Venezuela’s heavy oil project reserves could be left stranded

TotalEnergies and Equinor recently divested their respective 30.32% and 9.67% interests in Venezuela’s largest project, Petrocedeno, to state-owned Petróleos de Venezuela (PdVSA). According to GlobalData, this means that due to high risks and the unstable deteriorating economy in the country, international players no longer see an upside in Venezuelan projects.

The market analyst also notes that with less investments supplied from the private sector, Venezuela will not be able to sustain its oil and gas industry for long, as its own cash resources are extremely limited.

Svetlana Doh, Upstream Oil & Gas Analyst at GlobalData, comments: ‘Petrocedeno is a critical project in Venezuela’s portfolio and the largest upgrader in the country with a capacity to process over 200,000 b/d of heavy crude oil. In the past few years, Venezuela faced severe fuel shortages, and this year, in a desperate attempt to solve this problem, the Petrocedeno upgrader is planned to be re-designed to produce napthta as a feedstock for refineries. This essentially means that refineries in the country are in such a desperate need for renovation or even simple upkeep, that now upgraders have to perform a refining step for them.’

Most of the refineries built in Venezuela were designed to process medium to light crudes, which are in very low stock in the country and are also used as a diluent to produce exportable grades.

Doh continues: ‘The conversion of the upgraders could be very challenging, as it would require new equipment when cash-strapped PdVSA can barely find the funds to conduct an elementary maintenance of its refineries. The continuous drop of crude oil production in Venezuela, which is a main pillar of the country’s economy, combined with sanctions imposed by the US government, the COVID-19 pandemic, corruption in the government and lack of investment led the country to collapse. Annual oil production in Venezuela declined from an estimated 2.03mn b/d in 2017 to a shockingly low 0.48mn b/d in 2020.’

TotalEnergies and Equinor stated that their decision to divest their interest was to prioritise high-return assets in their portfolios and to pursue their low carbon strategy instead, which is incompatible with heavy crude oil production in Venezuela.

Doh continues: ‘Currently, the primary international partners and investors of PdVSA are Chinese and Russian companies, which have invested the most in the Venezuelan oil and gas sector during recent years.’