Oil: world leader or not, Venezuela has a lot of work ahead
8 February 2011, Oil
In mid-2010, the BP Statistical Review of World Energy stated that Venezuela's proved reserves were 172 billion barrels, well behind Saudi Arabia but ahead of other Gulf heavyweights such as Iran, Iraq, and Kuwait. BP's figure included an estimated 73 billion barrels of heavy and extra-heavy crude oil, but it is widely acknowledged that there are significant extra resources of heavy and extra-heavy crude oil.
A recent assessment by the US Geological Survey (USGS) estimated Venezuela's Orinoco Tar Belt region to contain more than 500 billion barrels of technically recoverable crude oil; however, this has yet to be fully proved. The generally accepted recovery factor for these heavy and extra-heavy resources is about 10%, but the USGS uses a factor of between 15-45%.
Having a significant actual and potential reserves base is one thing, but developing it and finding markets for the oil is something else. The reality is that much of the resources of the Orinoco Tar Belt are assessed at 10 degrees American Petroleum Institute (API) gravity or less, and will require upgrading before they can be sold. Even then, they remain at the heavy end of the range, requiring more sophisticated refineries to process them.
Around 10 years ago, when the average world oil price was about $22 a barrel and the value of these heavy and extra-heavy barrels was about $7 a barrel less, it would have been inconceivable that significant investment would take place. However, over the last decade prices rose steadily, and with $100 a barrel once again in sight, there is no financial hurdle to development.
The key is to attract investment, but Venezuela's recent record in terms of relations with international oil companies is not encouraging. The ability of state-owned Petroleos de Venezuela SA to fund its share of investments is also in doubt due to the competing claims of Venezuela's government, and questions also remain over the ability of state-owned companies from China, Russia, and elsewhere to plug the financial and technical gap.
There is no doubt that oil from more challenging areas such as Venezuela's Tar Belt, Canada's oil sands, and Brazil's ultra deep water fields will become increasingly important as reserves from more accessible areas become depleted. Although Saudi Arabia's resources remain huge and production will remain high for the foreseeable future, the country will no longer hold an unassailable lead.
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