Orimulsion might be resurrected by the new government

I am no expert in Orimulsion but I see that there is a renewed interest in this product. During the last few years I have put together some ideas on this matter obtained from the real experts. I exchanged messages with my close friend Gustavo Inciarte,  who died a few years ago, with Carlos Borregales, former president of BITOR and researched articles by Jaime Requena, petroleum engineers Saul Guerrero, Leslie Jones Parra, Emilio Abreu, Manuel Urbano, Luis Montefusco and Luis Gil, Chemical engineer Manuel Pulido and a press release by Gente del Petroleo. I have read what Bernard Mommer and engineers  Hebe Vissuri and Magdalena Ramirez wrote on Interciencias and some news from www.petroleumworld.com on the legal action of New Brunswick, Canada, against PDVSA.  Based on this material I put this note together: 1.      In 1976 a group of members of PDVSA’s Board met to discuss the issue of the Faja del Orinoco and how to develop these resources of heavy oil, extra heavy oil and bitumen. We came to the conclusion that INTEVEP should dedicate special efforts to find alternatives to market these resources; 2.     The work that led to the commercial marketing of Orimulsion was long and complex, as it is usually the case in research efforts involving multidisciplinary cooperation. At all times PDVSA supported INTEVEP in these efforts. According engineer Hebe Vessuri research started looking for a manner to emulsify the hydrocarbons to allow for its transport. Once these technical problems were surmounted  the marketing teams started to look for clients and several agreements were signed with companies such as British Petroleum and Mitsubishi. A company, BITOR, was created to market the product internationally. 3.     What is Orimulsion? The product is essentially an emulsion of 70% bitumen with 30% water with the addition of a surfactant which permits the mixture to be transported without a separation of its components. The product became protected by patents belonging to INTEVEP. 4.     Premises leading to Orimulsion The first premise was that the significant volumes of the resource should be developed in commercial ways. The amounts of oil and bitumen in situ were estimated at some 1.3 trillion barrels and even assuming a 10% of recovery the volumes exceeded 130 billion barrels. Obviously something had to be done. The second premise was there was no upgrading technology involving catalytic processes then available. Alternatives had to be found. The third premise was that the product would not be able to compete with more conventional hydrocarbons but it could become a competitor of coal, since it had a greater calorific value and was less contaminant. As such, it would target the electrical generation markets in Europe, USA and Asia. The fourth premise, according Carlos Borregales via Internet, was that bitumen could be excluded from the OPEC quota and to obtain import rates that would make it competitive in international markets. This was accomplished through the efforts of the Instituto de Comercio Exterior and the Ministry of Foreign Relations. The fifth premise was to demonstrate that Orimulsion was not a threat to the environment. This was only partly successful since environmentalist organizations in USA and England, supported by the Coal lobby, closed the doors to the product in those countries. The sixth premise was that Orimulsion should be treated in a different fiscal manner by the government. This included a lower royalty and an income  tax rate of 34%. The national congress approved this income tax rate and, temporarily, the lower royalty payments. One of the defenders of this special treatment for Orimulsion was…. Ali Rodriguez! 5.     Economic Aspects of Orimulsion. According to BITOR Orimulsion is profitable. Return on Investment, Internal Recovery Rates and other parameters were positive. It is true, however, that profit per barrel is lower than other alternatives, which would make Orimulsion a lower commercial priority. Although a cheaper product, both in price and in cost, the significant volumes of the hydrocarbons existing in the Orinoco area, made it a feasible candidate for development. There are markets and markets and I always come back to the example of Johnny Walker Black Label and Johnny Walker Red Label. Both are produced and marketed.  6.     The opinion of Jaime Requena In Interciencia, researcher Jaime Requena,  a member of the Venezuelan Academy of Physical, Mathematical and Natural Sciences expressed his opinion that Orimulsion was a way to diversify markets. He said that optimum business strategy calls for a basket of options that would allow for diversification to a wider market. Requena pointed out that a mixture of the extra heavy with 30 degrees API Mesa crude did not seem to be a better alternative. 7.     Then Minister Ali Rodriguez suspended Orimulsion because “it competed with conventional hydrocarbons and  did not give fiscal benefits to the state nor profits to PDVSA”. He ordered to replace Orimulsion with a blend of extra heavy oil and lighter oils. This was a measure adopted on the basis of the recommendations of adviser Bernard Mommer. He claimed Orimulsion did not pay royalties or taxes as the blends would and has become a competitor of residual fuel oil. Mommer claimed that there was no bitumen in the Orinoco region. However, PDVSA engineers who were dismissed by the “new” PDVSA reminded him that hydrocarbons with dynamic viscosities equal or higher than 10000 milipascals at normal temperature and pressure conditions  and free gas should be defined as such. This was further corroborated by the work of Mauricio Tedeschi presented to the XIII World petroleum Congress, Buenos Aires, 1991. Mommer also claimed that INTEVEP had to develop special cleaning techniques for combustion gases derived of the production of Orimulsion. This was not correct, PDVSA engineers countered.  This cleaning is done with the help of a well-known process called Fluid Gas Desulphurization, exiting since the 1970’s. Mommer also claimed that Orimulsion only received $6.60 per barrel in 2002. This was also incorrect, as all contracts signed with Singapore, Italy, Canada, South Korea and Guatemala were for $10 a barrel. Actually, when the supply of Orimulsion was cancelled by Rodriguez, the Canadian client sued PDVSA. Mommer claimed that Orimulsion competed against residual fuel oil. In truth,  Orimulsion only competes with coal and with natural gas. Currently natural gas would be its formidable competitor in USA, due to the low price of this hydrocarbon and its better environmental profile. 8.     In summary:  To have cancelled Orimulsion was not a sound strategy and obeyed mostly to ideological reasons. Orimulsion is not a conventional member of the Venezuelan petroleum basket. As fuel for electrical generation it cannot pay a normal royalty. PDVSA engineers, no longer with the company, have observed that Merey crude oil cannot be produced above OPEC quota, so that there is no possibility of unlimited blending with heavier oils and bitumen, but that Orimulsion practically has no physical limit when viewed against the significant amounts of bitumen present in the Orinoco region. Foreign investors were readily available to develop Orimulsion production units without PDVSA having to invest national money. Orimulsion is a niche, not a competitor for other Venezuelan hydrocarbon products.   9.     What is the real reason for closing the door on Orimulsion? It seems to be political. As the regime has generally  sold the idea that it has the largest proven oil reserves in the world, which is a technically wrong claim, it also needed to say that there is no  bitumen in the Orinoco region, since this bitumen, they say,  is ‘also oil” and, as such, contributes to their claim of having the “largest” proven oil reserves in the world. Orimulsion is a commercial product, not part of a religion.