was nationalised. In that date, in Venezuela was legal the oil concessions regime for the hydrocarbons industry, being considered this movement with gas industry one of the firsts steps in order to nationalise the oil industry, as certainly happened in 1976 [5]. By this law, the gas industry is exerted by the Executive Power (Presidency of the Republic), being the operation exerted by CVP (Venezuelan Petroleum Corporation, by its abbreviations in Spanish), which was a national oil company created in 1960 for obtaining direct participation of Venezuelan State in the oil activities. The oil concessionaires were forces to give all natural gas production to Venezuelan State, following instructions of the Presidency of Venezuela. During 1996 and 1997, CVP was joined to some nationalised companies, creating CORPOVEN, company in charge of downstream stage of gas industry, until 1996, date when the company PDVSA Gas was created. The Organic Law of Gaseous Hydrocarbons (LOHG, by its abbreviations in Spanish), which opened all stages of the natural gas chain value to private investment, was ruled in 1999, via the Gazette Nº 36793 [6]. The aim of the law includes the development of non-associated natural gas resources; the development of systems for the recollection, storage, utilisation, industrialisation, transport and distribution of both nonassociated gas and associated gas. Furthermore, this Law indicates that priority of natural gas business is the development of Venezuela, by the intensive and efficient utilisation and industrialisation of this resource; however, the law allow eventual development of export market for gas produced [6]. The LOHG also prioritise the participation of national private companies in the gas business but it is not prohibiting the participation of international companies. This law guaranties that stages of the natural gas chain in a particular region will not be executed for the same company. With those figures and the Law of Gas of 1999, a resource as abundant as natural gas in Venezuela must be able to express itself in full, with a mature natural gas internal market and turning to Venezuela in a natural gas exporter country, but the reality is different. 2
Objective The aim of this work is to propose a new structure for natural gas market in Venezuela, based on the existent legislation, generating the growth of the gas demand in the internal market and allowing the exporting of gas. Also, this paper considers the past and present realities of the natural gas industry in Venezuela, and its different economical, legal, political and social characteristics. 3
Methods In order to make a proposal identified with the characteristics of Venezuela, first it were defined the status of Venezuelan Natural Gas Market and how other industries associated to national oil company of Venezuela (PDVSA) have been developed and how has been the experiences related to other commodities in Venezuela. Then, information about the market structure of natural gas in some countries in the world, such as Argentina, Mexico, Peru, USA and Spain were compiled and analyzed, establishing a comparison with the situation in the natural gas market of Venezuela. All this information was evaluated in order to produce a proposal for the natural gas market structure that allow the growth of Venezuelan Natural Gas Market.
4
Venezuelan Natural Gas Market
a. Background In 1971, the Law of Gas established a structure of natural gas market regulated by the Venezuelan State; since 1976, once the oil industry in Venezuela was nationalised, the gas industry took the form showed in Figure 1. In that figure, it can be noted that Venezuelan companies Lagoven, Maraven, Corpoven and Meneven were the only gas producer; Corpoven was in charge of gas transportation stage and the gas distribution was shared between various companies with different stakeholders composition: state-owned (Corpoven), municipal-owned (Sagas in Maracaibo) and private (Domegas in Caracas and Tigasco in Anzoategui). This structure is similar to traditional structure of the US Gas Industry before 1985, when it was introduced a new structure based in Open Access to Pipeline Transportation [7].
Producers: Lagoven, Meneven, Corpoven & Maraven
Transportation: Corpoven
Local Distribution Companies: Corpoven, Domegas, Sagas, Tigasco
End Users: Industrial, Power, Iron & Steel, Residential
Gas Transportation Gas Sales Figure 1. Structure of Venezuela Natural Gas Market, 1971 – 1999 (Own making using [5] and [7]) The structure of natural gas industry in Venezuela according to the Organic Law of Gaseous Hydrocarbons (LOHG) [6], shall be vertically separated into the following stages: production, transportation and distribution, and establishes an open access to pipeline transportation and the possibility of participation of private companies in all the stages of natural gas value chain in Venezuela. In spite of this law, the actual structure of gas market in Venezuela has not changed so much, due to almost all these stages are in the hands of filial companies of PDVSA. Actually the industry of the gas is integrated vertically, with some exceptions. In the Figure 2, the real structure of gas market at this moment is showed. For this circumstance, natural gas development strategies depend of the strategies that PDVSA develops for its main product: oil. Also, it can be noted that there have not had many changes in the structure. Producers: PDVSA E&P, Ypergas, Copa Macoya, Barrancas
Transportation: PDVSA Gas
Local Distribution Companies: Pdvsa Gas Comunal, Domegas, Sagas, Tigasco
End Users: Industrial, Power, Iron & Steel, Residential
Gas Transportation Gas Sales Figure 2. Structure of Venezuela Natural Gas Market, after 1999 ((Own making using [5] and [7])
b. Supply In Venezuela, the available gas production has been on the rise from 5275 millions of standard cubic feet (MMSCFD) in 1996 up to 7110 MMSCFD in 2006 [2]. In figure 3, behaviour of the uses of gas in Venezuela since 1996 is shown, where it can be seen that gas produced is mainly dedicated for two applications: injected (3035 MMSCFD in 2006), associated to the increase of the oil production, and sold for the internal market (2054 MMSCFD in 2006). In figure 4, share of each application of the Produced Gas Available for the years 1996 and 2006 is shown, where volume dedicated to oil operations accounted for 71% of the total available, whilst the gas sold for the internal market reached 29%. In the last 4 years recorded (2003 – 2006), in average, the injection of gas has received 43% of the gas production, whereas the domestic market has received 27% [2]. All these figures highlight the priority given to the oil production in the decisions on the produced gas.
Figure 3. Applications for Gas Production in Venezuela. [2]
Year 2006
Year 1996
Internal Market 34%
Injected 28%
Thrown 8% Fuel 19%
Transformed & Losses 11%
Internal Market 29% Fuel 14% Transformed & Losses 7%
Injected 43% Thrown 7%
Figure 4. Share of Applications of Gas Production in Venezuela – Years 1996 and 2006 [2] Gas production in Venezuela is concentrated in Eastern Basin, largest producer region, composed by Anaco Area, Oficina Area and North of Monagas Area. The Maracaibo Basin, located at western part, was for long time the largest gas producer, but at this moment a lot of its reservoirs are almost depleted. The lack of gas in western side of Venezuela is so critical that since 2008, imports from Colombia, through the TransCaribbean pipeline Puerto Ballena – Bajo Grande, has provided an important share of gas supply for these consumers; the gas volume currently being imported from Colombia reaches 300 MMSCFD [8]. Pdvsa, the Venezuelan state-owned company, produces most of the volume of gas earmarked for the market, through companies it controls entirely or through mixed companies as the majority stockholder. There are only a few exceptions, among them are Campo Yucal – Placer Norte, operated by Ypergas, a consortium of national and foreign companies led by Total, the Barrancas Block, operated by Repsol YPF and Quiriquire Deep, operated by a consortium led by Repsol YPF. Additionally, there are three blocks from the Plataforma Deltana belong to International Oil Companies: Block 2 - Chevron, Block 3 - Chevron and ConocoPhillips and Block 4 – StatoilHydro; and the others Gas Licenses granted in 2001, which are not yet producing gas on a commercial basis. The gas supply in Venezuela is conditioned by several factors: 1) associated gas, which depends on the fluctuations of the oil business; 2) geographic, since the production of gas available for the domestic market is concentrated in the eastern region, whereas in the western region there is a gas shortage, 3) control of one supplier, PDVSA, and 4) probably, the price of gas at wellhead for producers is not good enough, in order to incentive them for the exploration of existing licensees and new exploration blocks c. Demand Since 1984, the Venezuelan energy matrix has been dominated by natural gas and oil, alternately, leaving hydroelectricity in the third place, with significant percentages always on the rise, and coal relegated as energy source by hardly showing up on the reports. The highest gas share in the matrix was in 1996, when it reached 46.2% compared to oil (32.8%) and hydroelectricity (21.0%) [2]. However, the figures for
2006, show that oil is controlling the Venezuelan energy matrix with 37.5%, whilst the presence of gas decreased to 35.9% and hydroelectricity has reached a historic peak of 26.6% (See Figure 3).
Figure 3. Venezuela´s Energy Matrix – Years 1996 and 2006 [2] The gas demand is associated to the group of consumers of the domestic market, since all gas produced in Venezuela is allocated to this market; nonetheless, projects associated to the Plataforma Deltana have been proposed, which include the exporting of gas, via pipeline, liquefied or compressed natural gas. According to figures from the PODE [2], in the period 1996 – 2006, the gas demand in the domestic market of Venezuela has shown an irregular behaviour, varying from an average of 2780 MMSCFD between 1996 and 1998, up to 2590 MMSCFD between 1999 and 2003, with a minimum of 2343 MMSCFD in 2003; from that year onwards, the tendency of the consumption is that of growth, reaching in 2006 a volume of almost 3000 MMSCFD (see Figure 4).
Figure 4. Natural Gas Demand in Venezuela [2] The Venezuelan domestic market is made up by the oil, industrial (iron and steel, cement), electric, petrochemical and residential sectors. In figure 5, the share by sectors of the gas demand in Venezuela for the years 1996 and 2006 can be seen. There it can see that in ten years, the share has not varied greatly, setting the Oil Industry as the main gas consumer with an average of 33% in the last 11 years, followed by the use of gas for power generation (20%), Iron and Steel (16%) and Petrochemical (14%). It shows that the consumption in the residential sector is 3%. For 2009 the inclusion of a new sector is expected, the vehicles sector, in which natural gas acts as a substitute of gasoline as vehicle fuel. The gas demand in Venezuela is conditioned by several factors: 1) the existence of distribution networks, especially applied to the domestic and commercial sector, since it does not depend on the consumer requiring the gas, but on them being located in a zone where there are distribution networks; and 2) cultural, since it depends on safety beliefs related to the use of gas as a primary energy, before electricity. The price factor in Venezuela has not been a dominant factor, due to the predominance of the availability
and cultural factors. However, in a scenario of higher gas tariffs for end users as this work proposes, probably the Price variable will be more important in the future, mainly for industrial sector.
Figure 5. Share of Natural Gas Demand in Venezuela [2]
d. Transportation In the middle of the supply and demand is the transport stage, made up by the companies that coordinate the gas volumes produced with the gas volumes required by the consumers. In Venezuela, this stage is controlled by PDVSA, the state-owned company that with its branches PDVSA Gas and PDVSA E&P, owns 4003 Km of gas transportation pipelines of a total of 4030 Km [2]. Moreover, the most recent gas transmission systems projects in Venezuela have been developed or are being developed by PDVSA Gas, i.e. Central-Western Interconnection (ICO), Barbacoa - Margarita Gas Pipeline and Eastern Gas System (SINORGAS), because it seems it has not been attractive for other companies to develop mentioned projects. Likewise, the cities gasification project has been developed by PDVSA Gas Comunal. e. Prices and Tariffs The article Nº 12 of Organic Law of Gaseous Hydrocarbons establishes that the tariffs to be applied to low volume end users shall be the sum of Price of gas at hub centre, transportation Fee and distribution Fee, where the price of gas at hub shall be established using Principle of Fairness and the MENPET and Ministry of Light and Trade will established the transportation and distribution fees via Gazette. The price variable in Venezuelan market is seen by many as the one hindering this sector from developing its full potential, due to gas price is regulated to low value by Official Gazette. In the evolution that natural gas prices have had in average, it can see a sustained growth from 0.5 US$ / MMBTU in 1998 up to around 1.0 US$ / MMBTU in 2006 [2] (see Figure 6).
Figure 6. Natural Gas Prices Comparison [1], [2]
This growth tendency is prone to stagnate, given the fact that in February 2006 prices to be charged for gas at the hub centres and for transportation service were fixed as per the Official Gazette of the Bolivarian Republic of Venezuela Nº 38.386 [9]. The fees set forth in mentioned gazette varies according the geographical location of the end users, by 2008, from 0.37 US$/ MMBTU in eastern part of Venezuela, close the main sources of gas (Anzoategui and Monagas States), to 1.09 US$/ MMBTU in western part of Venezuela (Lara and Yaracuy States), far from the gas fields. The behaviour of the average gas prices in international markets, more specifically in the European Union and Japan, is shown in figure 6. There it can see that average gas price in Venezuela is approximately 5 times lower than average fee in other two regions. Actually, price of gas in Venezuela are in Bolivar currency (BsF) converted to US$ using the official exchange rate (2.15 BsF / US$), which it has been fixed for 4 years; if the exchange rate considers the inflation in that period, the difference between Venezuelan gas price and the other two regions would be 11 times. The prices of natural gas in Venezuela regulated by presidential decrees to low tariffs, makes difficult the growth of natural gas market, due to the lack of incentives to explore regions searching new gas fields or to install new gas infrastructure, such as: gas pipelines, gas distribution system, etc. 5
Proposal This work proposes a new structure for natural gas market in Venezuela based on the Organic Law of Gaseous Hydrocarbons enacted in 1999 [6], which allows 1) the participation of private investors in all stages, 2) recognizes the separation between companies that execute the different activities, 3) gas prices and tariffs for service according to economical variables and 4) open access to pipeline transportation systems.
From the analysis presented until now, it is clear that the key points for the growing of natural gas market in Venezuela are the gas prices that it will receive the producer at wellhead and the gas tariffs to the end user for the service. Based on it, this work proposes a strategic plan, framed in the Organic Law of Gaseous Hydrocarbons enacted in 1999, composing by various actions, which should be applied by the Ministry of Energy and Oil. 1. Reactivating the Gas Licensees conceded under the Organic Law of Gaseous Hydrocarbons, establishing attractive price at wellhead for gas producers, according the Principle of Fairness indicated in the law. 2. Dividing the country in gas user regions and sub-regions, according its geographical location. This work offers the following partition: a. Western region: Zulia state b. Central - Western region: Falcon and Lara states c.
Andean region: Tachira, Merida and Trujillo states
d. South – Western region: Barinas, Portuguesa and Apure states e. Central region: Aragua, Carabobo and Cojedes states f.
Great Caracas region: Capital District, and Vargas and Miranda states
g. Guayana redion: Bolivar state h. Eastern region: Anzoategui, Monagas and Sucre states In each region or sub-region, the winner of the Licensees as Local Distribution Company will develop as many gas distribution systems as it is needed. 3. Bidding the construction of gas pipeline to transport the gas from gas hub to gas regions. The existing pipelines could continue belonging to PDVSA or could be sharing it with other interested companies. The transportation pipelines will be open – access, as it is established by the Organic Law of Gaseous Hydrocarbons. The analysis of gas market of some countries as USA [7], points out that when open access are introduced to the gas industry, the customer is benefited and the demand of natural gas is increased. 4. Bidding Licensee of distribution systems for the gas regions and sub-regions, giving service fees according to gas infrastructure needed for the development of each region or sub-region. Each winner of licensee will obtain the exclusivity to develop the gas distribution system in each sub-
region or region, and its performance will be controlled by the national gas regulatory entity, ENAGAS, by its abbreviations in Spanish. 5. Planning the operation of gas systems, basing on the concept of Gas Hubs, in order to centralise the supply of gas to the regions and sub-regions; these hubs will be interconnecting through the existing pipelines or the construction of new transportation facilities. This work offers the following locations for gas hubs: a. Anaco Hub: The Anaco Principal Station (EPA), located at Anaco, Anzoategui state, is in fact a gas hub, because it receives the gas produced by PDVSA in Anaco Area and it is the starting point of two big gas pipeline systems: Anaco – Barquisimeto – Rio Seco Pipeline, which transports gas to the central, central – western and western part of Venezuela; and Anaco – Puerto Ordaz, which transports gas to Guayana region. b. Zulia Hub: This hub, located in Ulé, Zulia state, handles almost all the gas produced in the Maracaibo Basin c.
CIGMA Hub. The complex named CIGMA, will be an industrial complex, which will handle all the production from Gran Mariscal Sucre and Plataforma Deltana Offshore Projects.
d. Paraguana Hub: This hub, to be located in Punto Fijo, Falcon State, would handle all the gas production from Rafael Urdaneta Offshore Project, which is in exploration phase at this moment. e. San Carlos Hub: This hub, to be located close to San Carlos, Cojedes State, would handle all the gas production from the Gas Licensees located in the Central part of Venezuela, which is in exploration phase at this moment. 6. The companies that obtain the Distribution Licensee for each region or sub-region will promote the gas utilisation as substitute of oil and coal. When hydroelectricity be available, the MENPET will define the energy policy for each case, allowing the substitution of hydro when it is beneficial for the country 7. The producers can be sell gas directly to local distribution company or end users 8. The Ministry of Energy and Oil and ENAGAS should be evaluate the creation of a financial market in Venezuela, allowing the creation of Trading Companies or Marketers, which will give more flexibility to offer and demand of natural gas. 9. In the future the Ministry of Energy and Oil should consider the reactivation of more oil fields with high Gas/Oil ratio, in order to supply the volume of gas needed for the growth of natural gas market in Venezuela. 6
Conclusions and Perspectives In this work, a change of existing structure of natural gas market in Venezuela based on Organic Law of Gaseous Hydrocarbons is proposed. At the beginning, the proposal includes the reactivation of Gas Licensees and the division of Venezuela in eight regions to be attended by independent gas distribution companies, which would allow supplying natural gas to the majority of Venezuelan people, increasing the share of natural gas in the energy matrix. PDVSA would continue with the responsibility of the Exploration and Production and Transmission activities. Also, the proposal includes the construction of new infrastructure for the interconnection between sources of gas. A resource as abundant as natural gas in Venezuela has not yet been able to express itself in full; many reasons for this could be found, however, it is better to look ahead to the future and to make the most of this energy resource, hence energy policies which favour the use of natural gas, as well as pricing policies that allow to strengthen the sector without undermining the gas share in the national energy context. It is the time of gas, which is why we should all do our best to attain success in this business that even though associated to oil, must be developed with decisions independent from its situation in the global context. References [1] BP Statistical Review of World Energy (2008). British Petroleum, London. United Kingdom [2] PODE Oil and Other Statistical Data (2006). Ministry of the People’s Power for Energy and Oil. Caracas, Venezuela [3] PDVSA Gas (2009). WEB Page: www.pdvsa.com/index.php?tpl=interface.sp/design /readmenuprinc.tpl.html&newsidobj_id=394& newsid_temas=95. Consulted in April 2009
[4] Gazette Nº 29594 Law that Reserve to the State the Natural Gas Industry (1971). National Congress of Republic of Venezuela (Official Gazette of the Republic of Venezuela Nº 29594 dated 26 of August, 1971). Caracas, Venezuela [5] PDVSA (1986). 1976 – 1985 / Diez Años de la Industria Petrolera Nacional. Serie Décimo Aniversario. [6] Gazette Nº 36793.Organic Law of Gaseous Hydrocarbons (1999). Presidency of the Bolivarian Republic of Venezuela (Official Gazette of the Bolivarian Republic of Venezuela Nº 36793 dated 2 of Septembert, 1999). Caracas, Venezuela [7] Juris, Andrej (1998), Development of Natural Gas and Pipeline Capacity Markets in the United States [8] Latamgas (2009). “COLOMBIA: Increases gas shipments to Venezuela (300MMpcd) in view of the market crash”. Gas Magazine Latin America, Caracas, Venezuela. [9] Gazette Nº 38386 (2006). Joint Ruling Ministry of Light Industries and Trade N° DM/139 and Ministry of Energy and Oil DM/019, by which the transportation fees for the domestic market from the Hub Centres, as well as the distribution fees of methane gas for the existing industrial and residential networks are established. (Official Gazette of the Bolivarian Republic of Venezuela Nº 38.386 dated 23 of February, 2006). Caracas, Venezuela
