This is part of a series of re-published articles I wrote in 2005 for the Daily Journal in Caracas
OPEC granted Rafael Ramírez his wish. On Tuesday, member countries backed the Venezuelan energy and petroleum minister’s argument that a quota hike was not the long-term answer to high oil prices by keeping the production quota at 28 million barrels per day (bpd).
Ramírez contended before the meeting that the problem of high oil prices stemmed more from global refining shortages and excessive consumption than from a lack of production.
Cartel members appeared to agree, saying they planned to build over 10 new refineries for a 2.4 million bpd increase in capacity by 2011.
“If we increase some barrels, the fundamental situation will not change,” Ramírez said in Vienna, according to a Petróleos de Venezuela (PDVSA) press release.
OPEC did offer an extra 2 million bpd to the market – which represented all of its spare capacity – in an attempt to quell surging prices after Hurricane Katrina knocked out 800,000 barrels per day (bpd) of refining capacity on the Gulf Coast. But Ramírez suggested that the extra offer may not lower prices, Bloomberg reported.
Ramírez has also insisted that high oil prices are due to excessive consumption, especially in the United States. “We have given enough signals that we are ready to put all the necessary barrels into the market, but the International Energy Agency will have to identify what the problems are in the consuming countries,” Ramírez said in the statement. “They will have to resolve the issue of their production capacity.”
PDVSA’s plans to increase investment from $5 billion to $10 billion per year and official production from 3.3 to 5.8 million bpd by 2012 suggest that Ramírez has actions to support his words.
The company is expected to announce next week the details on a $3 billion refinery it will build with Brazil’s Petrobras in that country’s northeastern state of Pernambuco.
The plant is expected to be equipped with a capacity of 200,000 bpd and the ability to refine heavy crude.
The state-owned giant is one of three companies that has expressed interest in an estimated $850 million project to expand the Cartagena, Colombia refinery from 78,000 to 140,000 bpd by 2010.
PDVSA has also said it will invest $7.5 billion to build three new refineries in the Faja heavy oil belt with a total production capacity of 500,000 bpd.
The company also plans to spend $2.9 billion revamping its El Palito and Puerto La Cruz plants.
Yet critics have cast doubts on the company’s ability to pull off the new projects, with El Nacional’s José Suárez-Núñez saying some doubters even call the three proposed Faja plants “fantasy refineries.”
Investors could frown at the proposed 400,000 bpd Cabruta plant because it would be situated 100 km from the nearest oil field and 250 km from the Cerro Negro heavy oil field, making pipeline construction an expensive proposition.
PDVSA would also need to build three pipelines-one for crude, product and fuel oil-that would traverse half the country to arrive at the Jose or Güiria refineries, El Nacional pointed out.
Critics also point out that Cabruta is an odd choice for a large plant since only 8,000 people currently inhabit the town.
The government plans to solve that problem by moving people to Cabruta to build a new city of 100,000 residents. President Hugo Chávez contended at PDVSA’s presentation of its future business plan last month that the three Faja refineries were an effort at decentralizing a nation that had 90 percent of its population in the North.
The proposed Caripito plant in the Eastern part of the Faja would process crude from Lake Guanoco.
Yet criticism warns that the lake only has reserves of 36 million barrels, which would run out in only two years in the 50,000 refinery.
PDVSA has also said it will invest $16.8 million in natural gas projects to increase its gas production from 6.3 to 11.5 billion cubic feet per day by the year 2012.
Yet PDVSA’s decision to boot Shell out of the long-awaited Mariscal Sucre gas project has led some critics to question the government’s commitment to natural gas production, especially at a time of towering oil prices.
JENS ERIK GOULD
Jens Erik Gould is a political, business and entertainment writer and editor who has reported from a dozen countries for media outlets including The New York Times, National Public Radio and Bloomberg News.